Yesterday, a perfectly competitive producer of construction bricks manufactured and sold 10,000 bricks per week at a market price that was just equal to the minimum average variable cost of producing each brick. Today, all the firm’s costs are the same, but the market price of bricks has declined. Assuming that this firm has positive fixed costs, did the firm earn economic profits, economic losses , or zero economic profits yesterday? To maximize economic profits today, how many bricks should this firm produce today? Concept Introduction: Economic profit: The economic profit of a firm is calculated by deducting total revenue from total costs. The total costs consists of both implicit and explicit costs. Explicit cost is the ordinary costs of the firm like rent, employee salaries etc. Implicit cost is also known as imputed cost which describes as the opportunity cost of anything. In a perfect competitive market, if the price is greater than the average total cost the firm; it will earn a positive economic profit. If it is below the average total cost curve, the firm will incur losses. If the price was equal to the average total cost curve, it is called the breakeven point.

Question

Want to see the full answer?

Answer 1

Question

Chapter 23, Problem 6P

To determine

Yesterday, a perfectly competitive producer of construction bricks manufactured and sold 10,000 bricks per week at a market price that was just equal to the minimum average variable cost of producing each brick. Today, all the firm’s costs are the same, but the market price of bricks has declined.

Assuming that this firm has positive fixed costs, did the firm earn economic profits, economic losses, or zero economic profits yesterday?

To maximize economic profits today, how many bricks should this firm produce today?

Concept Introduction:

Economic profit: The economic profit of a firm is calculated by deducting total revenue from total costs. The total costs consists of both implicit and explicit costs. Explicit cost is the ordinary costs of the firm like rent, employee salaries etc. Implicit cost is also known as imputed cost which describes as the opportunity cost of anything. In a perfect competitive market, if the price is greater than the average total cost the firm; it will earn a positive economic profit. If it is below the average total cost curve, the firm will incur losses. If the price was equal to the average total cost curve, it is called the breakeven point.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Which of the following factors tend to decrease the wage differential between union and non union workers: unions tend to organize the firms with the lowest ability to pay initially all of the above unions must moderate their wage demand to keep workers competitive some nonunion employers pay their employees above union wages only ‘a’ and ‘b’ above

The accompanying graph shows the short-run demand and cost situation for a price searcher in a market with low barriers to entry. Price (dollars) 24 8 MC ATC MR 30 D 45 50 Quantity/time The firm will maximize its profit at a quantity of units. After choosing the profit maximizing quantity, the firm will charge a price of The firm will receive $ in revenue at the profit-maximizing quantity. The total cost of production for this profit-maximizing quantity is S The maximum profit the firm can earn in this situation is $ per unit for this output. How will the situation change over time? Profits will attract rival firms into the market until the profit-maximizing price falls to the level of per-unit cost. ◇ Losses will induce firms to leave this market until the profit maximizing price falls to zero. The market will adjust until the price charged by this firm no longer exceeds marginal cost at the profit-maximizing quantity. This market is already in long-run equilibrium, and will not…

Explain how are kids well being with the poverty simulation.