
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
expand_more
expand_more
format_list_bulleted
Question
Demonstrate how the allocation of resources across industries affects economic
Attached are the slides of the lecture.

Transcribed Image Text:Responses to Profits and Losses
Responses to Profits and Losses
Responses to Economic Profits
Markets with excess profits attract resources
If a firm is covering its variable cost, it can stay
in the market in the SR
If a firm would like to stay in the market in the
LR, it must cover all costs: explicit and implicit
Markets in which firms are earning an economic
profit tend to attract additional resources
> More firms want to enter the market
> Market supply is expected to increase
Com Indasty
Typical Com Farm
Price,
Sbu
Price
Sbu
MC
ATC
Economic
Profit:
S104,000
costs
A firm that earns no more than a normal profit
(zero profits) has managed only to cover the
opportunity cost of the resources
> A firm that makes a positive economic profit earns
more than the opportunity cost of the invested
Markets in which firms are experiencing
economic losses tend to lose resources
1.20
D
> Firms want to leave the market
> Market supply is expected to decrease
130
Quantity (000s of bushels'year)
65
resources
Quantity (M of bushels year)
Shrinking Economic Profits
Market Equilibrium
Responses to Profits
Supply increases
IZero economic profits
I The initial equilibrium price was above the
minimum value of ATC, giving rise to positive
economic profits
> Incentive for other firms to enter the market
> Supply increases
> Equilibrium price decreases until the incentive to
enter the market disappears
Com Industry
Typical Com Farm
Com Industry
Ispical Com Farm
Price
Price
Sbu
Price
Price
Sbu
Sbu
MC
ATC
Sbu
MC
ATC
Economic
Profit
$50,400
1.50
1.50
1.08
D
•P= minimum ATC
65
115
Quantity (M of bushels year)
90 130
Quantity (000s of bushels year)
> What if the price went below the minimum ATC?
120 130
65 95
Quantity (M of bushels'year)
Quantity (000s of bushels 'year)

Transcribed Image Text:Economic Losses
Market Equilibrium
Resources leave
INo economic losses
Com Industry
Typical Com Farm
Price
Price
Price
Рrice
Sbu
Sbu
Sbu
S'bu
MC
MC
ATC
ATC
Economic
Loss:
$21,000
1.05
0.75
0.75
0.75
70 90
Quantity (000s of bushels'year)
40 60
60
70 90
Quantity (M of bushels'year)
Quantity (M of bushels'year)
Quantity (000s of bushels'year)
Responses to Losses
Responses to Profits and Losses
IAssumptions
> Firms are free to enter and leave the market
> Inputs can be purchased in any quantities at fixed
prices
> All firms employ similar standardized production
methods
ICondition: P<minimum ATC
> TR = 0.75 x 70 = $52,500
> TC = 1.05 x 70 = $73,500
• Total losses = $21,000
• Incentive for some firms to leave the market
• Supply decreases
• Price increase until incentive to leave the market
disappears
Final outcome: zero economic profit
> Do firms want zero economic profit?
• The zero economic profit is a consequence of price
movements following entry and exit of firms
Expert Solution

This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by stepSolved in 2 steps with 2 images

Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Similar questions
- Grammar :Re-write the following paragraph after changing Active into Passive Voice. 10 The Govt. has closed the educational institutes again due to the third wave of Covid-19. Many parents did not like this decision. They consider this closure as a waste of educational year. They are not realizing that the lives of their kids are far more important than their education. On the other hand, University students have started taking online classes as joke. They disappear after joining the link and blame online education later. They do not realize that in such unusual situation, online education is the best possible solution. They should value their time. They can get a better outcome from this online education if they give their 100 percent. Best outcomes are possible after best inputs only.arrow_forwardI am doing a review section for my upcoming course and I am having a hard time with the concepts of this questionarrow_forwardThe table below shows average cost data for three different-sized plants—1, 2, and 3—which are the only three sizes possible. Output 100 Plant 1 $18 15 Plant 2 $14 11 200 300 11 7 400 10 500 14 8 9 Plant 3 $10 11 9 10 11 a. In what plant size is MES achieved? (Click to select) b. What is the economic capacity for plant 2? Economic capacity: c. What is the right-size plant to produce an output of 300? ✓ (Click to select) Plant 1 Plant 3 Plant 2arrow_forward
- On the graph input tool, change the number found in the Quantity Demanded field to determine the prices that correspond to the production of 0, 6, 12, 15, 18, 24, and 30 units of output. Calculate the total revenue for each of these production levels. Then, on the following graph, use the green points (triangle symbol) to plot the results. Calculate the total revenue if the firm produces 6 versus 5 units. Then, calculate the marginal revenue of the sixth unit produced. The marginal revenue of the sixth unit produced is________. Calculate the total revenue if the firm produces 12 versus 11 units. Then, calculate the marginal revenue of the 12th unit produced. The marginal revenue of the 12th unit produced is_________.arrow_forwardIf a Prof leaves their $100,000 per year job to start a business that earns annual revenue $400,000, and has annual labour and rental costs of $200,000, the economic profit of the business is $200,000. True or false and explain why. Use graphs if needed.arrow_forwardSee image for question with sub-parts.arrow_forward
- Refer to the following table. What is the total cost of producing five (5) units of the good? Output 1 2 3 4 5 Total Fixed Total Variable Total Average Fixed Cost Cost Cost Cost 6 $950 $1,050 $1,000 $1,025 $825 $425 ??? $250 Marginal Cost $25arrow_forwardJust a student stuck on this Economic question for awhile. Question in image. I appreciate you helping me learn :)arrow_forwardRespond to the question with a concise and accurate answer, along with a clear explanation and step-by-step solution, or risk receiving a downvote.arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
- Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSONEngineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
- Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage LearningManagerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage LearningManagerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education


Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON

Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON

Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning

Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning

Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education