Microeconomics
Microeconomics
13th Edition
ISBN: 9781337617406
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 5.3, Problem 1ST

Suppose college students are given two options. With option A, the price a student pays for a class is always the equilibrium price. For example, if the equilibrium price to take Economics 101 is $600 at 10 a.m. and $400 at 4 p.m., then students pay more for the early class than they do for the later class. With option B, the price a student pays for a class is the same regardless of the time the class is taken. Given the choice between options A and B, many students would say that they prefer option B to option A. Is this the case for you? If so, why would that be your choice?

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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…
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