Economics:
10th Edition
ISBN: 9781285859460
Author: BOYES, William
Publisher: Cengage Learning
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Chapter 24, Problem 2E
To determine
(a)
To identify:
The labelling of
To determine
(b)
To identify:
The profits that can be earned if price is at P1.
To determine
(c)
To identify:
The shut down and break-even prices based on the given diagrams.
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Label the curves in the following graph
A. At each market price p1, p2, p3 at what output level would the firm produce?
B. What profit would be earned if the market price was p1?
C. What are the shutdown and break prices?
ion 5 of 20
The accompanying graph depicts the Marginal Cost (MC),
Average Cost (AC), Marginal Revenue (MR), and Demand
(D) curves for a competitive firm.
20
MC
a. Move point E to the profit maximiznig price and quantity
on the graph.
18
AC
16
b. What price should this firm charge to maximize profit?
14
12
D= MR
10
Profit-maximizing price: $
6
4
c. How many units should this firm produce to maximize
2
profit?
2
4
6
8
10
12
14
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20
Quantity
Profit-maximizing output:
units
Price, MR, MC ($)
The 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 DOWN
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Similar questions
- Use a graph to demonstrate the scenario where a competitive firm would be earning positive profit in the short run. Can this scenario be maintained in the long run? Why? What are the ‘shutdown point’ and ‘break even point’ of a competitive firm . Explain with diagram. A competitive market starts in a situation of long run equilibrium. Then there is an increase in demand. Explain what happens in the short run and long run, using necessary diagrams.arrow_forwardAs fast as you can please! Adrian decides to open a new ready-to-wear skirts brand. While making his study, he noticed that his fixed cost of production is 120 dollars. Following the information.Jacob wants to do a marginal analysis to help him decide if he shall enter the market. a. Define and find the shut-down price and the shut-down quantity for Jacob’s firm Explain the way you identify these two values. b. Find the marginal revenue and determine the quantity that maximizes Jacob’s output? Explain your answer and provide the formula. c. According to your calculations, what is your advice for Jacob? Should he stay or leave the market? Explain your answer. d. Calculate the value of the profit realized by the firm.arrow_forwardGraph the demand curve for a pure competitive firm, label the graph. What is the relationship between marginal revenue (MR) and the demand curve (is MR greater, equal, or less than the demand curve)?arrow_forward
- Price Average total cost AVC Demand Marginal cost Marginal revenue Q Quantity Discuss the firm plotted on the figure. What type of firm do you see?is the firm operating at the optimal point of production? is the firm making a proht? s the firm operating in the short or in the long run?arrow_forwardWhat does acceptable loss mean for a competitive firm? Explain and Draw a grapharrow_forwardQ2. Ramzah owned a burger stands along the beach. Figure 2 shows Ramzah’s cost curves. Figure 2: Market for Burger (a) What is Perfect Competition? (b) If the market price of a burger is $4, what is Ramzah’s profit-maximizing output? (c) Calculate the economic profit that Ramzah’s makes. (d) With no change in demand or technology, how will the price change in the long run? (e) Distinguish between technological efficiency and economic efficiency.arrow_forward
- When might a competitive firm shutdown in the short run and exit the market in the long run?arrow_forwardWhat price will a perfectly competitive firm end up charging in the long run? Why?arrow_forwardThe following graph shows a firm’s marginal cost and average cost of production of raspberries. a. The equilibrium price at this market is $2.5. At this price, is the firm earning economic profit or is itincurring economic losses?b. Is the firm operating in a competitive market based on the given information? Why?c. Suppose the price of raspberries increases to $5. How would you answer a. and b. in this case?d. If the market is indeed competitive, what will happen after the price increase in c.? What will bethe final price and the long-term profit of the firm?arrow_forward
- Use the figure below, which shows the situation facing Mike’s Bikes, to answer the questions below. The demand and costs of other mountain bike producers are similar to those of Mike’s Bikes. What quantity does the firm produce and what is its price? Calculate the firm’s economic profit or economic loss. What will happen to the number of firms producing mountain bikes in the long run? How will the price of a mountain bike and the number of bikes produced by Mike’s Bikes change in the long run? How will the quantity of mountain bikes produced by all firms change in the long run? Is there any way for Mike’s Bikes to avoid having excess capacity in the long run? Is the market for mountain bikes efficient or inefficient in the long run? Explain your answer.arrow_forwardQ2. a. Create numbers for the table below TC TFC TVC AVC ATC MC 1 4 5 6 7 9 10 b. Indicate a market price that the firm will suffer from loss in the she run? What is the quantity level? What is the TR, TC and profit? Explanation: c. Indicate a market price that the firm will enjoy positive economic profits in the short run? What is the quantity level? What is the TR, TC and profit? Explanation: 2. 3.arrow_forwarda. In a two-panel diagram, graphically illustrate a perfect competitive market and firm showing the firm earning economic profit in the short run. Use AR, MR, MC, and ATC to identify the profit-maximizing output, as well as the amount of profit earned. b. Illustrate and explain how this market and firm move to the long-runarrow_forward
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