Exploring Microeconomics
8th Edition
ISBN: 9781544339443
Author: Sexton, Robert L.
Publisher: Sage Publications, Inc., Corwin, Cq Press,
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Chapter 12, Problem 7P
To determine
(a)
P = MC, under
To determine
(b)
P =
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Can excess profit be earned in perfectly competitive markets in the long run. Explain.
Juan makes dining room chairs in a perfectly competitive industry. He is looking for economic advice and tells you the following data about his business. (Assume cost curves have their standard shapes.)
Total revenue is $120,000,
Total fixed costs are $100,000
Total variable costs are $110,000
Marginal cost is $200/unit
Quantity produced is 600 units
What will you suggest to Juan?
A: Shut down immediately
B: Do not shut down and increase production
C: Do not shut down but decrease production
D: Do not shut down and do not change the current production level.
Explain why a firm carries on production in short run even if it makes negative profit. Use well labeled diagrams to support your explanation.
Chapter 12 Solutions
Exploring Microeconomics
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Similar questions
- The graph below shows the costs structure of a firm operating under pure or perfect competition in short run. RM My Y 60 25 Quantity (units) 20 50 What is the M, N and P ?arrow_forwardIn case of perfect competition, a firm attains maximum satisfaction when MC curve cut MR curve. Is this True or False?arrow_forwardIn the long run, perfectly competitive firms are at equilibrium when: (LMC = Long-Run Marginal Cost; LAC = Long-Run Average Cost) a.P = LAC > LMC b.P = LMC = LAC. c.P = LMC > LAC d.P = MR.arrow_forward
- Graph using MC and MR curves for a firm operating in a short-run perfect competition market to make an "excessive profit".arrow_forwardO Macmillan Learning Perfect Competition: Around the World Consider the accompanying graph illustrating the marginal cost (MC), average total cost (ATC), and demand (D) curves for an individual coffee farmer in Colombia. Determine what profits, if any, the farmer is earning. Then graphically illustrate the long-run equilibrium for the farmer. a. In the short run, the farmer is earning b. Now assume the Colombian farmer continues to operate in the long run. Move the appropriate curve or curves on the graph to illustrate the long-run equilibrium for the farmer. c. In the long run, the farmer is earning a normal profit an economic loss an economic profit Price Firm Firm's output MC ATC D = Pricearrow_forwardWhat will happen when variable costs rise in a perfectly competitive industry? Selected answer will be automatically saved. For keyboard navigation, press up/down arrow keys to select an answer. a b C Question 5 d The number of firms will eventually increase, but the existing firms will cut back production in the short run. The number of firms will eventually decrease and the existing firms will cut back production in the short run. The number of firms will eventually decrease, but the existing firms will expand production in the short run. The number of firms will eventually increase and the existing firms will expand production in the short run. Barrow_forward
- Please answer fast please arjent help ASAP please solved a.b and c please answerarrow_forwardWhat does zero economic profits in the long-run mean to the owner of a business operating in a perfect competitive market?arrow_forwardA profit-maximizing firm is producing where MR = MC and has an average total cost of $4, but it gets a price of $3 for each good it sells.a. What would you advise the firm to do? The firm should shut down in the short run and exit the market in the long run. The firm is producing where MR = MC, so it should produce in both the short run and long run. As long as average variable costs are less than $3, in the short run, the firm should produce. In the long run, it should exit the market. The firm should shut down in the short run. Once the firm recoups its fixed costs, it should produce in the long run. b. What would you advise the firm to do if you knew average variable costs were $3.50? The firm should exit the market in the long run, but it should produce in the short run since it is covering average fixed costs. The firm should shut down in the short run. Once the firm recoups its fixed costs, it should reopen in the long run. The firm…arrow_forward
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