The accompanying graph shows the short-run demand and cost situation for a price searcher in a market with low barriers to entry.Price (dollars)248MCATCMR30D45 50Quantity/timeThe firm will maximize its profit at a quantity ofunits.After choosing the profit maximizing quantity, the firm will charge a price ofThe firm will receive $in revenue at the profit-maximizing quantity.The total cost of production for this profit-maximizing quantity is SThe maximum profit the firm can earn in this situation is $per unit for this output.How will the situation change over time?Profits will attract rival firms into the market until the profit-maximizing price falls to the level of per-unit cost.◇ Losses will induce firms to leave this market until the profit maximizing price falls to zero.The market will adjust until the price charged by this firm no longer exceeds marginal cost at the profit-maximizing quantity.This market is already in long-run equilibrium, and will not change throughout time.

Step 1: Identify Profit-Maximizing Quantity Profit is maximized where Marginal Revenue (MR) =…

Answered: The accompanying graph shows the…

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter11: Profit Maximization

Section: Chapter Questions

Problem 11.1P

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Return to Figure 9.2. Suppose P0 is 10 and P1 is 11. Suppose a new firm with the same LRAC curve as the incumbent tries to bleak into the market by selling 4,000 units of output. Estimate from the graph what the new firms average cost of producing output would be. If the incumbent continues. to produce 6,000 units, how much output would the two films supply to the market? Estimate what would happen to the market price as a result of the supply of both the incumbent firm and the new entrant. Approximately how much profit would each firm earn? Figure 9.2 Economics of Scale and Natural Monoploy
A firms marginal cost curve above the average variable cost curve is equal to the films individual supply curve. This means that every time a firm receives a price from the market it will be willing to supply the amount of output where the price equals marginal cost. What happens to the films individual supply curve if marginal costs increase?
What two lines on a cost curve diagram intersect at the shutdown point?
A computer company produces affordable, easy-to-use home computer systems and has fixed costs of 250. The marginal cost of producing computers is 700 for the first computer, 250 for the second, 300 for the third, 350 for the fourth, 430 for the fifth, 450 for the sixth, and 500 for the seventh. Create a table that shows the companys output, total cost, marginal cost, average cost, variable cost, and average variable cost. At what price is the zero-profit point? At what price is the shutdown point? If the company sells the computers for 500, is it making a profit or a loss? How big is the profit or loss? Sketch a graph with AC, MC, and AVG curves to illustrate your answer and show the profit or loss. If the firm sells the computers for 300, is it making a profit or a loss? How big is the profit or loss? Sketch a graph with AC, MC, and AVG curves to illustrate your answer and show the profit or loss.
Finding a life partner is a complicated process that may take many years. It is hard to think of this process as being part of a very complex market, with a demand and a supply for partners. Think about how this market works and some of its characteristics, such as search costs. Would you consider it a perfectly competitive market?
A market in perfect competition is in long-run equilibrium. What happens to the market if labor unions are able to increase wages for workers?
How many shuts do you recommend selling per color per day? What then is your recommended dollar markup and markup percentage? What dollar margin and percentage margin is that?
A firm in a perfectly competitive industry has patented a newprocess for making widgets. The new process lowers the firm’saverage cost, meaning that this firm alone (although still aprice taker) can earn real economic profits in the long run. a. If the market price is $20 per widget and the firm’s marginalcost is given by MC=0.4q , where q is the dailywidget production for the firm, how many widgets willthe firm produce? b. Suppose a government study has found that the firm’snew process is polluting the air and estimates the socialmarginal cost of widget production by this firm to be. If the market price is still $20, what is thesocially optimal level of production for the firm? Whatshould be the rate of a government-imposed excise tax tobring about this optimal level of production? c. Graph your results.

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