6. (MARGINAL ANALYSIS) A perfectly competitive industry currently has 100 firms, all of which have fixed costs of $16 and average variable cost as follows: Quantity 1 Average Variable Cost $1 Total Cost Marginal Cost Average Total Cost 2 2 3 3 4 4 5 6 5 6 a) Compute TC, MC and ATC and fill in columns above. Hint: this is done most easily by calculating TC first, right? b) The price is currently $10. Would this profit-maximizing firm shut down in the short run, or continue to produce? If it continues to produce, how much would this firm produce? c) As the market that this firm belongs to 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? Briefly explain why these changes occur in transition to the long run. Try to illustrate this with a graph of the firm and market it belongs to!
6. (MARGINAL ANALYSIS) A perfectly competitive industry currently has 100 firms, all of which have fixed costs of $16 and average variable cost as follows: Quantity 1 Average Variable Cost $1 Total Cost Marginal Cost Average Total Cost 2 2 3 3 4 4 5 6 5 6 a) Compute TC, MC and ATC and fill in columns above. Hint: this is done most easily by calculating TC first, right? b) The price is currently $10. Would this profit-maximizing firm shut down in the short run, or continue to produce? If it continues to produce, how much would this firm produce? c) As the market that this firm belongs to 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? Briefly explain why these changes occur in transition to the long run. Try to illustrate this with a graph of the firm and market it belongs to!
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:6. (MARGINAL ANALYSIS) A perfectly competitive industry currently has 100 firms, all of which have
fixed costs of $16 and average variable cost as follows:
Quantity
1
Average Variable
Cost
$1
Total Cost
Marginal Cost
Average Total Cost
2
2
3
3
4
4
5
6
5
6
a) Compute TC, MC and ATC and fill in columns above. Hint: this is done most easily by calculating
TC first, right?
b) The price is currently $10. Would this profit-maximizing firm shut down in the short run, or continue
to produce? If it continues to produce, how much would this firm produce?
c) As the market that this firm belongs to 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? Briefly explain why these changes occur in transition to the long run. Try to illustrate this
with a graph of the firm and market it belongs to!
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