Micro Economics For Today
10th Edition
ISBN: 9781337613064
Author: Tucker, Irvin B.
Publisher: Cengage,
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Question
Chapter 8, Problem 14SQ
To determine
The profit-maximization level of output of the firm.
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Which of the following statements can be drawn from this diagram?
a. Point C represents a lower level of profit in comparison to Point B.
b. The firm exhibits diseconomies of scale if it produces more than 10 units.
c. The firm makes zero economic profit if it can sell 20 units and charge 20.
d. The firm maximises its profit by producing 20 units.
Explain how the Average Total Cost curve is derived for a competitive firm in the long-run. Also, explain what is economies of scale.
(1) Use the graph to answer the question below. The quantity is measured in thousands of units.
What will this firm decide to do in the long run?
A-It will stay in the market because the price is above its AVC at its profit-maximizing output.
B-It will leave the market because the price is below its ATC at its profit-maximizing output.
C-It will increase its price to point B to earn normal profit.
D-It will increase its output until its profit-maximizing output level is equal to B.
E-Insufficient data to determine.
(2) A dairy farmer is operating in a perfectly competitive market. The market price for milk is between the farmer's average variable cost and average total cost at the profit-maximizing level of output. What will the farmer do?
A-Produce more milk. B-Produce less milk. C-Shut down in the short run. D-Operate in the short run and leave the industry in the long run. E-Insufficient information to determine
(3) A firm operating in a perfectly competitive market cannot…
Chapter 8 Solutions
Micro Economics For Today
Ch. 8.5 - Prob. 1YTECh. 8.5 - Prob. 2YTECh. 8 - Prob. 1SQPCh. 8 - Prob. 2SQPCh. 8 - Prob. 3SQPCh. 8 - Prob. 4SQPCh. 8 - Prob. 5SQPCh. 8 - Prob. 6SQPCh. 8 - Prob. 7SQPCh. 8 - Prob. 8SQP
Ch. 8 - Prob. 9SQPCh. 8 - Prob. 10SQPCh. 8 - Prob. 11SQPCh. 8 - Prob. 12SQPCh. 8 - Prob. 1SQCh. 8 - Prob. 2SQCh. 8 - Prob. 3SQCh. 8 - Prob. 4SQCh. 8 - Prob. 5SQCh. 8 - Prob. 6SQCh. 8 - Prob. 7SQCh. 8 - Prob. 8SQCh. 8 - Prob. 9SQCh. 8 - Prob. 10SQCh. 8 - Prob. 11SQCh. 8 - Prob. 12SQCh. 8 - Prob. 13SQCh. 8 - Prob. 14SQCh. 8 - Prob. 15SQCh. 8 - Prob. 16SQCh. 8 - Prob. 17SQCh. 8 - Prob. 18SQCh. 8 - Prob. 19SQCh. 8 - Prob. 20SQ
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- Suppose a firm's marginal cost is increasing as it produces more output. Then the firms is said to be experiencing which of the following? a.increasing returns to scale b.diminishing returns to scale c.losses d.profitarrow_forwardBob's lawn mowing service is a profit maximizing, competitive firm. Bob mows lawns for $27 each. His total cost each day is $280, of which $30 is a fixed cost. He mows 10 lawns a day. What can you say about Bob's economic and accounting profits in the short run ? A. Economic profits are minus $10 and accounting profits are $20 B.Economic profits are $20 and accounting profits are minus $10 C. None Which one?arrow_forwardTable Cost.EX2: Costs and Outputs for a Competitive Firm Total Total Output Fixed Variable (Q) Costs Costs $50.00 $0.00 $50.00 $70.00 $50.00 $120.00 $50.00 $150.00 4 $50.00 $220.00 $50.00 $300.00 Refer to Table Cost.EX2. When production is 3 units, the firm's average total cost is about ONo answer text provided. O $66.67 O No answer text provided. O S68.67arrow_forward
- Firms minimize costs; thus, a firm earning short-run economic profits will choose to produce at the minimum point on its average total cost curve. Do you agree or disagree with this statement? A. Disagree: Firms earning profits will produce to the right of the minimum point on the average total cost curve. B. Disagree: A firm minimizing costs will produce where marginal cost equals the average total cost of production. C. Disagree: Firms earning short-run profits will produce where the difference between price and MC is largest. D. Disagree: The minimum point on the average total cost curve is when output equals zero. E. Agree: Since firms seek to minimize costs, they will always produce at the minimum point on the ATC curve.arrow_forwardBob's lawn mowing service is a profit maximizing, competitive firm. Bob mows lawns for $27 each. His total cost each day is $280, of which $30 is a fixed cost. He mows 10 lawns a day. What can you say about Bob's economic and accounting profits in the short run? Question 4 options: Economic profits are $20 and accounting profits are minus $10 Economic profits are $40 and accounting profits are $0 Economic profits are minus $10 and accounting profits are $20 Economic profits are $0 and accounting profits are $40arrow_forwardIn a perfectly competitive market there is a donut shop that sells 1,200 donuts daily. Each donut sells for the market price of $0.75 and they sell out every day. Assume that this company has labor costs of $275 and materials costs of $400. a. Using only variable costs, what is the donut shop’s daily profit? - Now assume that the owner is thinking of adding a second location downtown. The capital investment required is $4,000. The normal rate of return is 5%. b. If the new shop could operate under the same conditions as the original location is it a good business decision to expand? c. What would be the new shop’s daily profit?arrow_forward
- Cost LRAC 40 30 20 10 100 200 400 800 Output b. What happened to the cost of one good as the firm increased its output from 100 units to 200 units and from 200 units to 400 units? c. What is the firm experiencing as it increased it scale of operation from 100 units to 400 units? d. What is the firm experiencing if it chooses to produce at point P? Give reason for your answer. e. Which point would be the best point for the firm to produce at? Give reason for your answer.arrow_forwardDefine and explain the following terms associated with long run production 3.1 Accounting profit 3.2 Economic profit 3.3 Normal profit 3.4 The law of Diminishing Returnsarrow_forwardCurrently the firm is producing at a profit maximizing quantity of output and has a total revenue of $5000. Variable costs are $4000 and Fixed costs are $2000. Which of the following is true for this firm in the short run: A. The firm should continue producing at a loss B. The firm should shut down immediately C. The firm should continue to produce since it is making profit D. The firm should adjust (increase or decrease) outputarrow_forward
- Exhibit 9a.1: Costs for the Zonker Company Quantity (units per week) Total Cost Total Variable Cost (dollars per week) 20 (dollars per week) 26 14 3 36 24 4 50 38 68 56 93 81 128 116 1. If the market price fell to $11 per unit, Zonker maximizes profit in the short run by producing units per week. a. 1 b. 2 c. 3 d. 0 2. The lowest short run average total cost for Zonkers occurs when they produce units per week. a. 2 b. 3 C. 4 d. 5arrow_forwardi. Calculate the marginal cost, marginal revenue and profit for each unitof production. ii. How many units should the firm produce to maximise profit?arrow_forwardTable 14-15 Quantity Total Cost $2 1 $7 $10 3 $11 4 $18 5 $27 6 $38 Refer to Table 14-15. What is the lowest price at which this fırm would operate in the short run? $3. $4. $5. $6.arrow_forward
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