cost curves to those of Smart in question 3. a.) What happens to the number of firms producing running shoes in the long run?What happens to the price of running shoes in the long run? Answer: b.) What happens to the quantity of running shoes produced by Smart in the long run?What happens to the quantity of running shoes in the entire market in the long run? Answer: c. ) Does Smart shoes have excess capacity in the long run?Why, if Smart firm shoes has excess capacity in the long run, doesn’t the firm decrease its capacity?What is the relationship between Smart Shoes’ price and marginal cost? Answer:
Question 4: In the market for running shoes, all the firms face a similar demand curve and have similar cost curves to those of Smart in question 3.
a.) What happens to the number of firms producing running shoes in the long run?What happens to the price of running shoes in the long run?
Answer:
b.) What happens to the quantity of running shoes produced by Smart in the long run?What happens to the quantity of running shoes in the entire market in the long run?
Answer:
c. ) Does Smart shoes have excess capacity in the long run?Why, if Smart firm shoes has excess capacity in the long run, doesn’t the firm decrease its capacity?What is the relationship between Smart Shoes’ price and marginal cost?
Answer:
Question 3 with awnsers provided below.
Question 3: The situation facing by firm “Smart”, a producer of running shoes, is shown in the following figure.
- What quantity does Smart Shoes produce?
Answer: The quantity produced by the firm is at where the MC=MR, where the firm maximize profit. In the figure, MC is equal to MR at 100 pairs of shoes.
2. What is the price of a pair of Smart shoes?
Answer: Since the quantity produced is 100 pairs, the corresponding price of shoes is $80.
3. What is Smart’s economic
Answer:
Since the ATC is less that the price, the firm earn profit. The total profit of the firm can be calculated as follows:
Thus, the total profit is $2,000.
4. Why MR curve is below to demand curve?
Answer:In a market, competitive market has differences in their profit maximizing decision and generally get relatively lower profit than the anti-competitive market where firms are able to increase or decrease the price level of their products.According to the given graph, one can conclude that the Smart shoe company is serving its running shoes in the monopolistic market. Each firm has its separate customers according to their preferences. To increase the sales of shoes, Smart shoe company has to lower the price at each unit because the firm has no other alternative or way to attract more than the usual customers. This decrease in price will lower the firm's marginal revenue compared to the demand. Therefore, the marginal revenue curve generally lies below the demand curve.
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