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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For the following, decide whether you agree or dis-agree and explain your answer:
a. A firm earning positive profits in the short run always has an incentive to increase its scale of operation in the long run.
b. A firm suffering losses in the short run will continue to operate as long as total revenue at least covers fixed cost.
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.
1. Suppose marginal cost and average cost are given by the following expressions: MC(x)=3x1/2, AC(x)=2x1/2. What is the profit maximising quantity when p=$3?2. Suppose marginal cost and average cost are given by the following expressions: MC(x)=3x1/2, AC(x)=2x1/2. What is the value pf the long-run break-even price?3. For any given level of the price of output, the supply curve of a producer tells the producer the amount of output to produce in order to maximise profits
a. True
b. False
Chapter 8 Solutions
Principles of Economics (12th Edition)
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Similar questions
- A firm produces a product in a perfectly competitive industry and has a total cost function TC= 50+4q+2q². a. At the short-run market price of $20, the firm is producing 5 units of output. Is the firm maximizing its profit? Explain. b. What quantity of output will the firm produce in the long run, assuming there is no change in cost structure? What will be the long-run equilibrium price? c. Graphically depict the long-run equilibrium for an individual firm within this market.arrow_forwardChoose 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.arrow_forwardFirms minimize costs; thus, a firm earning short-run economic profits will choose to produce at the minimum point on its average total cost curve. Do you agree or disagree with this statement? A. Disagree: Firms earning profits will produce to the right of the minimum point on the average total cost curve. B. Disagree: A firm minimizing costs will produce where marginal cost equals the average total cost of production. C. Disagree: Firms earning short-run profits will produce where the difference between price and MC is largest. D. Disagree: The minimum point on the average total cost curve is when output equals zero. E. Agree: Since firms seek to minimize costs, they will always produce at the minimum point on the ATC curve.arrow_forward
- 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.arrow_forwardc) A certain brand of vacuum cleaners can be purchased from several local stores as well as from several websites. If all sellers charge the same price for the vacuum cleaner, will they all earn zero economic profit in the long run? If all sellers charge the same price and one local seller owns the building in which he does business, paying no rent, is this seller earning a positive economic profit?arrow_forwardJust a student stuck on this Economic question for awhile. Question in image. I appreciate you helping me learn :)arrow_forward
- Assume that a firm in a competitive market faces the following cost information. If the market price for this firm's product is $40, calculate the profit maximizing level of output for this firm using marginal analysis. It may help to create your own cost table and fill in columns for Marginal Cost and Average Total Cost based on the Total Cost information below. a.What is the level of profit for this firm at the profit maximizing output? b.To convince yourself that the quantity you found is indeed the profit maximizing quantity, try calculating what the profit would be at the next higher level of output. What did you find? c. What do you predict will happen in this market over the long run?arrow_forwardWould 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_forwardJust a student stuck on this Economic question for awhile. Question in image. I appreciate you helping me learn :)arrow_forward
- Please 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_forwardProblem 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_forward
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