EBK MICROECONOMICS
9th Edition
ISBN: 8220103630955
Author: Rubinfeld
Publisher: PEARSON
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Textbook Question
Chapter 8, Problem 14E
A sales tax of $1 per unit of output is placed on a particular firm whose product sells for $5 in a competitive industry with many firms.
- a. How will this tax affect the cost
curves for the firm? - b. What will happen to the firm’s price, output, and profit?
- c. Will there be entry or exit in the industry?
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a. A firm faces the following average revenue (demand) curve:P = 120 − 0.02Qwhere Q is weekly production and P is price, measured in cents per unit. The firm’s cost function is given by C = 60Q + 25,000. Assume that the firm maximizes profits.
i. What is the level of production, price, and total profit per week?ii. If the government decides to levy a tax of 14 cents per unit on this product, what will be the new level of production, price, and profit?
Your business, which has some market power, has the following demand (D), marginal revenue (MR), marginal cost (MC), and average cost (AC) curves. Move point E to label the profit-maximizing price and quantity for your firm.
If the goal of your business is to maximize profit, how much will it produce, and what price will it charge?
-The business will exit the market because it is unable to cover its average costs.
-The business will produce 40 units, and charge a price of $5.
-The business will produce 30 units, and charge a price of $3.
-The business will produce 30 units, and charge a price of $6.
Skinhead Ltd Co. has a competitive market and faces costs of production as follows:
Quantity TFC (RM) | TVC (RM) TC (RM)
ATC
AFC
AVC
MC
(RM)
(RM)
(RM)
(RM)
100
1
100
50
2
100
70
3
100
90
4
100
140
5
100
200
100
360
(а)
(b)
Calculate the company's AFC, AVC, ATC, and MC at each level of production.
The price for Skinhead product is RM50. Calculate the TR, MR, AVC, AFC and ATC for
Skinhead.
(c)
(d)
Calculate the profit for Skinhead at each level of production.
From the information in 1(c), Skinhead seems is not able to generate profit at each level
of production. The CEO decides to shut down operations. Explain whether the company
should shut down operation or continue to run.
Chapter 8 Solutions
EBK MICROECONOMICS
Ch. 8 - Prob. 1RQCh. 8 - Prob. 2RQCh. 8 - Prob. 3RQCh. 8 - Prob. 4RQCh. 8 - Prob. 5RQCh. 8 - Prob. 6RQCh. 8 - Prob. 7RQCh. 8 - Prob. 8RQCh. 8 - Prob. 9RQCh. 8 - Prob. 10RQ
Ch. 8 - Prob. 11RQCh. 8 - Prob. 12RQCh. 8 - Prob. 13RQCh. 8 - Prob. 14RQCh. 8 - Prob. 1ECh. 8 - Prob. 2ECh. 8 - Prob. 3ECh. 8 - Suppose you are the manager of a watchmaking firm...Ch. 8 - Prob. 5ECh. 8 - Prob. 6ECh. 8 - Prob. 7ECh. 8 - Prob. 8ECh. 8 - Prob. 9ECh. 8 - Prob. 10ECh. 8 - Prob. 11ECh. 8 - Prob. 12ECh. 8 - Prob. 13ECh. 8 - A sales tax of 1 per unit of output is placed on a...Ch. 8 - Prob. 15E
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- Suppose that over the short run (say the next 5 years), demand for OPEC oil is given by P = 165 – 2.5q. Here q is measured in millions of barrels a day. OPEC marginal cost per barrel is $15. What is OPEC’s optimal level of production? What is the prevailing price of oil at that level? Many experts contend that maximizing short-run profit is counterproductive for OPEC in the long run because high price reduces buyers to conserve energy and spur competition and new exploration that increases the overall supply of oil. Suppose that the demand curve just described will remain unchanged only if oil prices stabilize at $65 per barrel or below. If oil price exceeds this threshold, long run demand (over a second five year-period) will be curtailed to P = 135 – 2.5q. OPEC seeks to maximize its total profit over the next decade. What is the optimum output and price policy? (assume all values are present values)arrow_forwardQUESTION 2a. A firm faces the following average revenue (demand) curve:P = 120 − 0.02Qwhere Q is weekly production and P is price, measured in cents per unit. The firm’s cost function is given by C = 60Q + 25,000. Assume that the firm maximizes profits. i. What is the level of production, price, and total profit per week?ii. If the government decides to levy a tax of 14 cents per unit on this product, what will be the new level of production, price, and profit? b. The United States currently imports all of its coffee. The annual demand for coffee by U.S. consumers is given by the demand curve Q = 250 – 10P, where Q is quantity (in millions of pounds) and P is the market price per pound of coffee. World producers can harvest and ship coffee to U.S. distributors at a constant marginal (= average) cost of $8 per pound. U.S. distributors can in turn distribute coffee for a constant $2 per pound. The U.S. coffee market is competitive. Congress is considering a tariff on coffee imports of…arrow_forwardA profit-maximizing firm in a competitive market is currently producing and selling 1000 units of output. It has an average revenue of $13, and an average cost of $8. What is its marginal revenue? How much economic profit does it make? Given the firm's economic profit, what is expected to happen in terms of market supply, and equilibrium price and quantity? Why?arrow_forward
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