Microeconomics
21st Edition
ISBN: 9781259915727
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 11, Problem 5RQ
To determine
The mismatch between the marginal revenue and the marginal cost in the long run.
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The table below describes a firm that sells output in a perfectly competitive market.
Note the second column describes total costs.
O $8
O $12
O $6
Output
O $4
0
1
2
3
4
5
Which of the following market prices would cause the firm's profit-maximizing
output level to be equal to 5?
6
Total Cost (in
dollars)
$3
$9
$14
$18
$23
$30
$40
4
Consider the competitive market for rhodium. Assume that no matter how many firms operate in the industry, every firm is identical and faces the
same marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves plotted in the following graph.
COSTS (Dollars per pound)
80
72
64
56
co
o
32
+
16
8
0
0
4
MC
0
ATC
AVC
8 12 16 20 24 28
QUANTITY (Thousands of pounds)
32
38, 72
36
40
Ⓒ
Suppose that the monthly market demand schedule for Frisbees is:
Price
$8
$7
$6
$5
$4
$3
$2
$1
Quantity Demanded
100
200
400
800
1,600
3,200
6,000
15,000
Suppose further that the marginal and average costs of Frisbee production for every competitive firm are
Rate of Output
10
20
30
40
50
60
Marginal Cost
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
Average Cost
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
Finally, assume that the equilibrium market price is $5 per Frisbee.
(a) How many Frisbees are being sold in equilibrium?
(b) How many (identical) firms are initially producing Frisbees?
(c) How much profit is the typical firm making?
(d) In view of the profits being made, more firms will want to get into Frisbee production. In the long run, these new firms will shift the market supply curve to the right and push the price down to average total cost, thereby…
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