ECON MICRO (with MindTap, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
6th Edition
ISBN: 9781337408059
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 8, Problem 13P
A
To determine
The short run response of a firm to a reduction in the
Concept Introduction:
B
To determine
The process by which the industry returns to long run equilibrium followed a change in market
Concept Introduction: Perfect competition has supply curve depicting the marginal cost curve which is higher than the average variable cost. Firms maximise their profits by producing at price = marginal cost.
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(J) Canadian red wheat is a normal good, in a perfectly competitive market which is in long run equilibrium. There occurs a boon in the economy and income rises. What effect does this have on short run equilibrium price and equilibrium quantity? Draw a short run industry graph showing the change described above. Remember to label every curve, label your axes, and demonstrate the resulting changes in the axes.
Question 3
(a) A competitive firm’s short-run supply curve depends on two curves. Which two exact curves are we talking about?
(b) Clearly explain which portion/part of these curves provide us with the short-run supply curve of such a firm and which part is excluded from being considered a part of such a supply curve?
(c) In this context, explain the economic reason why the short run supply curve of a competitive firm slopes upwards.
Chapter 8 Solutions
ECON MICRO (with MindTap, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
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- ( 8. Short-run and long-run effects of a shift in demand Suppose that the jackfruit industry is initially operating in long-run equilibrium at a price level of $5 per pound of Jackfruit and quantity of 175 million pounds per year. Suppose a top medical journal publishes research that animal-alternative protein sources such as Jackfruit could increase your expected lifespan by 4 years. The publication is expected to cause consumers to demand Shift the demand curve, the supply curve, or both on the following graph to illustrate these short-run effects of the publication. (punod jad sig 10 PRICE (Dolars per pound) In the long run, some firms will respond by 10 a 8 T 6 5 3 2 Supply EX Demand Shift the demand curve, the supply curve, or both on the following graph to Tlustrate both the short-run effects of the publication and the new long- run equilibrium after firms and consumers finish adjusting to the news 1 915 0 005 140 QUANTITY Mllions of pounds) 35 280 315 360 Demand Jackfruit at…arrow_forward1.(a) Explain with the help of a graph how a perfectly competitive firm determines its profit-maximizing quantity of output. (b) Explain with the help of a graph the effect of a decrease in marginalcost on the profit-maximizing quantity of output of a perfectly competitive firm.arrow_forwardAssume that Jasmine is a typical firm that produces and sells T-shirts in a perfectly competitive constant- cost industry. The market is currently in long-run equilibrium. The market price is $5, and Jasmine's marginal cost at each level of output is listed in the table below. Quantity of Output 0 1 2 3 4 5 6 Marginal Cost 0 2 3 4 5 6 7 (a) What is Jasmine's pront-imamizing quantity of output? Explain. (b) Draw a correctly labeled graph for Jasmine, and show Jasmine's total revenue at the profit-maximizing quantity, shaded completely. (c) Now assume consumer demand for T-shirts increases. What will happen to the number of firms in the market in the long run? Explain.arrow_forward
- 52. For a perfectly competitive, increasing-cost industry, an increase in the industry's demand will lead to which of the following in the long run? A.An upward shift in each firm's long-run average cost curve B.An increase in each firm's profit C. A decrease in the price of an input and a decrease in total industry profits D. A decrease in total industry sales E. A decrease in total producer surplus and an increase in total consumer surplusarrow_forward1. Assume you have a perfectly competitive market with two types of firms. The only difference between the two types of firms is that the minimum average cost at which firms of type A can produce is lower than the minimum average cost at which firms of type B can produce. a. Give a graphical example of what the individual long run supply functions of a type A firm and a type B firm may look like. Explain the shape in detail. b. Based on your example, what will the aggregate supply curve of a market with 2 firms, one type A and one type B, look like? Explain the shape in detail. C. Assume now that all potential firms are identical. Evaluate the impact of a demand shock on the long run equilibrium market price and firm numbers. You must use graphical analysis and explain in detail.arrow_forwardMultiple choice - microeconomics 41) Where is the competitive firm’s short-run supply curve located? A. the part of the average-variable-cost curve that lies above marginal cost B. the part of the marginal-cost curve that lies above average variable cost C. the part of the average-total-cost curve that lies above marginal cost D. the part of the marginal-cost curve that lies above average total cost 40) For any given price, a firm in a competitive market will maximize profit by selecting the level of output where price intersects which curve? A. marginal-revenue curve B. average-variable-cost curve C. marginal-cost curve D. average-total-cost curvearrow_forward
- 3. ) Ball point pens are produced by a constant-cost industry made up of identical firms with standard U-shaped average cost curves. Assume the market is currently in a long-run equilibrium. Using one or more diagrams, draw the long-run supply curve for ball point pens and explain what will happen in the short and long run if the demand for ball point pens falls.arrow_forward2. Assume that the above cost data is for a perfectly competitive firm. Using this data answer the following: (See Atteched) (a) If the market equilibrium price that this firm charges is $50, what level of output must this firm produce to maximize its profit? (b) What would be the amount of profit that this firm would earn if it produced at the profit-maximizing level of output? 3. You read in a business magazine that farmers are reaping high profits. With the theory of perfect competition in mind, what do you expect to happen over time (in the long run) to each of the following? a. The prices of agricultural products b. The profits of farmers c. The equilibrium output in agricultural markets d. The number of farms 4. Distinguish between economies of scale and diseconomies of scale. Give examples of why a firm may experience economies of scale. editarrow_forward17. A market is in long-run equilibrium and firms in this market have identical cost structures. Suppose demand in this market decreases. a. Describe what happens to the profit-maximizing output quantity for individual firms as the market leaves and then returns to long-run equilibrium. b. Describe what happens to the market quantity as the market leaves and then returns to long-run equilibrium.arrow_forward
- 11. Consider a competitive market where firms have U-shaped cost curves. Which of the following is true? a. The long run market supply curve for a constant cost industry is upward sloping, and, the short run supply curve of each firm is upward sloping. b. The long run market supply curve for an increasing cost industry is upward sloping, and, the short run supply curve of each firm is upward sloping. c. The long run market supply curve for a decreasing cost industry is upward sloping, and, the short run supply curve of each firm is upward sloping. d. The long run market supply curve for an increasing cost industry is downward sloping, and, the short run supply curve of each firm is horizontal. e. None of the above.arrow_forward5.arrow_forwardIn the long run, some firms will respond by Shift the demand curve, the supply curve, or both on the following graph to illustrate both the short-run effects of the viral video and the new long- run equilibrium after firms and consumers finish adjusting to the news. PRICE (Dollars per pound) 10 9 8 7 2 1 0 0 35 I Supply Demand 70 105 140 175 210 245 QUANTITY (Millions of pounds) 280 315 350 Demand Supply until ? The new equilibrium price and quantity suggest that the shape of the long-run supply curve in this industry is run. in the longarrow_forward
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