Econ Micro (book Only)
6th Edition
ISBN: 9781337408066
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 8, Problem 10P
To determine
The reasons for zero economic profits in long run for a
Why there is no economic profit or loss in the perfectly competitive industry.
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(Table: Total Cost and Output for All-Natural Frozen
Yogurt) Use Table: Total Cost and Output for All-
Natural Frozen Yogurt, which describes Sasha's total
costs for his perfectly competitive all-natural frozen
yogurt firm. İf the market price of a tub of frozen
yogurt is $20, how many tubs of frozen yogurt will
Sasha produce in the short run?
Table: Total Cost and Output
for All-Natural Frozen
Yogurt
Output
Total Cost
$10
60
80
3
110
4
170
5
245
O a) 1
b) o
d) 2
(The Short-Run Firm Supply Curve) Each of the followingsituations could exist for a perfectly competitive firm inthe short run. In each case, indicate whether the firmshould produce in the short run or shut down in the shortrun, or whether additional information is needed to determinewhat it should do in the short run.a. Total cost exceeds total revenue at all output levels.b. Variable cost exceeds total revenue at all output levels.c. Total revenue exceeds fixed cost at all output levels.d. Marginal revenue exceeds marginal cost at the currentoutput level.e. Price exceeds average total cost at all output levels.f. Average variable cost exceeds price at all output levels.g. Average total cost exceeds price at all output levels.
20.Suppose a demand for good produced by a certain industry changes then answer the following questions:1- What will be the affect of change in demand on the output of the firm and industry in short run?2- What will be the affect of change in demand on the output of the firm and industry in long run?3-For what reason the affect of change in demand on firm's and industry's output differ in short and long run?4- Will the condition of zero economic profit be met in long run? how?
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- (Figure: Big Tree Organic Farms in the Short Run) Use Figure: Big Tree Organic Farms in the Short Run. Big Tree Organic is a perfectly competitive organic farm in Turlock, California. If the market price is G, the farm's total cost of producing its most profitable level of output is: Price G F EN S 0 OBS. DK. OFKD. OESB. H L MC ATC AVC B D Quantity (per period) MRarrow_forwardPRICE (Dollars per ton) 80 72 64 56 48 40 32 24 16 8 0 0 Demand 120 240 360 480 600 720 840 960 1080 1200 QUANTITY (Thousands of tons) Supply (20 firms) Supply (40 firms) Supply (60 firms) True False (?) If there were 60 firms in this market, the short-run equilibrium price of steel would be $ per ton. At that price, firms in this industry would Therefore, in the long run, firms would the steel market. Because you know that competitive firms earn economic profit in the long run, you know the long-run equilibrium price must be $ per ton. From the graph, you can see that this means there will be firms operating in the steel industry in long-run equilibrium. True or False: Assuming implicit costs are positive, each of the firms operating in this industry in the long run earns positive accounting profit.arrow_forward2. Assume that the above cost data is for a perfectly competitive firm. Using this data answer the following: (See Atteched) (a) If the market equilibrium price that this firm charges is $50, what level of output must this firm produce to maximize its profit? (b) What would be the amount of profit that this firm would earn if it produced at the profit-maximizing level of output? 3. You read in a business magazine that farmers are reaping high profits. With the theory of perfect competition in mind, what do you expect to happen over time (in the long run) to each of the following? a. The prices of agricultural products b. The profits of farmers c. The equilibrium output in agricultural markets d. The number of farms 4. Distinguish between economies of scale and diseconomies of scale. Give examples of why a firm may experience economies of scale. editarrow_forward
