M1 6) The real profit rate and the long run equilibrium number of firms (from lecture and ppt slides)Suppose firms currently in business have alternative "outside option" investments (e.g. abusiness in another country, or earning interest on government bonds) that would earn theowners of a real profit rate of PR if they were to shut down their current business.a) Under what condition concerning the real profit rate will a firm remain in business? Underwhat condition concerning the real profit rate will a firm go out of business?b) Under what condition concerning the real profit rate will the number of firms in the economyincrease?c) Given your answers to a) and b) complete the following sentences:IF PR> PR* and entry of new firms is possible, THENIF PR < PR* THENIF PR= PR* THENd) Given your answers to part c) above, redraw the real profit rate curve above with thealternative outside option real profit rate PR'. Indicate the long run equilibrium number of firmsand how the economy adjusts to the long run equilibrium.1.n iha

Profit is the positive financial gain from the business that the business makes after all the…

Answered: 6) The real profit rate and the long…

Principles of Economics (MindTap Course List)

8th Edition

ISBN:9781305585126

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter14: Firms In Competitive Markets

Section: Chapter Questions

Problem 4PA

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Do entry and exit occur in the short run, the long run, both, or neither?
Why will firms in most markets be located at or close to the bottom of the long-run avenge cost me?
8. siuppose that the manager of a firm operating in a competitive market has estimated the firm's average variable cost function to be: AVC= 18-0.3Q Total fixed cost is $60 and the forecasted price of the firm's product is $12. 79 a. What is the corresponding marginal cost function? b. At what output is AVC at its minimum? C. How much outputs should the firm produce? d. How much profit or loss will the firm earn?,
(MANAGERIAL ECONOMICS) Show algebraic solution please Assume that B = -Q 2 + 4,500Q and C= 2Q 2 are the benefits and costs of increasing the units of X-brand energy drink (in a 500 ml bottle).A. What is the profit function of X-brand energy drink production? B. What is the profit-maximizing value of Q? Solve the problem using a tabular solution, showing the Profit, MB, MC and MNB values; assume Q varies by 50 units (in 500 ml bottle). Highlight the profit maximizing level.
19.What is meant by zero economic profit? If a firm earns zero economic profit in long run does it violate the profit maximizing behaviour of a firm in long run as if there is no profit then there is no point of production?
8. Questions and Problems 16 People often argue that large firms in an industry have cost advantages over small firms in the same industry. For example, they might assert that a big oil company must have a cost advantage over a small oil company. For this to be true, what condition must exist? O There are no economies of scale. There is no necessary condition for large firms to have a cost advantage over small firms. There are economies of scale, and the small firm is operating at an output level at which economies of scale exist. O There are economies of scale, and the large firm is operating at an output level at which economies of scale exist.
(1) Use the graph to answer the question below. The quantity is measured in thousands of units. What will this firm decide to do in the long run? A-It will stay in the market because the price is above its AVC at its profit-maximizing output. B-It will leave the market because the price is below its ATC at its profit-maximizing output. C-It will increase its price to point B to earn normal profit. D-It will increase its output until its profit-maximizing output level is equal to B. E-Insufficient data to determine. (2) A dairy farmer is operating in a perfectly competitive market. The market price for milk is between the farmer's average variable cost and average total cost at the profit-maximizing level of output. What will the farmer do? A-Produce more milk. B-Produce less milk. C-Shut down in the short run. D-Operate in the short run and leave the industry in the long run. E-Insufficient information to determine (3) A firm operating in a perfectly competitive market cannot…
10. Suppose a firm must pay an annual tax, which is a fixed sum, independent of whether itproduces any output.a. How does this tax affect the firm’s fixed, marginal, and average costs?b. Now suppose the firm is charged a tax that is proportional to the number of items itproduces. Again, how does this tax affect the firm’s fixed, marginal, and average costs?
11. What must an entrepreneur do to earn a profit? How do the actions of firms earning profits influence the value of resources? What happens to the value of resources when losses are present? If a firm making losses goes out of business, is this bad? Why or why not?
. 1. What area represents the firm's profit? 2.At which output level are economies of scale exhausted? 3.Does this graph most likely represent the long run or the short run? Why?
3. If a firm had decreasing returns to scale at all levels of output and it divided up into two equal-size smaller firms, what would happen to its overall profits?
5. Profit maximization and shutting down in the short run Suppose that the market for wind chimes is a competitive market. The following graph shows the daily cost curves of a firm operating in this market. IMG 1 For each price in the following table, calculate the firm's optimal quantity of units to produce, and determine the profit or loss if it produces at that quantity, using the data from the graph to identify its total variable cost. Assume that if the firm is indifferent between producing and shutting down, it will produce. (Hint: You can select the purple points [diamond symbols] on the graph to see precise information on average variable cost.) *Points on the purple line are (1, 14) (4, 10.5) (6, 10) (8, 10.5) (12, 16) (15, 24) (18, 34) IMG 2 If the firm shuts down, it must incur its fixed costs (FC) in the short run. In this case, the firm's fixed cost is $44,000 per day. In other words, if it shuts down, the firm would suffer losses of $44,000 per day until…

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