a)
Short-run profit maximization output level.
a)
Answer to Problem 2FRQ
6 output level is the firm’s profit maximization level of output.
Explanation of Solution
At the 6 output level, marginal cost equates to price and marginal cost is rising so this would be the firm’s profit maximization output level.
Introduction:
In the short run, the firm will maximize its profit where the marginal cost curve cuts marginal revenue or price line. And the difference between
b)
Calculation of total revenue.
b)
Answer to Problem 2FRQ
Total revenue =$120
Explanation of Solution
Total Revenue = Price×Quantity Total Revenue = $20×6
Total Revenue = $120
Introduction:
Total revenue is the product of the total output produced and the price charged. It is calculated by
Total Revenue = Price×Quantity
c)
Determining total cost
c)
Answer to Problem 2FRQ
Total Cost = $177
Explanation of Solution
Total Cost = Average total cost×output
Total Cost = $29.5×6
Total Cost = $177
Introduction:
Total cost is the cost of output produced. It is calculated by Total Cost = Average total cost×output
d)
Determining the firm’s profit or loss.
d)
Answer to Problem 2FRQ
If there is also a fall in the demand for physical books, it can result in following a change in the price of e-books which are also substitutes, and can result in a decrease in the prices.
Explanation of Solution
Total Revenue = $120 Total Cost = $177
Total cost > Total revenue
Loss = Total cost-Total revenue Loss = $177-$120
Loss = $57
Introduction:
When total revenue exceeds total cost then the firm earns a profit and when the total cost exceeds the total revenue. It can be calculated by
Profit = Total Revenue-Total cost Loss = Total cost-Total revenue
e)
Short-run operating in the market.
e)
Answer to Problem 2FRQ
The firm will not produce in the short run.
Explanation of Solution
The firm’s
Average variable cost > Price
Here, the average variable cost is greater than the price so the firm is not able to cover AVC. Hence, the firm
will not produce in the short run.
Introduction:
In the short run, the firm will operate only when it covers at least the average variable cost which means to operate price should be greater than the average variable cost. If a firm is not able to cover the average variable cost it will drive out of the market.
Chapter 59 Solutions
Krugman's Economics For The Ap® Course
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