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 4TY
To determine
The responses of a
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Can a perfectly competitive firm set its own market price?
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Tomato Farms is selling tomatoes in a purely competitive market. Its output is 25,000 bushels, which sell for $30 a bushel. At this level of output, the marginal cost is $30 a bushel, average variable cost is $30.50 a bushel, and average total cost is $34.50 a bushel.
(a) What is the firm’s total fixed cost? You must show your work.
Chapter 10 Solutions
Economics: Principles & Policy
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- Suppose Andy sells basketballs in the perfectly competitive basketball market. His output per day and costs are as follows: Output per Day (Q) 0 1 2 3 5 6 7 8 9 Total Cost (TC) $10.00 $20.50 $24.50 $28.50 $34.00 $43.00 $55.50 $72.00 $93.00 $119.00 1) Make a table with Quantity (Q), Total Cost (TC), Fixed Cost (FC). Variable Cost (VC), Average Total Cost (ATC), Average Variable Cost (AVC), Marginal Cost (MC), and Marginal Revenue (MR) on it (using the Long-Run Equilibrium Price). 2) To maximize profits, how many basketballs will Andy produce? Identity the profit maximizing Quantity (Q*). Price (P*), and Profit (¹).arrow_forwardTomato Farms is selling tomatoes in a purely competitive market. Its output is 25,000 bushels, which sell for $30 a bushel. At this level of output, the marginal cost is $30 a bushel, average variable cost is $30.50 a bushel, and average total cost is $34.50 a bushel. Should the firm increase output, decrease output, or not produce? Explain.arrow_forwardDraw the cost curves for a typical firm. Explain how a competitive firm chooses the level of output that maximizes profit. At that level of output, show on your graph the firm's total revenue and total costs.arrow_forward
- Mink farming is a perfectly competitive industry and all mink farms have the same cost curves. When the market price is $38 a mink, farms maximize profit by producing 400 mink a week. At this output, average total cost is $36 and average variable cost is $22 a mink. Minimum average variable cost is $17 a mink. If the price of a mink falls to $17, the mink farmer will A.produce the profit-maximizing output B. shut down C.continue to produce 400 mink a week D.attempt to raise the price back to $38 a mink E.either shut down or produce the profit-maximizing outputarrow_forwardDraw the cost curves for a typical firm. Explain how a competitive firm chooses the level of output that maximizes profit. At that level of output, show on your graph the firm’s total revenue and total cost.arrow_forwardIn a perfectly competitive market, each firm has the cost function: q 2+10q+100. The price in the market is $50. a. What is the Marginal Cost for the firm? b. What is the Profit Maximizing Output? c. What is the Total Profit the firm receives? d. Should this firm continue to produce in the short run? Please explain. e. If the price is $20, should the firm continue to produce? Please explain.arrow_forward
- Does a competitive firm’s price equal its marginal cost in the short run?arrow_forwardA profit-maximizing firm is producing where MR = MC and has an average total cost of $4, but it gets a price of $3 for each good it sells.a. What would you advise the firm to do? The firm should shut down in the short run and exit the market in the long run. The firm is producing where MR = MC, so it should produce in both the short run and long run. As long as average variable costs are less than $3, in the short run, the firm should produce. In the long run, it should exit the market. The firm should shut down in the short run. Once the firm recoups its fixed costs, it should produce in the long run. b. What would you advise the firm to do if you knew average variable costs were $3.50? The firm should exit the market in the long run, but it should produce in the short run since it is covering average fixed costs. The firm should shut down in the short run. Once the firm recoups its fixed costs, it should reopen in the long run. The firm…arrow_forwardThe graph below shows cost curves for a perfectly competitive firm. Price/Cost $50 $40 $30 $20 $10 0 10 20 30 Quantity MC 40 ATC AVC 50 At a price of $10, how many units will this firm produce if its goal is to maximize profit?arrow_forward
- Why is a firm in a perfectly competitive market called a price taker?How does a firm in perfect competition decide its profit maximizingprice and quantity? Explainarrow_forwardWhich of the following will cause the purely competitive firm to stop operations? A. the price can no longer cover the variable cost B. the price can cover the variable cost and half of the fixed cost C. the price can cover both the variable and the fixed costs but there is no economic profit D. the firm is realizing economic profit E. no correct answerarrow_forwardThe following graph summarizes the demand and costs for a firm that operates in a perfectly competitive market. a. What level of output should this firm produce in the short run? b. What price should this firm charge in the short run? c. What is the firm’s total cost at this level of output? d. What is the firm’s total variable cost at this level of output? e. What is the firm’s fixed cost at this level of output? f. What is the firm’s profit if it produces this level of output? g. What is the firm’s profit if it shuts down? h. In the long run, should this firm continue to operate or shut DOWNarrow_forward
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