Econ Micro (book Only)
6th Edition
ISBN: 9781337408066
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 8, Problem 13P
A
To determine
The short run response of a firm to a reduction in the price of a variable resource is to be determined.
Concept Introduction:
B
To determine
The process by which the industry returns to long run equilibrium followed a change in market demand is to be determined.
Concept Introduction: Perfect competition has supply curve depicting the marginal cost curve which is higher than the average variable cost. Firms maximise their profits by producing at price = marginal cost.
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8. Short-run and long-run effects of a shift in demand
Suppose that the jackfruit industry is initially operating in long-run equilibrium at a price level of $5 per pound of Jackfruit and quantity of 175 million
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(a) A competitive firm’s short-run supply curve depends on two curves. Which two exact curves are we talking about?
(b) Clearly explain which portion/part of these curves provide us with the short-run supply curve of such a firm and which part is excluded from being considered a part of such a supply curve?
(c) In this context, explain the economic reason why the short run supply curve of a competitive firm slopes upwards.
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- 1.(a) Explain with the help of a graph how a perfectly competitive firm determines its profit-maximizing quantity of output. (b) Explain with the help of a graph the effect of a decrease in marginalcost on the profit-maximizing quantity of output of a perfectly competitive firm.arrow_forwardQuestion 3 The market for fertilizer is perfectly competitive. Firms in the market are producing output but are currently incurring economic losses. a. How does the price of fertilizer compare to the average total cost, the average variable cost, and the marginal cost of producing fertilizer? b. Draw two graphs, side by side, illustrating the present situation for the typical firm and for the market. [Upload a picture] c. Assuming there is no change in either demand or the firms’ cost curves, explain what will happen in the long run to the price of fertilizer, marginal cost, average total cost, the quantity supplied by each firm, and the total quantity supplied to the market.arrow_forwardAssume that Jasmine is a typical firm that produces and sells T-shirts in a perfectly competitive constant- cost industry. The market is currently in long-run equilibrium. The market price is $5, and Jasmine's marginal cost at each level of output is listed in the table below. Quantity of Output 0 1 2 3 4 5 6 Marginal Cost 0 2 3 4 5 6 7 (a) What is Jasmine's pront-imamizing quantity of output? Explain. (b) Draw a correctly labeled graph for Jasmine, and show Jasmine's total revenue at the profit-maximizing quantity, shaded completely. (c) Now assume consumer demand for T-shirts increases. What will happen to the number of firms in the market in the long run? Explain.arrow_forward
- 1. Draw the following for a firm in a competitive industry. Assume that the firm faces diminishing marginal product at some point. Remember to label all curves and axes. a. Fixed cost and average fixed cost. b. Marginal cost c. Average variable cost and average total cost. d. Identify the price ranges that will induce entry, exit and shutdown assuming all firms face identical cost curves. e. Assuming firms are producing at minimum efficient scale, draw the industry long run supply curve in parallel with or in reference to the firm level curves from above. 2. A major proposed industry in the future is the provision of global satellite wifi. However, the actual willingness to pay for such a service is unknown. Assume there's a 40% chance that there are 1 billion people willing to pay $100/year for a service that would cost $60/year to provide and a 60% chance that those people would be willing to pay $10/year for a service that would cost $60/year to provide. Assume that the enterprise…arrow_forward1. A firm in a perfectly competitive industry has fixed costs of FC = 15, marginal costs of MC = 5 + 14g, and average variable costs of AVC = 5 + 7q. (a) What are the firm's variable costs (VC)? (b) What is the firm's total cost function? (c) If the price is $75, how much does the firm supply? (d) Does the firm continue to supply this quantity in the short-run? (e) Suppose there exists a standard market demand function from consumers (downward slopping). Please provide a logical discussion about how the market achieves short-run equilibrium.arrow_forward1. Assume you have a perfectly competitive market with two types of firms. The only difference between the two types of firms is that the minimum average cost at which firms of type A can produce is lower than the minimum average cost at which firms of type B can produce. a. Give a graphical example of what the individual long run supply functions of a type A firm and a type B firm may look like. Explain the shape in detail. b. Based on your example, what will the aggregate supply curve of a market with 2 firms, one type A and one type B, look like? Explain the shape in detail. C. Assume now that all potential firms are identical. Evaluate the impact of a demand shock on the long run equilibrium market price and firm numbers. You must use graphical analysis and explain in detail.arrow_forward
- 1. A firm in a perfectly competitive industry has fixed costs of FC = 15, marginal costsof MC = 5 + 14q, and average variable costs of AVC = 5 + 7q.(a) What are the firm's variable costs (VC)?(b) What is the firm's total cost function? (0) If the price is $75, how much does the firm supply? (d) Does the firm continue to supply this quantity in the short-run? (e) Suppose there exists a standard market demand function from consumers(downward slopping). Please provide a logical discussion about how the marketachieves short-run equilibrium.arrow_forward52. For a perfectly competitive, increasing-cost industry, an increase in the industry's demand will lead to which of the following in the long run? A.An upward shift in each firm's long-run average cost curve B.An increase in each firm's profit C. A decrease in the price of an input and a decrease in total industry profits D. A decrease in total industry sales E. A decrease in total producer surplus and an increase in total consumer surplusarrow_forwardMultiple choice - microeconomics 41) Where is the competitive firm’s short-run supply curve located? A. the part of the average-variable-cost curve that lies above marginal cost B. the part of the marginal-cost curve that lies above average variable cost C. the part of the average-total-cost curve that lies above marginal cost D. the part of the marginal-cost curve that lies above average total cost 40) For any given price, a firm in a competitive market will maximize profit by selecting the level of output where price intersects which curve? A. marginal-revenue curve B. average-variable-cost curve C. marginal-cost curve D. average-total-cost curvearrow_forward
- 3. ) Ball point pens are produced by a constant-cost industry made up of identical firms with standard U-shaped average cost curves. Assume the market is currently in a long-run equilibrium. Using one or more diagrams, draw the long-run supply curve for ball point pens and explain what will happen in the short and long run if the demand for ball point pens falls.arrow_forwardRevenue and cost (dollars per unit) MC AVC 50 40 30 20 10 10 20 30 40 50 Output (units per day) The above figure illustrates a perfectly competitive firm. If the market price is $40 a unit, to maximize its profit (or minimize its loss) the firm should Select one: a. produce 30 units. b. produce more than 30 units and less than 40 units. c. produce 40 units. d. shut down. e. produce more than 10 and less than 30 units.arrow_forward33) Suppose a firm is trying to decide whether to temporarily shut down to minimize its total loss. If the prevailing competitive market price equals this firm’s average variable cost (P = AVC) and the firm continues to produce,A. The firm’s total revenue equals its total variable cost, and the firm suffers loss equal to its total fixed cost. B. The firm’s total fixed cost is zero. C. The firm’s total variable cost equals its total fixed cost.D. The firm’s total cost equals its total variable cost. E. The firm’s total revenue equals its total fixed cost, and the firm suffers the loss equal to its total variable cost.arrow_forward
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