Economics (7th Edition) (What's New in Economics)
7th Edition
ISBN: 9780134738321
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 12, Problem 12.3.5PA
To determine
The profit maximizing level of production.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Suppose that the market for sports watches 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.
PRICE (Dollars per watch)
100
90
80
70
60
50
40
30
20
10
0
0
MC
ATC
AVC
+
+
10 20 30 40 50 60 70 80
QUANTITY (Thousands of watches per day)
90
100
Profit or Loss
?
Questions 1-3 use the following case to determine a way to take a single product, like toilet and bundle it in such a way as to extract all of the profit at the time of the initial sale. You go to CostCo or
Walmart and you see paper towel sold in a bundle and you wonder how the retailer can make any money. You do a little research and you find that the demand for paper towels is depicted by the following
demand curve and marginal cost:
P=$2.20 (1/10)*Q
MR-$2.20 (2/10)*Q
MC 0.20
where P is the price of paper towels, MC is the marginal cost of paper towels, MR is the marginal revenue of paper towels and Q is the quantity of paper towels.
So you decide to try two different pricing strategies: 1) sell one roll at a time and 2) use multipart pricing to sell a bundle.
Given the results for the pricing strategies in problems 1 and 2, what is your pricing decision and why?
Consider the competitive market for sports jackets. The following graph shows the marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves for a typical firm in the industry.
For each price in the following table, use the graph to determine the number of jackets this firm would produce in order to maximize its profit. Assume that when the price is exactly equal to the average variable cost, the firm is indifferent between producing zero jackets and the profit-maximizing quantity. Also, indicate whether the firm will produce, shut down, or be indifferent between the two in the short run. Lastly, determine whether it will make a profit, suffer a loss, or break even at each price.
Chapter 12 Solutions
Economics (7th Edition) (What's New in Economics)
Ch. 12 - Prob. 12.1.1RQCh. 12 - Prob. 12.1.2RQCh. 12 - Prob. 12.1.3RQCh. 12 - Prob. 12.1.4PACh. 12 - Prob. 12.1.5PACh. 12 - Prob. 12.1.6PACh. 12 - Prob. 12.1.7PACh. 12 - Prob. 12.1.8PACh. 12 - Prob. 12.1.9PACh. 12 - Prob. 12.2.1RQ
Ch. 12 - Prob. 12.2.2RQCh. 12 - Prob. 12.2.3RQCh. 12 - Prob. 12.2.4PACh. 12 - Prob. 12.2.5PACh. 12 - Prob. 12.2.6PACh. 12 - Prob. 12.2.7PACh. 12 - Prob. 12.2.8PACh. 12 - Prob. 12.3.1RQCh. 12 - Prob. 12.3.2RQCh. 12 - Prob. 12.3.3PACh. 12 - Prob. 12.3.4PACh. 12 - Prob. 12.3.5PACh. 12 - Prob. 12.3.6PACh. 12 - Prob. 12.3.7PACh. 12 - Prob. 12.3.8PACh. 12 - Prob. 12.4.1RQCh. 12 - Prob. 12.4.2RQCh. 12 - Prob. 12.4.3RQCh. 12 - Prob. 12.4.4PACh. 12 - Prob. 12.4.5PACh. 12 - Prob. 12.4.6PACh. 12 - Prob. 12.4.7PACh. 12 - Prob. 12.4.8PACh. 12 - Prob. 12.4.9PACh. 12 - Prob. 12.4.10PACh. 12 - Prob. 12.5.1RQCh. 12 - Prob. 12.5.2RQCh. 12 - Prob. 12.5.3RQCh. 12 - Prob. 12.5.4PACh. 12 - Prob. 12.5.5PACh. 12 - Prob. 12.5.6PACh. 12 - Prob. 12.5.8PACh. 12 - Prob. 12.5.9PACh. 12 - Prob. 12.5.10PACh. 12 - Prob. 12.5.11PACh. 12 - Prob. 12.5.12PACh. 12 - Prob. 12.6.1RQCh. 12 - Prob. 12.6.2RQCh. 12 - Prob. 12.6.3RQCh. 12 - Prob. 12.6.4PACh. 12 - Prob. 12.6.5PACh. 12 - Prob. 12.6.6PACh. 12 - Prob. 12.6.7PACh. 12 - Prob. 12.6.8PACh. 12 - Prob. 12.6.9PACh. 12 - Prob. 12.6.10PACh. 12 - Prob. 12.1CTECh. 12 - Prob. 12.2CTECh. 12 - Prob. 12.3CTE
Knowledge Booster
Similar questions
- Consider the competitive market for sports jackets. The following graph shows the marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves for a typical firm in the industry. For each price in the following table, use the graph to determine the number of jackets this firm would produce in order to maximize its profit. Assume that when the price is exactly equal to the average variable cost, the firm is indifferent between producing zero jackets and the profit-maximizing quantity. Also, indicate whether the firm will produce, shut down, or be indifferent between the two in the short run. Lastly, determine whether it will make a profit, suffer a loss, or break even at each price. Price Quantity Produce or Shut Down? Profit or Loss? (Dollars per jacket) (Jackets) 4 8 12 36 48 60 On the following graph, use the orange points (square…arrow_forwardA competitive firm's supply curve is identical to its marginal cost curve. True or false? Briefly explain.arrow_forwardSuppose that the market for cashmere sweaters 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 Profit or Loss 80 70 60 40 ATC 30 20 MC AVC 10 10 20 30 40 50 60 70 80 90 100 QUANTITY (Thousands of sweaters per day) In the short run, at a market price of $45 per sweater, this firm will choose to produce 45,000 sweaters per day. On the preceding graph, use the blue rectangle (circle symbols) to shade the area representing the firm's profit or loss if the market price is $45 and the firm chooses to produce the quantity you already selected. Note: In the following question, enter a positive number, even if it represents a loss. The area of this rectangle indicates that the firm's would be thousand per day in the short run. PRICE (Dollars per sweater)arrow_forward
