Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Question
Chapter 8, Problem 2.4P
To determine
Whether to agree or disagree with the given statements.
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Students have asked these similar questions
I.
A company produces at an output level where marginal cost is equal to marginal revenue
and has the following revenue and cost levels:
Total revenue = $1,450
Total cost = $1,500
Total variable cost = $1,300
What would you suggest?
a. Shut down.
b. Continue to produce because the loss is less than the total fixed cost.
c. Increase production to lower the marginal cost.
e. Raise the price.
II.
At current long-run production levels, the marginal revenue of a competitive firm is $15 and
the marginal cost of the firm is $15. If the market is perfectly competitive, the firm should
a. cut back on production.
b. stop production all together.
c. produce more.
d. continue producing at current levels.
Choose the statement that is true.
Fixed costs in the long run can become
variable in the short run.
Total costs are usually higher in the long
run than in the short run.
The long run marginal cost is the
envelope of all the short run marginal
costs.
Compeitive firms respond more in the
long run that in the short run, to a price
change.
Consider the following data: equilibrium price = $7.50, quantity of output produced
100 units, average total cost = $9, and average variable cost = $8. What will the
firm do and why?
=
a. Shut down in the short run, because price is below average variable cost.
b. Shut down in the short run, because price is below average total cost.
c. Continue to produce in the short run, because price is greater than average
variable cost.
d. Continue to produce in the short run, because firms are always stuck with
having to produce in the short run.
Chapter 8 Solutions
Principles of Economics (12th Edition)
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Similar questions
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- Would a firm earning zero economic profit continue to produce, even in the long run? In long-run competitive equilibrium, a firm earning zero economic profit A. will not continue to produce because this return is not covering its opportunity costs. B. will not continue to produce because it would be better off shutting down. C. will not continue to produce because such profit corresponds with negative accounting profit. D. will continue to produce because such profit is as high a return as could be earned elsewhere. E. will not continue to produce because it could earn a better return in another industry.arrow_forwardPlease help someonearrow_forwardAre the following statements true or false? Explain your reasons. For a firm with price in excess of average total cost, the presence of economic profits implies that the firm should increase output in the short run even if price is below marginal cost. If marginal cost is rising with increasing output, average cost must also be rising. Fixed cost is the same at each output level except when no output is produced. When a firm produces no output, there are no fixed costs. Allsmart’s demand curve is given by Q=10-P for its dishwashers. The marginal and average cost is $3 per dishwasher produced. Complete the following table.arrow_forward
- Problem 2. Restaurants in Baltimore operate under a total cost function TC(q) = 3q + 5q^2 + 30 Which part of the cost is fixed cost and which part of the cost is variable cost? What is the marginal cost, MC? What is the average total cost, ATC? What is the average variable cost, AVC? In the long run, calculate the equilibrium price and restaurants’ profits. Below what price will restaurants shut down? (Hint: Consider the AVC.)arrow_forwardWhich statements are true regarding economies of scale? Choose one or more: A. Economies of scale typically cause an industry to be perfectly competitive. B. To maximize profits, a monopoly that occurs because of economies of scale should produce an output so that marginal revenue equals marginal costs. C. A firm that has economies of scale sees its average total costs decrease when production increases. D. When a firm has a natural monopoly, it has that type of monopoly because of economies of scale.arrow_forwardSee image for question with sub-parts.arrow_forward
- Suppose a firm faces the following total costs, TC ( and suppose the firm can only produce integer units of quantity, Q) 1 3 4 7 8 9. 10 TC 11 15 18 20 22 25 29 36 45 58 A.) Construct a table in which you show for each level of q the fixed cost, the variable cost, the average total cost, the average variable cost, and the marginal cost B.) Suppose you are a price taker and face a market price of $6 per unit. How much will you produce? How much profit will you make? C.) Suppose the price raises to $9 How much will you produce now ? D.) Suppose the price falls to $4 How much will you produce now in the short run? E.) Use the infor short run supply curve ( for this part of the problem you may assume that the output is perfectly divisible) above derive thearrow_forward1arrow_forwardIn the short run, if a firm is having economic losses, but the profit is greater than the average variable cost, then the firm should ____________.arrow_forward
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