The average price per shirt washed and ironed in Santa Barbara and in Goleta. The typical marginal cost and average total cost curves for California Cleaners in Goleta, assuming it is a perfectly competitive firm but is making a profit on each shirt in the short run. Also, the short-run equilibrium point needs to be marked and the area that corresponds to the profit made by the dry cleaner needs to be shaded. If $2.25 is the short-run equilibrium price in Goleta, draw a typical short-run demand and supply curve for the market and label the equilibrium point. The new average price of washing and ironing a shirt in Goleta, if another dry cleaning service named Diamond Cleaners enters the market and charges $1.95 per shirt. Also, illustrate the effect of entry on the average Goleta price by a shift of the short-run supply curve, the demand curve, or both. Assume that California Cleaners now charges the new average price and just breaks even (that is, makes zero economic profit) at this price. Show the likely effect of the entry on your diagram in part b. If the dry cleaning industry is perfectly competitive, what does the average difference in price between Goleta and Santa Barbara imply about the costs in the two areas? Concept Introduction: Marginal Cost - It is the cost of producing an additional unit of output. Average Variable cost - It is the firm’s variable cost that is expressed in terms of a unit. Average Total Cost - It is the firm’s total cost that is expressed in terms of each unit. Demand - It is the quantity of a commodity that a consumer is willing to purchase at a particular price in a given period of time.

Question

Want to see the full answer?

Answer 1

Question

Chapter 12, Problem 12P

To determine

The average price per shirt washed and ironed in Santa Barbara and in Goleta.

The typical marginal cost and average total cost curves for California Cleaners in Goleta, assuming it is a perfectly competitive firm but is making a profit on each shirt in the short run. Also, the short-run equilibrium point needs to be marked and the area that corresponds to the profit made by the dry cleaner needs to be shaded.

If $2.25 is the short-run equilibrium price in Goleta, draw a typical short-run demand and supply curve for the market and label the equilibrium point.

The new average price of washing and ironing a shirt in Goleta, if another dry cleaning service named Diamond Cleaners enters the market and charges $1.95 per shirt. Also, illustrate the effect of entry on the average Goleta price by a shift of the short-run supply curve, the demand curve, or both.

Assume that California Cleaners now charges the new average price and just breaks even (that is, makes zero economic profit) at this price. Show the likely effect of the entry on your diagram in part b.

If the dry cleaning industry is perfectly competitive, what does the average difference in price between Goleta and Santa Barbara imply about the costs in the two areas?

Concept Introduction:

Marginal Cost - It is the cost of producing an additional unit of output.

Average Variable cost - It is the firm’s variable cost that is expressed in terms of a unit.

Average Total Cost - It is the firm’s total cost that is expressed in terms of each unit.

Demand - It is the quantity of a commodity that a consumer is willing to purchase at a particular price in a given period of time.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

3. Consider a call on the same underlier (Cisco). The strike is $50.85, which is the forward price. The owner of the call has the choice or option to buy at the strike. They get to see the market price S1 before they decide. We assume they are rational. What is the payoff from owning (also known as being long) the call? What is the payoff from selling (also known as being short) the call? Payoff from Call with Strike of k=$50.85 S1 Long $100 $95 $90 $85 $80 $75 $70 $65 $60 $55 $50.85 $50 $45 $40 $35 $30 $25 Short

4. Consider a put on the same underlier (Cisco). The strike is $50.85, which is the forward price. The owner of the call has the choice or option to buy at the strike. They get to see the market price S1 before they decide. We assume they are rational. What is the payoff from owning (also known as being long) the put? What is the payoff from selling (also known as being short) the put? Payoff from Put with Strike of k=$50.85 S1 Long $100 $95 $90 $85 $80 $75 $70 $65 $60 $55 $50.85 $50 $45 $40 $35 $30 $25 Short

The following table provides information on two technology companies, IBM and Cisco. Use the data to answer the following questions. Company IBM Cisco Systems Stock Price Dividend (trailing 12 months) $150.00 $50.00 $7.00 Dividend (next 12 months) $7.35 Dividend Growth 5.0% $2.00 $2.15 7.5% 1. You buy a futures contract instead of purchasing Cisco stock at $50. What is the one-year futures price, assuming the risk-free interest rate is 6%? Remember to adjust the futures price for the dividend of $2.15.