Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Question
Chapter 8, Problem 1TY
To determine
Impact of change in price on the quantity.
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For the pizza seller whose marginal, average variable, and average total cost curves are shown in the graph below, what is the profit-
maximizing level of output and how much profit will this producer earn if the price of pizza is $0.50 per slice?
Instructions: In the graph below, label all three curves by clicking on the dropdown to select the appropriate label. Enter your
responses as whole numbers.
Price ($/slice)
3.50
3.25
3.00
2.75
2.50
2.25
2.00
1.75
1.50
1.25
1.00
0.75
0.50
0.25
0
Cost Curves
MC
ATC
Quantity (slices/day)
AVC
L
100 200 300 400 500 600 700 800 900
o
When the price is $0.50 per slice, the profit-maximizing level of output is o slices per day.
At the profit-maximizing level of output, the producer's profit is: $ 225 per day.
A firm is deciding between two different sewing machines. Technology A has fixed costs of $500 and marginal costs of $50 whereas Technology B has fixed costs of $250 and marginal costs of $100. If the price is $20 per unit, what is the break even amount of units for technology A?
A firm is deciding between two different sewing machines. Technology A has fixed costs of $500 and marginal costs of $50 whereas Technology B has fixed costs of $250 and marginal costs of $100. If the price is $20 per unit, what is the break even amount of units for technology A?
a.
70
b.
60
c.
50
d.
None - They would have to shut down
Suppose a firm is currently maximizing profit by producing 100 units of output per day. It is then
discovered that the firm owes $1,000 for a one-time tax violation that occurred a few years ago. The
firm now needs to pay the $1,000 to the government no matter what. How should the firm react to this
additional cost?
The firm should increase output in order to increase revenue enough to cover the additional cost.
The firm should continue to produce 100 units of output per day, as the $1,000 is a sunk cost and therefore has
no effect on production decisions.
The firm should shut down in the short run and start back up in the long run.
The firm should decrease output in order to decrease variable costs by $1,000.
Chapter 8 Solutions
Economics: Principles & Policy
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Similar questions
- Price ($/slice) For the pizza seller whose marginal, average variable, and average total cost curves are shown in the graph below, what is the profit- maximizing level of output and how much profit will this producer earn if the price of pizza is $2.50 per slice? Instructions: In the graph below, label all three curves by clicking on the dropdown to select the appropriate label. Then, indicate the profit-maximizing level of output on the graph. 3.50 3.25 3.00 2.75 2.50 2.25 2.00 1.75 1.50 1.25 1.00 0.75 0.50 0.25 0 Cost Curves Tools -O Select ▼ Select ▼ Select ▼ Q* 100 200 300 400 500 600 700 800 900 Quantity (slices/day)arrow_forwardWhat is the value of the average cost? If the price in the market of the perfect competitive firm is P9 Equilibrium quantity would be? Why?arrow_forward15. The marginal profit in dollars on Brie cheese sold at a cheese store is given by P'(x) = x (20x² + 60x), where x is the amount of cheese sold, in hundreds of pounds. The "profit" is - $50 when no cheese is sold. a. Find the profit function. b. Find the profit from selling 300 pounds of Brie cheese. a. Find the profit function. P(x) = b. Find the profit from selling 300 pounds of Brie cheese. The profit from selling 300 pounds of Brie cheese is $arrow_forward
- Suppose consumers see coffee as an undifferentiated good and that there are hundreds of coffee shops in the market. The market price of a cup of coffee is $3. Carly’s coffee shop has a daily short-run total cost given by ?? = 5 + 1 4 ? 2 . The associated marginal cost curve is ?? = 1 2 ?. How many cups of coffee should Carly make a day if she wants to maximize profits?arrow_forwardConsider a kettle firm A in a perfectly competitive market. Table 1 shows the quantity produced per hour (Q) and the total cost (TC) in the short run. Quantity 0 12345C70 2 6 8 Total cost 17 30 40 55 75 100 130 165 210 Fixed cost 17 17 17 17 17 17 17 17arrow_forwardA firm's short-run average cost curve is U-shaped. Which of these conclusions can be reached regarding the firm's returns to scale? [1] The firm experiences increasing returns to scale. [2] The firm experiences increasing, constant, and decreasing returns in that order. [3] The firm experiences first decreasing, then increasing returns to scale. [4] The short-run average cost curve reveals nothing regarding returns to scale. [5] None of the options [1], [2], [3] and [4] provides a correct answer.arrow_forward
- 5. Profit maximization and shutting down in the short run Suppose that the market for frying pans is a competitive market. The following graph shows the daily cost curves of a firm operating in this market. 100 90 80 70 ATC 60 40 30 20 AVC 10 MC 10 15 20 25 30 35 40 45 50 QUANTITY (Thousands of pans) PRICE (Dollars per pan)arrow_forwardIf Daniel sells 250 hamburgers at a price of $3.00, and his average cost of producing 250 hamburgers is $2.50, what is his profit? Profit = $ (enter your response in dollars and cents).arrow_forwardSuppose 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_forward
- Carl is an apple farmer. Assume there is price taking in the market for apples. SRS is the short-run supply curve and LRS is the long-run supply curve. Suppose Carl creates a 100% organic apple juice drink. After initial tasting, the demand increases, to the delight of apple farmers everywhere. Please shift the appropriate curve or curves in the graph for the apple market in both the short and long run. Price per apple (3) 10 9 8- 1 0 D 1 SRS 2 3 4 5 6 Quantity of apples (hundreds) 7 8 LRS farmers will produce at MC ATC. D 9 10 10 Initially, the existing farmers increase production of apples to meet the increased demand. After new farmers have entered and the market is again in long run equilibrium,arrow_forwardFor each of the following events identify which of the determinates of demand or supply are affected. Also indicate whether demand or supply is increased or decreased. Why? A stock market crash lowers people’s wealth. Batelco increases the prices of mobile services. Diminishing returns mean rising costs while economies of scale mean falling costs. Therefore, a firm cannot be facing both diminishing returns and economies of scale. Do you agree? Why or why not?arrow_forwardFor each price in the following table, calculate the firm's optimal quantity of units to produce, and determine the profit or loss if it produces at that quantity, using the data from the graph to identify its total variable cost. Assume that if the firm is indifferent between producing and shutting down, it will produce. (Hint: You can select the purple points [diamond symbols] on the graph to see precise information on average variable cost.) Price (Dollars per oven) 25.00 70.00 100.00 Quantity (Ovens) Total Revenue (Dollars) Fixed Cost (Dollars) 1,600,000 1,600,000 1,600,000 Variable Cost (Dollars) Profit (Dollars) If the firm shuts down, it must incur its fixed costs (FC) in the short run. In this case, the firm's fixed cost is $1,600,000 per day. In other words, if it shuts down, the firm would suffer losses of $1,600,000 per day until its fixed costs end (such as the expiration of a building lease). This firm's shutdown price-that is, the price below which it is optimal for the…arrow_forward
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