Econ Micro (book Only)
6th Edition
ISBN: 9781337408066
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 8, Problem 8P
To determine
Whether a firm should continue its production or shut down in various conditions mentioned in sub parts.
Introduction:
Expert Solution & Answer
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1. The accompanying graph
summarizes the demand and costs
for a firm that operates in a perfectly competitive market.
a. What level of output should this firm produce in the short run?
b. What price should this firm charge in the short run?
c. What is the firm's total cost at this level of output?
d. What is the firm's total variable cost at this level of output?
e. What is the firm's fixed cost at this level of output?
f. What is the firm's profit if it produces this level of output?
g. What is the firm's profit if it shuts down?
h. In the long run, should this firm continue to operate or shut down?
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-Quantity
13. Firms in Competitive Markets
The market for fertilizer is perfectly competitive. Firms in the market are producing output but are currently making economic losses.
Which of the following statements is true about the price of fertilizer? Check all that apply.
The price of fertilizer must be less than average total cost.
The price of fertilizer must be less than marginal cost.
The price of fertilizer must be equal to average variable cost.
The following graphs show the cost curves faced by a typical firm, the demand for fertilizer, and possible price and supply curves.
Prics and Cast
MC
Firm
Demand
Quantity
Market
Quantity
(?)
If firms in the market are producing output but are currently making economic losses,
market, and indicates the corresponding supply curve.
illustrates the present situation for the typical firm in the
Assuming there is no change in either demand or the firm's cost curves, which of the following statements is true about what will happen in the long
run? Check…
1. 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.
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