CONNECT F/MICROECONOMICS
21st Edition
ISBN: 2810022151240
Author: McConnell
Publisher: MCG
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Chapter 11.6, Problem 3QQ
To determine
Profit maximizing output.
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Refer to the above figure. The firm is currently producing at Q2. The firm shouldSelect one:A.shut down.B.increase production.C.leave production as it is.D.reduce production.
a. Calculate the marginal cost and average variable cost
for each level of production.
b. How much would the firm produce if it could sell its
product for $5? For $7? For $10?
c. Explain your answers.
d. Assuming that its fixed cost is $3, calculate the firm's
profit at each of the production levels determined in
part (b).
Imagine a firm in a competitive market comes up with a new production method, which halves its marginal cost at all levels of Q. Fixed costs are unaffected. Which of the following statements are true?
a. The firm's AC at all levels of Q would be lower.
b. The firm would extract an innovation rent from selling at the market price with lower costs.
c. The firm's point of minimum AC would be a higher level of Q.
d. The innovation would immediately cause the market price to drop.
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