Suppose that price is below the current average total cost (ATC) but above the current average variable cost (AVC) of producing a unit, and that the market price is expected to rise at least to ATC in the near future. In the short run, a firm that is a price taker would immediately shut down and get out of the industry. O continue to produce a quantity such that marginal revenue equals marginal cost. shut down temporarily, in hopes of restarting in the near future. O cut price and expand output in hopes of achieving economies of scale

Suppose that price is below the current average total cost (ATC) but above the current average variable cost (AVC) of producing a unit, and that the market price is expected to rise at least to ATC in the near future. In the short run, a firm that is a price taker would immediately shut down and get out of the industry. O continue to produce a quantity such that marginal revenue equals marginal cost. shut down temporarily, in hopes of restarting in the near future. O cut price and expand output in hopes of achieving economies of scale

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider a perfectly competitive firm's average total cost curve, average variable cost curve, and marginal cost curve. MC ATC 30.00- 28.00- 26.00- If the market price is $15.00 per unit the firm will V by 24.00- producing. AVC 22.00- In the short run, the firm should 20.00- 18.00- experience losses O A. shut down; price is greater than AVC 16.00- 14.00- 12.00- 10.00- O B. shut down; price is less than ATC make a profit OC. shut down; price is less than FC break even 8.00- O D. continue to produce; price is greater than 6.00- O E. continue to produce; price is greater than AVC 4.00- 2.00- 0.00- 6 Quantity Price and cost
A perfectly competitive firm will be operating at its shutdown point if it operates at the minimum point on its ________ cost curve. a ) average total b ) marginal c ) total d ) average variable
A perfectly competitive firm faces the short-run cost schedule shown in Table 1. A) Assume market price declines to £9 per unit. If the firm’s average variable cost is £9.5, should the firm shut down in the short run? In the long run? Explain. B) If the firm is typical of other firms, what price will it charge in the long run? Explain.
Draw the short run marginal cost curve for a firm with eventually diminishing marginal product. Then, draw an associated average variable and average total cost curve. Indicate the quantity associated with minimum average variable and average total cost. Then, indicate the price at which a firm is indifferent between shutdown and exit and the price at which a firm is indifferent between entry and exit.
If any of your answers are negative, put a minus sign in front of the number. You are given the following cost data for a perfectly competitive firm. Q TFC TVC 16 16 10 16 18 16 28 16 16 40 54 70 16 Calculate TC, MC, AFC, AVC, and ATC when Q = 2. TC = S , MC = S. AFC = $ AVC = $ ATC = $ If the market price is $15, how many units of output will this firm produce? units of output. Calculate the firm's profit: $ Will the firm operate or shut down in the short run? The firm In the long run, the firm should O A. expand because short-run profits are negative. O B. expand because short-run profits are positive. OC. shut down because short-run profits are positive. O D. neither expand nor shut down because short-run profits are positive. O E. shut down because short-run profits are negative.
20) What will a firm in a perfectly competitive industry do in the short-run if the price of its product decreases below the firm's average variable costs but still above average total costs? A) Do nothing B) Increase production C) Decrease production D) Shut down
Suppose a perfectly competitive firm is experiencing short run economic losses. The firm will remain in the industry as long as a) marginal revenue equal to marginal cost b) price is greater than its minimum average variable cost O c) total revenue and total cost d) total revenue and average total cost
Given the table below for a firm operating in a perfectly competitive market, what is the short run fixed cost? Output 0 1 2 3 $20 $10 $12 Total Cost $10 $20 $28 $34 Cannot be determined
The graph shows the relevant cost curves for a perfectly (or purely) competitive firm. What value must the price of the good exceed for the firm to earn positive economic profits? $ GA $ Number What is the shutdown price for this firm? GA Price and Costs ($) Number 600 400 230.72 102.61 ATC 195.41 304.66 400 500 Quantity MC AFC AVC
Suppose you start a business of manufacturing computer software. Assume that this computer software company is a perfectly competitive firm. Your fixed cost per month is Tk. 80,000 and total cost is Tk. 140,000. If you sell 1000 software per month and the average revenue is Tk. 70, what should be your short-run decision regarding shut down and long run decision regarding exit?
A firm in a purely competitive industry has a typical cost structure. The normal rate of profit in the economy is 8 percent. This firm is earning $15 on every $150 invested by its founders. Instructions: Enter your answers as a whole number. a. What is its percentage rate of return? percent b. Is the firm earning an economic profit? (Click to select) V If so, how large? percent c. Will this industry see entry or exit? (Click to select) V d. What will be the rate of return earned by firms in this industry once the industry reaches long-run equilibrium? percent