Principles of Economics 2e
2nd Edition
ISBN: 9781947172364
Author: Steven A. Greenlaw; David Shapiro
Publisher: OpenStax
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Textbook Question
Chapter 8, Problem 23RQ
What two lines on a cost curve diagram intersect at the shutdown point?
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Suppose Felix runs a small business that manufactures frying pans. Assume that the market for frying pans is a competitive market, and the market
price is $20 per frying pan.
The following graph shows Felix's total cost curve.
Use the blue points (circle symbol) to plot total revenue and the green points (triangle symbol) to plot profit for frying pans quantities zero through
seven (inclusive) that Felix produces.
TOTAL COST AND REVENUE (Dollars)
200
175
150
125
100
75
50
25
0
-25
0
1
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2
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☐
A
☐
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3
4
5
QUANTITY (Frying pans)
O
☐
6
Total Cost
☐
7
8
o
Total Revenue
Profit
?
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Calculate Felix's marginal revenue and marginal cost for the first seven frying pans he produces, and plot them on the following graph. Use the blue
points (circle symbol) to plot marginal revenue and the orange points (square symbol) to plot marginal cost at each quantity.
Humana hospitals in 1991 charged very high prices relative to their marginal costs. For example, Humana's Suburban Hospital in Louisville charged patients $103.65 for
a pair of crutches that cost the hospital $8.35 (Douglas Frantz, "Congress Probes Hospital Costs-S$9 Tylenols, $118 Heat Pads," San Francisco Chronicle, October 18,
1991: A2). Calculate the hospital's price/marginal cost ratio, its Lerner Index, and the demand elasticity, e, that it faces for a pair of crutches (assuming that it maximizes its
profit).
What is Humana's price/marginal cost ratio?
The price to marginal cost ratio is 12.41. (round your answer to two decimal places)
What is its Lerner Index?
Its Lerner Index is
(round your answer to two decimal places)
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What two lines on a cost curve diagram intersect at the zero-profit point?
Chapter 8 Solutions
Principles of Economics 2e
Ch. 8 - Firms ill a perfectly competitive market are said...Ch. 8 - Would independent trucking fit the characteristics...Ch. 8 - Look at Table 8.13. What would happen to the films...Ch. 8 - Suppose that the market price increases to 6, as...Ch. 8 - Explain in words why a profit-maximizing film will...Ch. 8 - A firms marginal cost curve above the average...Ch. 8 - If new technology in a perfectly competitive...Ch. 8 - A market in perfect competition is in long-run...Ch. 8 - Productive efficiency and allocative efficiency...Ch. 8 - Explain how the profit-maximizing rule of setting...
Ch. 8 - A single firm in a perfectly competitive market is...Ch. 8 - What are the four basic assumptions of perfect...Ch. 8 - What is a price taker firm?Ch. 8 - How does a perfectly competitive firm decide what...Ch. 8 - What prevents a perfectly competitive firm from...Ch. 8 - How does a perfectly competitive film calculate...Ch. 8 - Briefly explain the reason for the shape of a...Ch. 8 - What two rules does a perfectly competitive firm...Ch. 8 - How does the average cost curve help to show...Ch. 8 - What two lines on a cost curve diagram intersect...Ch. 8 - Should a firm shut down immediately if it is...Ch. 8 - How does the average variable cost curve help a...Ch. 8 - What two lines on a cost curve diagram intersect...Ch. 8 - Why does entry occur?Ch. 8 - Why does exit occur?Ch. 8 - Do entry and exit occur in the short run, the long...Ch. 8 - What price will a perfectly competitive firm end...Ch. 8 - Will a perfectly competitive market display...Ch. 8 - Will a perfectly competitive market display...Ch. 8 - Finding a life partner is a complicated process...Ch. 8 - Can you name five examples of perfectly...Ch. 8 - Your company operates in a perfectly competitive...Ch. 8 - Since a perfectly competitive firm can sell as...Ch. 8 - Many films in the United States file for...Ch. 8 - Why will profits for films in a perfectly...Ch. 8 - Why will losses for firms in a perfectly...Ch. 8 - Assuming that the market for cigarettes is in...Ch. 8 - In the argument for why perfect competition is...Ch. 8 - The AAA Aquarium Co. sells aquariums for 20 each....Ch. 8 - Perfectly competitive firm Doggies Paradise Inc....Ch. 8 - A computer company produces affordable,...
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- Please show working and calculations.arrow_forwardCalculate Iyana's marginal revenue and marginal cost for the first seven rompers they produce, and plot them on the following graph. Use the blue points (circle symbol) to plot marginal revenue and the orange points (square symbol) to plot marginal cost at each quantity. COSTS AND REVENUE (Dollars per romper) 40 35 30 25 20 15 10 0 0 1 2 3 4 5 6 7 8 QUANTITY (Rompers) Marginal Revenue Marginal Cost ? Iyana's profit is maximized when they produce a total of is $ , an amount rompers. At this quantity, the marginal cost of the final romper they produce than the price received for each romper they sell. At this point, the marginal cost of producing one more romper (the first romper beyond the profit maximizing quantity) is $ , an amount than the price received for each romper they sell. Therefore, Iyana's profit-maximizing quantity occurs at the point of intersection between the Because Iyana is a price taker, the previous condition is equivalent to curves.arrow_forwardHumana hospitals in 1991 charged very high prices relative to their marginal costs. For example, Humana's Suburban Hospital in Louisville charged patients $103.6 for a pair of crutches that cost the hospital $8.35 (Douglas Frantz, "Congress Probes Hospital Costs-$9 Tylenols, $118 Heat Pads," San Francisco Chronicle, Octob 18, 1991: A2). Calculate the hospital's price/marginal cost ratio, its Lerner Index, and the demand elasticity, e, that it faces for a pair of crutches (assuming that it maximizes its profit). What is Humana's price/marginal cost ratio? The price to marginal cost ratio is. (round your answer to two decimal places) tv 13 DII 80 F2 F3 F4 F5 E1 ! 23 & 1 2 5 7 8. Q W T Y tab S G つ K caps lock V shift fn control option command つ エ CI リarrow_forward
- -Briefly discuss average costs, including how they are calculated, how they are typically appear on a graph, and what they relate to profitability. -Briefly explain what is meant by the term "fixed costs" and provide three examples of same. What determines a firm's level of fixed costs? -Briefly explain what is meant by the term "variable costs" and provide three examples of same. -Briefly explain how the total revenue for a profit-seeking firm is determined.arrow_forwardWhen would a profit-maximizing firm shut down in the short run?arrow_forwardThe Economy Tomorrow Using the following graph as a reference, what will be the effect of a successful advertising campaign on the firm's cost, demand, and marginal revenue curves? MC ATC Demand Quantity (units per period) Marginal cost will (Click to select) Average total cost will (Click to select) Demand will (Click to select) Marginal revenue will (Click to select) Price or Cost (dollars per unit)arrow_forward
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