Managerial Economics: A Problem Solving Approach
5th Edition
ISBN: 9781337106665
Author: Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher: Cengage Learning
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Chapter 12, Problem 7MC
To determine
Pricing of the good.
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Which statements are true regarding economies of scale?
Choose one or more:
A. Economies of scale typically cause an industry to be perfectly competitive.
B. To maximize profits, a monopoly that occurs because of economies of scale should produce an
output so that marginal revenue equals marginal costs.
C. A firm that has economies of scale sees its average total costs decrease when production
increases.
D. When a firm has a natural monopoly, it has that type of monopoly because of economies of scale.
Should a firm shut down if its revenues is TR = $1,500 per week and:
a. its variable cost is TVC = $1,100 and its sunk fixed cost is TFC = $800?
b. its TVC = $1,600 and is TFC = $600?
c. its TVC = $1,100 and its TFC = $1000 ($800 of which is avoidable if it shuts down?)
1. The soybean industry is a constant cost industry. A new study revealing negative health effects of soymilk permanently decreases the number of buyers in the soybean market. Due to the decrease in demand, the equilibrium price of soybeans ......... in the long run, the equilibrium quantity ........of soybeans in the long run, and the number of firms in the market will ........ in the long run. decrease, increase, or does not change. 2.The pen industry is an increasing cost industry. If a pen is an inferior good, and consumer's incomes permanently increase, the equilibrium price of a pen....... in the long run, the equilibrium quantity of pens ........... in the long run, and the number of firms in the market......... in the long run. increase, does note change, decrease.
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Chapter 12 Solutions
Managerial Economics: A Problem Solving Approach
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- In the short run, perfectly (or purely) competitive firms will maximize their profit by producing (select all options that apply): a. a quantity where marginal revenue > marginal cost. b. the quantity where marginal revenue = marginal cost. c. the largest quantity possible, not considering costs or revenues. d. a small quantity to drive up the price. e. the quantity where price equals marginal cost. f. none of the above are correct.arrow_forwardA profit-maximizing firm in a competitive market is currently producing 500 units of output. It has average revenue of $10, average total cost of $8, and fixed costs of $200. a. What is its profit? b. What is its marginal cost? c. What is its average variable cost? d. Is the efficient scale of the firm more than, less than, or exactly 100 units?arrow_forwardWhat happens when more and more firms enter an industry? a) Decline in economic profits b) An increase in the accounting profits c) An increase in price d) A decline in production Answer A В Darrow_forward
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- a. In the long-run in a decreasing-cost competitive industry, HD EDU's long-run supply curve is horizon- tal at the minimum of its ATC; the industry-supply curve is downward sloping. b. In the long-run in a decreasing-cost competitive industry, HD EDU's supply curve is its marginal cost (MC) curve above the minimum of average total cost (ATC); the industry supply curve is the horizon- tal summation of the marginal cost curves of HD EDUs in the industry above the minimum of their respective average total cost curve (ATC). c. In the long-run in a competitive constant-cost industry, HD EDU's supply curve is its MC curve above the minimum of ATC (average total cost); the industry supply curve in this constant-cost industry is perfectly elastic at the minimum of ATC. d. In the long-run in a constant cost industry, the supply curve of a competitive firm is perfectly elastic at the minimum of ATC; the long-run industry supply curve in this constant-cost industry is perfectly elastic at the…arrow_forwarda perfectly competitive market over the long run, a. an increase in market demand or a decrease in firms' costs will lead to a decrease in the number of firms operating within the market. b. an improvement in production technology will increase profits at fust, but those profits will be competed away over time as more firms enter the industry and reduce market price. c. market price will equal maximum possible average total cost in long-run equilibrium. d. an increase in demand will cause the final market equilibrium to be at the original price but at a lower output level.arrow_forwardLooking to see how to resolvearrow_forward
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