Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Chapter 8, Problem 2TY
To determine
Impact of increased productivity on profit.
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Suppose that a firm’s management would be pleased to increase its share of the market but if it expands its production, the price of its product will fall. Will its profits necessarily fall? Why or why not?
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Economics: Principles & Policy
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- That is not what I was asking. I know how to solve the problem but what i was asking is whether the firm should start to produce because in the first unit the MC is more than the price which is against the maximization rulearrow_forwardIs a firm that satisfies the immediate needs and wants of target markets always doing what’s best for its consumers in the long run?arrow_forwardSuppose that Nike's Fortnite concert led to a huge spike in economic profit. Why is it likely that this profit would be temporary?arrow_forward
- If the producers of rice wants to maximize profit up to what level of output will it produce and at what price? What condition should be met in order for the firms to efficiently produce this level of output?arrow_forwardIf a technological advance lowers a firm's production costs, why do prices typically fall?Shouldn't the firm maintain the same price and earn economic profit?arrow_forwardIn view of the profits being made, more firms will want to get into Frisbee production. In the long run, these new firms will shift the market supply curve to the right and push the price down to average total cost, thereby eliminating profits. At what equilibrium price are all profits eliminated? How many firms will be producing Frisbees at this price?arrow_forward
- You are a fleet manager for a transportation company and, as such, are interested in the changes in the gasoline market since gasoline is an input of production for your company. A hurricane in the Gulf of Mexico disrupts oil refineries. In the short-run, you predict that this hurricane will, all else equal, Select one: a. Increase the supply of gasoline, pushing down its price and increasing your company's profit. b. Decrease the demand for gasoline, pushing down its price and reducing your company's profit. c. Decrease the supply of gasoline, pushing up its price and reducing your company's profit. d. Increase the demand for gasoline, pushing up its price and increasing your company's profit.arrow_forwardWhat price does a firm charge for the good it produces?arrow_forwardUsing the figure above, what is the optimal quantity of goods for the firm to produce? Using the figure above, what is the optimal price for the quantity of goods for the firm to produce? Using the figure above, what is the total revenue and the total cost for the firm? Using the figure above, what is profit/loss for the firm? ***Please answer question number 3arrow_forward
- The agricultural market whose demand and supply schedules are is initially in long-run equilibrium. Quantity then falls to 50% of its previous level as a result of an unexpectedly poor harvest. How many time periods will it take for price to return to within 1% of its long-run equilibrium level?arrow_forward(a) Let the industry producing soybeans be in a long-run equilibrium. What is the equilibrium price of a bushel of soybeans? How many billions of bushels are produced? How many farmers are there in the industry? What is the shipping fee per bushel of soybeans? (b) Suppose that the demand for soybeans drops due to decreased im- port by China and becomes Q = 15.3 − p. In a new long run equilibrium, what is the equilibrium price of a bushel of soybeans? How many billions of bushels are produced? How many farmers are there in the industry? What is the shipping fee per bushel? (c) Calculate the change in the producers’ surplus between the situations described in (a) and (b). (d) Show that the decrease in the producers’ surplus equals to the decrease in the total shipping fees as the industry contracts incrementally from the equilibrium output in (a) to the equilibrium output in (b).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
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