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 12, Problem 2DQ
To determine
The impact of investing in a competitive firm.
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Based on the given graph:a. If this firm profit-maximizes, how much output will it produce and what price will it charge?
b. When this firm profit maximizes, what (compute) is the firm’s profit or loss? Is this firm in a short run or long run equilibrium? Why?
c. Does the firm minimize cost? Why or why not? How much excess capacity does this firm have?
Economists assume that by pursuing a strategy of cost minimization of production, most firms try to achieve profit maximization. Can you discuss the concept of an expansion path? If you can use a graph that would help me understand thank you
Explain why the firm will still operate in the market if the economic profits are equal to zero. Use the graph to support your answer.
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- In long-run equilibrium, all firms in the industry earn zero economic profit. Why is this true?arrow_forwardWhy do economists believe that economic profit is the more accurate measure of a business success? Why is economic profit the superior method of determining a business success?arrow_forwardYou witnessed new firms entering a competitive market. What can you infer for the existing firms in that market?arrow_forward
- The number of firms in an industry is not always a good indicator of the extent to which that industry is competitive.” Do you agree with this statement?arrow_forwardNews reports from the western United States occasionally report incidents of cattle ranchers slaughtering many newborn calves and burying them in mass graves rather than transporting them to markets. Assuming that this is rational behavior by profit-maximizing "firms," explain what economic factors may influence such behavior. Justify your answer.arrow_forwardWhat two lines determine whether a firm is making positive or negative or zero profits?arrow_forward
- I was wondering what the answer to this problem in Krugman´s microeconomics book is: A benefit maximizer company has an economic loss of 10.000$ per year. Its fixed cost is 15.000$ per year. In the short term, should they keep producing or should the close the business? In the long run, should they stay in business? And if the company had a fixed cost of 6.000$ per year, should they stay in business in the long and short run? Thank you!arrow_forwardBall Bearings, Inc., faces costs of production as follows: Total Fixed Costs Total Variable Costs Quantity (Dollars) (Dollars) 100 1 100 50 100 70 3 100 90 4 100 140 100 200 6. 100 360 Complete the following table by calculating the company's total cost, marginal cost, average fixed cost, average variable cost, and average total cost at each level of production. Total Cost Marginal Cost Average Fixed Cost Average Variable Cost Average Total Cost Quantity (Dollars) (Dollars) (Dollars) (Dollars) (Dollars) 1 2 3 4arrow_forwardWe expect that firms in perfectly competitive markets can earn higher economic profits in the short run but will only earn normal profit in the long run. Why do we expect perfectly competitive firms to be unable to earn high economic profit in the long run? The inability of perfectly competitive firms to earn high economic profit in the long run is dependent on there being low barriers to entry in perfectly competitive markets. Explain why this is the case. Why do firms remain in business if they cannot earn economic profit?arrow_forward
- 2, The condition for profit maximization in the short run is to equate short-run marginal cost with short-run marginal revenue (assuming something is produced) How does this lead the firm to produce a given level of output? Briefly for managerial economics classarrow_forward1. Suppose you are the owner of a burger restaurant that has a cost of production given by C = 400 + 0.02q^2 where q is the number of burgers produced per day. Assume that the market for burgers is perfectly competitive. a. If the market price for a burger is $10, how many burgers should the manager plan to produce in a day? b. What is the profit level? Is this the maximum profit that the restaurant can make per day? c. What output will the firm produce if the price of a burger goes down to $8?arrow_forwardAccording to the accompanying table, what quantity of output should the firm produce? Explain your answer.arrow_forward
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