Exploring Microeconomics
8th Edition
ISBN: 9781544339443
Author: Sexton, Robert L.
Publisher: Sage Publications, Inc., Corwin, Cq Press,
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Chapter 12, Problem 9P
To determine
The profit and the relationship between profit,
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The graph below shows the marginal cost (MC), average variable cost (AVC), and average total cost (ATC) curves for a firm in a
competitive market. These curves imply a short-run supply curve that has two distinct parts. One part, not shown, lies along the vertical
axis (quantity-0); this represents a condition of production shutdown. Where is the other part? Use the straight-line tool to drawit.
To refer to the graphing tutorial for this question type, please click here
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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. It may help to create your own cost table and fill in columns for Marginal Cost and Average Total Cost based on the Total Cost information below.
a.What is the level of profit for this firm at the profit maximizing output?
b.To convince yourself that the quantity you found is indeed the profit maximizing quantity, try calculating what the profit would be at the next higher level of output. What did you find?
c. What do you predict will happen in this market over the long run?
Suppose that the long-run cost function for a perfectly competitive firm in the personal computer business is C(q) = 4g + 2500 for q> 0.
How many units does this firm produce in the long-run? What will be the price in the long-run? What is the profit of the firm in the long-run?
The firm produces type your answer.....
units of output. The price is $ type your answer....
in the long-run. The firm's profit is $ type your answer....
the long-run.
in
Chapter 12 Solutions
Exploring Microeconomics
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- In the short-run, if the marginal cost of a firm in a competitive industry is increasing while its average variable cost is downward sloping, what can you say about slope of average total cost?arrow_forwardEconomics Questionarrow_forward5. Profit maximization and shutting down in the short run Suppose that the market for cashmere sweaters is a competitive market. The following graph shows the daily cost curves of a firm operating in this market. 100 90 80 70 60 50 АТC 40 30 AVC 20 MC 10 10 20 30 40 50 60 70 80 90 100 QUANTITY (Thousands of sweaters) PRICE (Dollars per sweater)arrow_forward
- Homework (Ch 14) 5. Profit maximization and shutting down in the short run Suppose that the market for microwave ovens is a competitive market. The following graph shows the daily cost curves of a firm operating in this market. 100 90 80 ATC 60 50 40 30 AVC 20 MC 10 20 25 30 35 40 45 50 10 15 QUANTITY (Thousands of ovens) PRICE (Dollars per oven)arrow_forward50 45 40 35 30 ATC 25 20 15 AVC 10 MC 2 4 8 10 12 14 16 18 20 QUANTITY (Thousands of shirts) PRICE (Dollars per shirt)arrow_forwardp= 130 - 2Q. The firm's cost curve is C(Q) = 20 + 6Q. What is the profit-maximizing solution? The profit-maximizing quantity is O. (Round your answer to two decimal places.) The profit-maximizing price is $. (round your answer to two decimal places.) What is the firm's economic profit? The firm earns a profit of $]. (round your answer to two decimal places.) How does your answer change if C(Q) = 100 + 6Q? The increase in fixed cost O A. causes the firm to increase both the price and quantity, and profit increases. O B. has no effect on the equilibrium price and quantity, but profit will decrease. OC. has no effect on the equilibrium quantity, but the equilibrium price increases and profit increases. OD. has no effect on the equilibrium quantity, but the equilibrium price increases and profit decreases.arrow_forward
- Using the following table, for each price level, calculate the optimal quantity of units for the firm to produce. Using the data from the graph to determine the firm’s total variable cost, calculate the profit or loss associated with producing that quantity. Assume that if the firm is indifferent between producing and shutting down, it will choose to produce. (Hint: Select purple points [diamond symbols] on the graph to receive exact average variable cost information.) Price Quantity Total Revenue Fixed Cost Variable Cost Profit (Dollars per instant pot) (Instant pots) (Dollars) (Dollars) (Dollars) (Dollars) 25.00 1,600,000 70.00 1,600,000 100.00 1,600,000arrow_forwardUsing the following table, for each price level, calculate the optimal quantity of units for the firm to produce. Using the data from the graph to determine the firm’s total variable cost, calculate the profit or loss associated with producing that quantity. Assume that if the firm is indifferent between producing and shutting down, it will choose to produce. (Hint: Select purple points [diamond symbols] on the graph to receive exact average variable cost information.) Price Quantity Total Revenue Fixed Cost Variable Cost Profit (Dollars per instant pot) (Instant pots) (Dollars) (Dollars) (Dollars) (Dollars) 25.00 1,600,000 70.00 1,600,000 100.00 1,600,000 If the firm shuts down, it must incur its fixed costs (FC) in the short run. In this case, the firm's fixed cost is $1,600,000 per day. In other words, if it shuts down, the firm would suffer losses of $1,600,000 per day until its fixed…arrow_forwardWhat 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? Instructions: If the firm is taking a loss, enter this as negative (−) profits. $ g. What is the firm’s profit if it shuts down? Instructions: If the firm is taking a loss, enter this as negative (−) profits. $ h. In the short run, should this firm continue to operate or shut down?arrow_forward
- At what output rate does the firm maximize profit or minimize loss?arrow_forwardSuppose the cost of renting a snowy bus were to fall from $30 per hour to $20 per hour. What do you expect would happen in the short-run (stage 1 equilibrium) to (a) the number of cones produced by each snowy bus; (b) total production of cones in the market, and (c) economic profits of snowy bus businesses? Briefly explain (you don't need to do any calculations, just explain inwords).arrow_forward= The short-run marginal and average cost curves for a firm are displayed below. When q = 2 and q = 5, the marginal cost is $3. When q 5, the average cost is $5. Assume the firm has a fixed cost of $5 and they can sell each unit of output at a price of $3 (p = 3). What is the profit- maximizing level of output for the firm in the short-run? Profit maximizing q = LA $ 5 3 2 5 MC AC qarrow_forward
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