- Tom, a math major, examines Jane's economics class notes and observes that when price-taking firms earn economic profit, they do not seem to produce a quantity that minimizes theircosts. Is he correct?Is there significance to this observation?arrow_forwardSuppose that the market for candles 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. PRICE (Dollars per candle) 8 2 2 3 2 8 36 32 28 24 20 4 0 0 MC 2 ATC AVC 6 4 8 10 12 14 16 QUANTITY (Thousands of candles per day) 18 20 Profit or Loss In the short run, at a market price of $20 per candle, this firm will choose to produce On the preceding graph, use the blue rectangle (circle symbols) to shade the area representing the firm's profit or loss if the market price is $20 and the firm chooses to produce the quantity you already selected. OL candles per day. a n Warrow_forwardQuestions 1-3 use the following case to determine a way to take a single product, like toilet and bundle it in such a way as to extract all of the profit at the time of the initial sale. You go to CostCo or Walmart and you see paper towel sold in a bundle and you wonder how the retailer can make any money. You do a little research and you find that the demand for paper towels is depicted by the following demand curve and marginal cost: P-$2.20 (1/10)*Q MR-$2.20 (2/10) Q МС 0.20 where P is the price of paper towels, MC is the marginal cost of paper towels, MR is the marginal revenue of paper towels and Q is the quantity of paper towels. So you decide to try two different pricing strategies: 1) sell one roll at a time and 2) use multi-part pricing to sell a bundle. For pricing strategy two, you determine that the quantity, price and profit are: Q 20, P $24.0, Profit $20 Q 10, P 1.20, Profit 10 Q 20, P $0.20, Profit 0 = Q 10, P $4.0, Profit $38 a. Q 10, P $4.0, Profit = $38 b. Q 10, P…arrow_forward
- Suppose that the market for cashmere sweaters 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. In the short run, at a market price of $45 per sweater, this firm will choose to produce sweaters per day. On the preceding graph, use the blue rectangle (circle symbols) to shade the area representing the firm’s profit or loss if the market price is $45 and the firm chooses to produce the quantity you already selected. Note: In the following question, enter a positive number, even if it represents a loss. The area of this rectangle indicates that the firm’s would be thousand per day in the short run.arrow_forwardThe blue curve on the following graph represents the demand curve facing a firm that can set its own prices. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. 200 180 160 140 120 100 80 60 40 PRICE (Dollars per unit) + Demand 20 0 01 2 3 4 5 6 7 8 9 10 QUANTITY (Units) Graph Input Tool Market for Goods Quantity Demanded (Units). Demand Price (Dollars per unit). 5 100.00 ?arrow_forwardHomework (Ch 14) 6. Deriving the short-run supply curve Consider the competitive market for dress shirts. The following graph shows the marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves for a typical firm in the industry. 100 90 80 70 60 АТС 50 40 30 20 AVC MC O 10 25 30 35 40 45 50 5 10 15 20 QUANTITY (Thousands of shirts) COSTS (Dollars)arrow_forward
- Consider the competitive market for dress shirts. The following graph shows the marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves for a typical firm in the industry. COSTS (Dollars) 100 90 80 70 60 30 20 10 0 0 ☐ 3 MC 6 15, 20 ATC AVC 0 9 12 15 18 21 QUANTITY (Thousands of shirts) 24 27 1 30 (?)arrow_forwardSuppose that the market for microwave ovens 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.arrow_forwardUse the following graph to answer the questions below. Please enter your answers as whole numbers with no decimal places (ie. 500 or $500 not 500.00 or "Five hundred dollars"). 40 MC ATC 35 30 P, AVC 25 20 16 15 P2 12 10 P. 5. 10 20 45 50 60 70 80 90 100 110 What is the firm's profit if the price is P1? What is the firm's profit if the price is P2? How many units will the firm produce if the price falls to P3? Note: For this question I am asking for the quantity the firm will produce to maximize profit not the amount of profit the firm will earn. earch N 30arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
