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 4Q
Use a graph to show the relationship between the MC curve and the
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Suppose 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.
What do you mean by the equilibrium of a firm?
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.
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)
Chapter 6 Solutions
Microeconomics (2nd Edition) (Pearson Series in Economics)
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- According to the accompanying table, what quantity of output should the firm produce? Explain your answer.arrow_forwardThe following graph shows the demand curve, as well as the AVC, ATC and MC curves of a company selling rolled oats in a perfectly competitive market. Use the graph to answer the questions. The goal of the company is to maximize its profit. How many boxes of rolled oats should it sell to attain this goal? What price will it charge? How much profit does this firm make per month? Will this company produce or shut down in the short run? Why? Will this firm exit the market for rolled oats in the long run or not? Why?arrow_forwardDo fixed costs affect perfectly competitive firm’s output decisions in the short run? Briefly explain your answer. Are there fixed costs in the long run? Do fixed costs affect perfectly competitive firm’s output decisions in the long run? Explain your answers briefly.arrow_forward
- What are transaction costs? How do transaction costs affect the boundaries of a firm?arrow_forwardWhat is the relationship between economies of scale and the level of market competition?arrow_forwardTorushka is a profit maximizing firm producing wooden dolls, which it can produce and sell in its home country, Russia, and abroad in France. The average cost (AC) curve on the following graph represents Igrushka's cost of producing wooden dolls within one factory, whether in Russia or in France. COST (Dollars per wooden doll) 10 9 0 D 10 20 30 40 50 60 70 80 QUANTITY (Thousands of wooden dolls) AC 90 100 ? ←arrow_forward
- The table below provides revenue and cost information for a perfectly competitive firm producing computers. Over what output range will this firm incur losses? What is the slope of the total revenue curve? At about how many computers per day do economic profits seem to be at a maximum? Graph the economic model of this firm.arrow_forwardPlease answer all parts: How does fixed cost affect marginal cost? Do fixed costs affect perfectly competitive firm’s output decisions in the short run? Briefly explain your answer. Are there fixed costs in the long run? Do fixed costs affect perfectly competitive firm’s output decisions in the long run? Explain your answers briefly.arrow_forwardSuppose 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 ?arrow_forward
- Suppose Felix runs a small business that manufactures frying pans. Assume that the market for frying pans is a perfectly competitive market, and the market price is $20 per frying pan. The following graph shows Felix's total cost curve.arrow_forwardSuppose Larry runs a small business that manufactures shirts. Assume that the market for shirts is a price-taker market, and the market price is $10 per shirt. The following graph shows Larry's total cost curve. Use the blue points (circle symbol) to plot total revenue and the green points (triangle symbol) to plot profit for the first seven shirts that Larry produces, including zero shirts. 125 100 TOTAL COST AND REVENUE (Dollars) 25 ☐ Total Cost ☐ -50 0 1 2 3 4 5 6 7 8 QUANTITY (Shirts) Total Revenue A Profit (?) Calculate Larry's marginal revenue and marginal cost for the first seven shirts he produces and plot them on the following graph. Use the blue points (circle symbol) to plot marginal revenue and the orange points (square symbol) to plot marginal cost. 25 2 COSTS AND REVENUE (Dollars per shirt) 0 1 2 3 5 6 7 8 QUANTITY (Shirts) Marginal Revenue Marginal Cost Larry's profit is maximized when he produces is shirts. When he does this, the marginal cost of the previous shirt he…arrow_forwardConsider 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_forward
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