ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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- Suppose a
perfect competitive firm’s total cost curve and marginal cost curve are
TC= Q2+ 4Q+100
Also suppose that the
A. Find equations for the firm’s fixed cost (FC), variable cost (VC),
B. Find the output level that minimizes average total cost (ATC).
C. Calculate the price below which a firm in the market will not produce any output (the shutdown price).
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- If a perfectly competitive firm's average total cost is less than the price, then the firm A) incurs an economic loss. B) makes an economic profit. C) makes zero economic profit. D) makes either zero economic profit or an economic profit depending on whether the marginal revenue is equal to or greater than the price. E) None of these answers is correct because the relationship between the price and average total cost has nothing to do with the firm's profit.arrow_forwarda) Describe the factors that drive profits to zero in perfectly competitive markets in the long run. Explain carefully the incentives that drive the market to a long run equilibrium. b) Why would a firm choose to operate at a loss in the short run? Explain carefully. c) When do firms decide to shut down production in the short run? Explain carefully.arrow_forwardProfit maximization using total cost and total revenue curves Suppose Caroline runs a small business that manufactures shirts. Assume that the market for shirts is a competitive market, and the market price is $20 per shirt. The following graph shows Caroline's total cost curve. Use the blue points (circle symbol) to plot total revenue and the green points (triangle symbol) to plot profit for shirts quantities zero through seven (inclusive) that Caroline produces. Caroline's profit is maximized when she produces______ shirts. When she does this, the marginal cost of the last shirt she produces is ______, which is (GREATER OR LESS) than the price Caroline receives for each shirt she sells. The marginal cost of producing an additional shirt (that is, one more shirt than would maximize her profit) is _____, which is (GREATER OR LESS) than the price Caroline receives for each shirt she sells. Therefore, Caroline's profit-maximizing quantity corresponds to the…arrow_forward
- A firm is selling apples is profit-maximizing, but they're in a constant cost industry. The industry is perfectly competitive and currently in long-run equilibrium. Assume apples are a normal good and consumer income falls, and the firm continues to produce. 1. Illustrate the decrease in income in the short run with a cost curves graph. Make sure to highlight the area of loss.arrow_forwardA profit-maximizing firm decides to shut-down production in the short-run. Its total fixed cost of production is $100, i.e. TFC = $100. Which of the following statements is true? a If the firm produced, the firm's revenues would have been lower than $100. bIf the firm produced, the firm's total variable cost must be lower than $100. cIf the firm produced, the firm's losses would have been higher than $100. dIf the firm produced, the firm's total variable cost would have been higher than $100.arrow_forwardA profit-maximizing firm in a competitive market is currently producing 500 units of output. It has average revenue of $10, average total cost of $8, and fixed costs of $200. a. What is its profit? b. What is its marginal cost? c. What is its average variable cost? d. Is the efficient scale of the firm more than, less than, or exactly 100 units?arrow_forward
- Illustrate to the right, a graph showing a company being profitable in a competitive market in the Long Run selling its product at Market Price (MP*) based on its Average Variable Cost (AVC) and Average Total Cost (ATC) and Marginal Cost (MC). Identify each key point on the graph. Observe the Short - Run Loss information illustrated in the graph to the right. With respect to Price (P*"), Average Variable Cost (AVC), Average Total Cost (ATC), Marginal Revenue (MR), and Marginal Cost (MC), what assumption would you make if the firm was selling its product at P What would happen if this were to continue in the long run? Is there a Shut Down point? ** ? Notice that MR = Parrow_forwardConsider the perfectly competitive market for sports jackets. The following graph shows the marginal cost ( MCMC ), average total cost ( ATCATC ), and average variable cost ( AVCAVC ) curves for a typical firm in the industry.arrow_forwardIf the market price of a product is $10 that lie between the minimum average variable cost $8 (AVC) and minimum average total cost $15 (ATC) of a firm, that firm will:___________ a) always shut down. b) always continue to produce.c) produce in the short run but shut down in the long run. d) produce in the long run but shut down in the short run. e) make positive economic profits.arrow_forward
- Suppose that firm is in a breaking even status in a perfectly competitive market. Using graphs (for both industry and firm) to explain how a decline in demand in the short run affects some firms’ performance (e.g., earn profits or experience loss). In the long run, how this results in exit of some firms from the same perfectly competitive market. Comment on the market equilibrium quantity and price in the long run?arrow_forwardGive an explanation to the answer and ensure all the steps are shown.arrow_forwardSuppose the cost of renting a snowy bus were to fall from $30 per hour to $20 per hour. What do you expect would happen in the short-run (stage 1 equilibrium) to (a) the number of cones produced by each snowy bus; (b) total production of cones in the market, and (c) economic profits of snowy bus businesses? Briefly explain (you don't need to do any calculations, just explain inwords).arrow_forward
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