Exploring Microeconomics
8th Edition
ISBN: 9781544339443
Author: Sexton, Robert L.
Publisher: Sage Publications, Inc., Corwin, Cq Press,
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Question
Chapter 12, Problem 8P
To determine
(a)
The
To determine
(b)
Whether the firm will continue to operate in the short run if it is able to cover its AVC is to be determined.
To determine
(c)
The reason for Price being above
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For the following, decide whether you agree or dis-agree and explain your answer:
a. A firm earning positive profits in the short run always has an incentive to increase its scale of operation in the long run.
b. A firm suffering losses in the short run will continue to operate as long as total revenue at least covers fixed cost.
USE THE GRAPH TO ANSWER THE FOLLOWING QUESTIONS: (IF REQUIRED, USE THE DISCREET NUMBER OF BARRELS).
ANSWERS IN WHOLE NUMBER
a. How many barrels of natural-organic oil reflect the lowest minimum average variable cost?b. How much is the price of the natural-organic oil per barrel?c. How much is the fixed cost to produce the natural-organic oil?d. How many barrels of natural-organic oil should the firm produce to maximize its profit?e. At what production level would the marginal cost exceed the average cost?
A firm produces a product in a perfectly competitive industry and has a total cost function
TC= 50+4q+2q².
a. At the short-run market price of $20, the firm is producing 5 units of output. Is the firm
maximizing its profit? Explain.
b. What quantity of output will the firm produce in the long run, assuming there is no change in
cost structure? What will be the long-run equilibrium price?
c. Graphically depict the long-run equilibrium for an individual firm within this market.
Chapter 12 Solutions
Exploring Microeconomics
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Similar questions
- Assume that a firm in a competitive market faces the following cost information. If the market price for this firm's product is $40, calculate the profit maximizing level of output for this firm using marginal analysis. a.Approximately where do you think the price will end up in this market over the long run? b.Last, instead of assuming a given price, how would you go about finding the equilibrium price if you were given information on market demand?arrow_forwardConsider the following data: equilibrium price = $7.50, quantity of output produced 100 units, average total cost = $9, and average variable cost = $8. What will the firm do and why? = a. Shut down in the short run, because price is below average variable cost. b. Shut down in the short run, because price is below average total cost. c. Continue to produce in the short run, because price is greater than average variable cost. d. Continue to produce in the short run, because firms are always stuck with having to produce in the short run.arrow_forwardA. If a firm operating in a perfectly competitive market doubles the amount it sells, what happens to the price of its output and its total revenue? B. How does a competitive firm determine its profit-maximizing level of output? When does a competitive firm decide to temporarily shut down in the short run? Explain, using the concepts of marginal cost, marginal revenue, price, and average variable cost.arrow_forward
- Using the table (Check if the values are correct), answer the questions below: a. What is the firms total fixed cost b. Suppose the price of the product is 20 - What is the firms output level? - What is its profit (or loss)-per-unit at that output level? $ - What is its total profit? $ c. Now suppose the price of the product is $10. - What is the firm’s profit-maximizing output level? - What is the firm's profit or loss per-unit? $ - What is the firm's total profit (or loss)? $ d. At a price of $10, will the firm produce? e. If the price remains $10, what will happen to this firm in the long-run?arrow_forwardSuppose the competitive market price is $60, and a competitive firm’s total costs = q^2 - 6q + 990 and marginal cost = 2q - 6. a. Solve for the profit-maximizing (or loss minimizing) quantity (q*). b. What is the market equilibrium price? c. Should the competitive firm produce q*? Explain why using one of the four key questions and solutions. d. Does the competitive firm make a profit? Explain why using one of the four key questions and solutions. e. How much profit (or loss) does the competitive firm make?arrow_forwardSlide 2 Questions: a. What is the total revenue of the firm at the optimum level of output? b. What is the total cost at the optimum level of output? c. What is the profit of the firm at the optimum (profit-maximizing) level of output? d. What is the average cost of each unit sold at the optimum level of output? Is the firm at its log-run equilibrium? If yes/no, why?arrow_forward
- How we can understand the Long-run Normal price in increasing cost industry, and the Long-run Normal price in constant cost industry?arrow_forwardEconomicsarrow_forwardWhat quantity will the firm produce if it shuts down in the short run? What will be the profits if this firm shuts down? What quantity will the firm produce to minimize losses in the short run? If this firm chooses to operate at a loss, what will its profits equal? If the cost and revenue numbers in the table will continue permanently, what will this firm choose to do?arrow_forward
- (1) Use the graph to answer the question below. The quantity is measured in thousands of units. What will this firm decide to do in the long run? A-It will stay in the market because the price is above its AVC at its profit-maximizing output. B-It will leave the market because the price is below its ATC at its profit-maximizing output. C-It will increase its price to point B to earn normal profit. D-It will increase its output until its profit-maximizing output level is equal to B. E-Insufficient data to determine. (2) A dairy farmer is operating in a perfectly competitive market. The market price for milk is between the farmer's average variable cost and average total cost at the profit-maximizing level of output. What will the farmer do? A-Produce more milk. B-Produce less milk. C-Shut down in the short run. D-Operate in the short run and leave the industry in the long run. E-Insufficient information to determine (3) A firm operating in a perfectly competitive market cannot…arrow_forwardThe following graph summarizes the demand and costs for a firm that operates in a perfectly competitive market. a. What level of output should this firm produce in the short run? b. What price should this firm charge in the short run? c. What is the firm’s total cost at this level of output? d. What is the firm’s total variable cost at this level of output? e. What is the firm’s fixed cost at this level of output? f. What is the firm’s profit if it produces this level of output? g. What is the firm’s profit if it shuts down? h. In the long run, should this firm continue to operate or shut DOWNarrow_forwardSolve the followingarrow_forward
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