- (b) The profit maximization rule for a perfectly competitive firm states that the perfectly competitive firm will maximize its profits when it produces that quantity where marginal revenue equals marginal cost for the last unit produced and sold. In your own words explain why the firm is better off producing that quantity where MR = MC rather than that quantity where MR > MC or that quantity where MR < MC.arrow_forwardK- The figure represents the cost curves of two firms operating in different perfectly competitive industries. This economy consists only of industries 1 and 2 If the market price in industry 1 is $3 and the market price in industry 2 is $4, we should expect in the long run OA both firms to stay in their respective industries OB. firm A to exit industry 1 and enter industry 2 OC. firm B to exit industry 2 and enter industry 1 OD firm A to exit industry 1 and not enter industry 2 Price $11 9 5 0 20 Firm in industry 1 40 60 00 100 Quantity Price 0 40 80 100 Quarrow_forwardS IC raw Calculate the new total revenue and new marginal revenue product if the price of strawberries doubled (from $2 to $4 per box), and then answer one question. Instructions: Enter your responses as a whole number. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. Number of Pickers (per Hour) 0 1 2 3 4 5 6 7 8 9 Total Strawberry Output (Boxes per Hour) 0 5 10 14 17 19 20 20 18 15 Price of Strawberries (per Box) $2 2 2 2 2 2 2 222 Total Revenue (per Hour) $0 10 20 28 34 38 40 40 36 30 Marginal New Price Revenue of Product Strawberries $10 10 8 6 4 NO 2 0 -4 -6 $4 4 4 4 4 4 4 4 4 4 New Total Revenue (per Hour) $ $ $ $ $ $ $ $ $ $ How many pickers would be hired at $2 an hour before the price change? picker(s) New Marginal Revenue Product 0 20 $ 40 $ 56 $ 68 $ 76 80 $ 80 $ 72 $ 60 $ www 20 20 16 12 8 4 0 -8 -12arrow_forward
- Q23 Suppose a perfectly competitive firm is currently operating with the following information: Output = 1500 tonnesAverage total cost = $627 per tonneAverage variable cost = $614 per tonneMarginal revenue = $620 per tonneMarginal cost = $620 per tonneAt the current level of output, this firm is _____ profit and is an earning economic profit of _____. a. Maximising; -$10500. b. Not maximising; -$10500. c. Maximising; $10500. d. Maximising; $9000. e. Not maximising; -$9000.arrow_forwardQuestion 15 (1 point) V Saved Suppose that a perfectly competitive firm's total cost function is TC = q² + 20q+ 256, where q is the firm's output level. What is the firm's output level (q*) in the long run? %3D q* = 10 units. q* = 16 units. %3D q* = 20 units. %3D q* = 25 units. ONone of the above.arrow_forwardQUESTION 23 If a perfectly competitive firm incurs an economic loss, it should: O Shut down if this loss exceeds fixed cost. O Shut down in long run. O Shut down immediately. O Try to raise its price. QUESTION 24 Suppose a firm is producing a level of output such that MR > MC. What should the firm do to maximize its profits? O The firm should increase price O The firm should do nothing if it wants to maximize the difference between MR and MC to maximize its profits. O The firm should increase output O The firm should hire less labor Click Save and Submit to save and submit. Click Save All Answers to save all answers. DELL F1 F2 F3 F4 E5 F6 F7 F8 F9 F10 %23 %arrow_forward
- 00 20 Price and Cost ($) (Figure: Unicycle Production Costs) If the current price is $20 in this perfectly competitive industry, we should expect'in the long run (hint: See PowerPoint slides 51 and 53): ATC MC AVC AFC 40 42 44 46 O A. the presence of an economic profit to attract new firms to the industry. O B. that there will be no change in the number of firms in the industry. O C. the presence of a normal profit. O D. the presence of an economic loss to persuade some firms to leave the industry. A Moving to another question will save this response. Question 8 of 11 MacBook Pro DD F7 F3 F4 F8 F9 F10 # $ 2 delete 5. R H C. B. | command command optionarrow_forwardProblem 2 Price and Cost (dollars) 11- 10 B-J6 2 2 0 Firm A ¡MC ATC 70 90 100 AYC Exhibit U-8 d 150 Price and Cost (dollars) 11 10 876 4 0 Firm B 100 150 200 ,MC ATC AVO d Quantity a. What is the total fixed cost of firm B at the point where it produces in the short run? Quantity b. Assume that firm A is in an industry consisting of ¹100 firms identical in all respects. Determine the price- output combinations in the short run?arrow_forwardQUESTION 11 Which of the following statements is correct? O A. Economic profits induce firms to leave O D. Normal profits OC. Economic profits and losses have no significant impact on the growth or decline of an industry O B. Economic profits induce firms to enter an industry; profits encourage firms to an industry; losses encourage firms to will cause an leave leave industry to expandarrow_forward
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