Microeconomics (2nd Edition) (Pearson Series in Economics)
2nd Edition
ISBN: 9780134492049
Author: Daron Acemoglu, David Laibson, John List
Publisher: PEARSON
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Chapter 6, Problem 4P
(a)
To determine
The number of units supplied at a market price of
(b)
To determine
Long-run price with the help of
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The graph below shows cost curves for a typical firm operating in a perfectly competitive market. Curve 1 represents Marginal Cost (MC), Curve 2 represents Average Variable Costs (AVC) and Curve 3 represents Average Total Costs (ATC).
Suppose that the equilibrium price is $12. What will happen in this market in the long run?
a. No new entry/no exit.
b.Existing firms will exit.
c.New firms will enter.
(a) Let the industry producing soybeans be in a long-run equilibrium. What is the equilibrium price of a bushel of soybeans? How many billions of bushels are produced? How many farmers are there in the industry? What is the shipping fee per bushel of soybeans?
(b) Suppose that the demand for soybeans drops due to decreased im- port by China and becomes
Q = 15.3 − p.
In a new long run equilibrium, what is the equilibrium price of a bushel of soybeans? How many billions of bushels are produced? How many farmers are there in the industry? What is the shipping fee per bushel?
(c) Calculate the change in the producers’ surplus between the situations described in (a) and (b).
(d) Show that the decrease in the producers’ surplus equals to the decrease in the total shipping fees as the industry contracts incrementally from the equilibrium output in (a) to the equilibrium output in (b).
A firm produces a product in a perfectly competitive industry and has a total cost function
TC= 50+4q+2q².
a. At the short-run market price of $20, the firm is producing 5 units of output. Is the firm
maximizing its profit? Explain.
b. What quantity of output will the firm produce in the long run, assuming there is no change in
cost structure? What will be the long-run equilibrium price?
c. Graphically depict the long-run equilibrium for an individual firm within this market.
Chapter 6 Solutions
Microeconomics (2nd Edition) (Pearson Series in Economics)
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Similar questions
- Assume that a firm in a competitive market faces the following cost information. If the market price for this firm's product is $40, calculate the profit maximizing level of output for this firm using marginal analysis. It may help to create your own cost table and fill in columns for Marginal Cost and Average Total Cost based on the Total Cost information below. a.What is the level of profit for this firm at the profit maximizing output? b.To convince yourself that the quantity you found is indeed the profit maximizing quantity, try calculating what the profit would be at the next higher level of output. What did you find? c. What do you predict will happen in this market over the long run?arrow_forwardThe figure depicts the demand curve of a firm producing cars, together with its marginal cost, average cost, and isoprofit curves. Based on this figure, which of the following statements are correct? 8,000 Price, Marginal cost ($) 0 E Quantity of cars, Q At A, the firm makes positive profits. The firm makes the same profit at B and D. O Profit margin is the same at B and D. O The slope of the isoprofit is zero at D. MC Isoprofit A Isoprofit B AC 100arrow_forwardDoes a competitive firm’s price equal its marginal cost in the short run?arrow_forward
- The diagram above represents a perfectly competitive firm that faces a demand curve d. Answer the following questions. Show all calculations. From the diagram, how many units should this firm produce to maximize profit? From the diagram data, calculate the firm’s total profit. Assuming no changes in the costs of production, in the long run how much will this firm produce and at what price? From the diagram, at what price will this firm break even? From the diagram, at what price should this firm shut down?arrow_forwardWhat will happen to the demand curve for this toilet company in the long run? Describe two things that will happen to the demand curve. How much is the long run equilibrium quantity and price?arrow_forwardSuppose the market for beans is perfectly competitive. The average total cost and marginal cost of growing beans in the long run for an individual farmer are illustrated in the graph to the right. According to the graph, the long run equilibrium price for beans is $ per box. (Enter a numeric response using a real number rounded to two decimal places.) C Price and cost (dollars per box) 10- 9- 00 N 1 0 10 MC 20 30 40 50 60 70 80 Quantity of beans (boxes per week) ATC 90 100 Narrow_forward
- Suppose the market for peaches is perfectly competitive. The short-run average total cost and marginal cost of growing peaches for an individual grower are illustrated in the figure to the right. Assume that the market price for peaches is $30.00 per box. What is the profit-maximizing quantity for peach growers to produce? boxes. (Enter your response as an integer.) At this level of output, profit will be $. (Enter your response rounded to the nearest dollar.) Peach growers will earn positive economic profit in the short run at any market price above $ per box. (Enter your response rounded to one decimal place.) Price (dollars per box) 40- 36- 32- 28- 24 20 16- 12- 8 4- 10 MC 20 30 40 50 60 70 80 Output (boxes of peaches per day) ▬▬ ATC 90 100 Qarrow_forwardSuppose that firm is in a breaking even status in a perfectly competitive market. Using graphs (for both industry and firm) to explain how a decline in demand in the short run affects some firms’ performance (e.g., earn profits or experience loss). In the long run, how this results in exit of some firms from the same perfectly competitive market. Comment on the market equilibrium quantity and price in the long run?arrow_forwardb). The Philadelphia water ice industry is a constant cost industry. The demand for water ice shifts outward each year when it gets hot. What are the steps by which the competitive water ice market insures an increased amount of water ice. Explain and graph at the industry and firm levels. What is the long-run price of water ice?arrow_forward
- Assume the industry for flour tortillas in Denver is perfectly competitive. There are 200 firms. Seventy-five of the firms are “high-cost,” with short-run supply curves QHC = 5P. The other 125 are “low-cost,” with short-run supply curves QLC = 8P. Quantities are measured in dozens of tortillas and prices in dollars. Derive the short-run industry supply curve for tortillas QS. Assume the market demand curve for tortillas is given by QD = 10,000 − 625P. Find the market equilibrium price and quantity. At this price, how many dozens of tortillas are produced by the high- and low-cost firms, respectively? Determine total industry producer surplus at the equilibrium. Especially need the producer surplus.arrow_forwardSuppose Robin's Clock Works produces in a perfectly competitive market. Suppose the average total cost of clocks is $95, the average variable cost of clocks is $90, and the price of clocks is $85. If the firm is producing the level of output where marginal cost equals price, then in the short run the firm: A) can increase profit by increasing output.B) is earning a positive economic profit.C) should continue to produce since total revenue exceeds total variable cost.D) should shut down.arrow_forwardSuppose the shirts industry is perfectly competitive and begins in a long-run equilibrium. (a) Pluto Company invents a new production process that reduces the production cost. What happens to Pluto Company’s profits and the price of shirts in the short run when Pluto Company’s patent prevents other firms from using the new technology? (b) What happens in the long run when the patent expires and other firms are free to use the technology?arrow_forward
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