2. Suppose that the market for wind chimes is a competitive market. The following graph shows the daily cost curves of a particular firm operating in this PRICE (Dollars per wind chime) 40 36 32 28 24 20 8 0 MC 0 ATC + 2 4 8 10 12 14 16 18 20 QUANTITY (Thousands of wind chimes per day) market: a) In short run, at a market price of $26 per wind chime how muc AVC 6 quantity you obtained in question (a), indicate the area that represents firm's profit or loss in short run on the graph. c) What is this firm's shutdown price, that is the price below which it is optimal for the firm to shut down in short run? d) In the long run, all firms can enter and exit the market, and all entrants have the same costs as above. As this market makes the transition to its long-run equilibrium, will the price rise or fall? Will the quantity demanded rise or fall? Will the quantity supplied by each firm rise or fall? Explain your answers. e) Graph the long-run supply curve in equilibrium for this market, with specific numbers on the axes as relevant.

2. Suppose that the market for wind chimes is a competitive market. The following graph shows the daily cost curves of a particular firm operating in this PRICE (Dollars per wind chime) 40 36 32 28 24 20 8 0 MC 0 ATC + 2 4 8 10 12 14 16 18 20 QUANTITY (Thousands of wind chimes per day) market: a) In short run, at a market price of $26 per wind chime how muc AVC 6 quantity you obtained in question (a), indicate the area that represents firm's profit or loss in short run on the graph. c) What is this firm's shutdown price, that is the price below which it is optimal for the firm to shut down in short run? d) In the long run, all firms can enter and exit the market, and all entrants have the same costs as above. As this market makes the transition to its long-run equilibrium, will the price rise or fall? Will the quantity demanded rise or fall? Will the quantity supplied by each firm rise or fall? Explain your answers. e) Graph the long-run supply curve in equilibrium for this market, with specific numbers on the axes as relevant.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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