Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Chapter 10, Problem 1TY
To determine
The shape of the
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At what output rate does the firm maximize profit or minimize loss?
Does a competitive firm’s price equal its marginalcost in the short run, in the long run, or both?Explain.
The following graph plots daily cost curves for a firm operating in the competitive market for jumpsuits.
Hint: Once you have positioned the rectangle on the graph, select a point to observe its coordinates.
PRICE (Dollars per jumpsult)
50
45
40
35
30
25
20
15
10
5
10
W
0
Y
ATC
AVC
2
MC
4
8
QUANTITY (Thousands of jumpsuits per day)
6
10
+
14 16 18
12
20
Profit or Loss
In the short run, given a market price equal to $15 per jumpsuit, the firm should produce a daily quantity of
of
On the preceding graph, use the blue rectangle (circle symbols) to fill in the area that represents profit or loss of the firm given the market price of
$15 and the quantity of production from your previous answer.
Note: In the following question, enter a positive number regardless of whether the firm earns a profit or incurs a loss.
The rectangular area represents a rt-run
thousand per day for the firm.
jumpsuits.
Chapter 10 Solutions
Economics: Principles & Policy
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Similar questions
- What is the short run Supply Curve for a competitive firm?arrow_forward4. Profit maximization in the cost-curve diagram Suppose that the market for blenders is a competitive market. The following graph shows the daily cost curves of a firm operating in this market. Hint: After placing the rectangle on the graph, you can select an endpoint to see the coordinates of that point. 100 90 80 Profit or Loss 70 АТС 30 AVC 20 MC 10 10 15 20 25 30 35 40 45 50 QUANTITY (Thousands of blenders per day) blenders per day. In the short run, at a market price of $50 per blender, this firm will choose to produce PRICE (Dollars per blender)arrow_forwardPRICE (Dollars per tracker) 30 80 70 60 ATC 20 AVC MC 10 0 0 10 20 30 40 50 60 70 80 90 100 QUANTITY (Thousands of trackers per day) In the short run, given a market price equal to $45 per tracker, the firm should produce a daily quantity of trackers. On the preceding graph, use the blue rectangle (circle symbols) to fill in the area that represents profit or loss of the firm given the market price of $45 and the quantity of production from your previous answer. Note: In the following question, enter a positive number regardless of whether the firm earns a profit or incurs a loss. The rectangular area represents a short-run of $ thousand per day for the firm.arrow_forward
- Using the figure above, what is profit/loss for the firm?arrow_forward5. Profit maximization and shutting down in the short run Suppose that the market for frying pans is a competitive market. The following graph shows the daily cost curves of a firm operating in this market. 100 90 80 70 ATC 60 40 30 20 AVC 10 MC 10 15 20 25 30 35 40 45 50 QUANTITY (Thousands of pans) PRICE (Dollars per pan)arrow_forwardExplain the concept of Isoquant and Isocost line in firm theory. Mathematically derive the slope of isocost line and Isoquant and interpret.arrow_forward
- 100 90 90 00 80 COSTS (Dollars) 70 70 00 60 50 40 30 20 10 ATC AVC MC 0 0 5 10 15 20 25 30 QUANTITY (Thousands of snapbacks) 35 35 40 45 50 For every price level given in the following table, use the graph to determine the profit-maximizing quantity of snapbacks for the firm. Further, select whether the firm will choose to produce, shut down, or be indifferent between the two in the short run. (Assume that when price exactly equals average variable cost, the firm is indifferent between producing zero snapbacks and the profit-maximizing quantity of snapbacks.) Lastly, determine whether the firm will earn a profit, incur a loss, or break even at each price. Price (Dollars per snapback) 10 20 32 40 50 60 Quantity (Snapbacks) Produce or Shut Down? Profit or Loss?arrow_forwarda) Write the expressions for the MC, AVC and ATC at Smell the Roses. In a diagram, draw the MC, AVC and ATC curves you found. (Keep in mind that the MC and AVC curves in this example are straight lines.) The market for cut flowers is perfectly competitive. On weekdays, the florist can sell bouquets at a unit price of $40. b) Should the florist stay open on weekdays? If so, how many bouquets should it sell to maximize profit? Would the florist be profitable on weekdays? On weekends, the market price of a bouquet drops to $20. c) Should a typical florist stay open for business? If, so how many bouquets should it sell to maximize profit? Would the florist be profitable on weekends?arrow_forwardQuestion 1 Upload your image here Upload Choose a Fs Question 2 Provide an Isocost and Isoquant Diagram showing the Substitution Effect and Output Effect when a competitive firm with p = 30, w = 0.5 and r= 0.5 and production function q = min( K/2, L1/2) experiences an input price increase to w = 2. The Output Effect (B to C) will cause this firm to reduce output by Aq = units. %3!arrow_forward
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