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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Chapter 9, Problem 1.5P
To determine
To graph the
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Price
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Marginal cost
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Which point or points are included in the firm's supply curve in the short run?
None of these points are on the firm's short-run supply curve.
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Macmillan Learning
Consider the graphs of a constant cost industry and a perfectly competitive firm within it. Initially, the industry is in long-run
equilibrium at point E, then demand shifts from Demand1 to Demand2. Answer the questions where P is the price, MR is the
marginal revenue, AR is the average revenue, MC is the marginal cost, SRATC is the short-run average total cost, and LRAC
is the long-run average total cost.
Manipulate both of the graphs to reflect the adjustments that yield the long-run equilibrium.
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30 40 50
Quantity (in thousands)
The demand shift results in
70
Supply
a short-run economic loss for the firm.
Demand1 Demand2
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80 90 100
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P=MR=A
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Suppose the book-printing industry is competitive and begins in a long-run equilibrium. Then Hi-Tech Printing Company invents a new process that
sharply reduces the cost of printing books.
The following graph shows Hi-Tech's initial marginal-cost curve (MC1) and average-total-cost curve (ATC1 ) before the new technology, and its
marginal-cost curve (MC2) and average-total-cost curve (ATC2) after the new technology.
Price of Books
ATC1
*
MC₁
MC 2
Quantity of Books
ATC2
?
Chapter 9 Solutions
Principles of Economics (12th Edition)
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- Suppose the book-printing industry is competitive and begins in a long-run equilibrium. Then Hi-Tech Printing Company invents a new process that sharply reduces the cost of printing books. The following graph shows Hi-Tech's initial marginal-cost curve (MC1) and average-total-cost curve (ATC1) before the new technology, and its marginal-cost curve (MC2) and average-total-cost curve (ATC2) after the new technology. ATC, ATC2 MC1 MC2 Quantity of Books +--- P. Price of Booksarrow_forwardQuestion The graph shows the cost curves of an individual firm in a perfectly (or purely) competitive industry. Use the points A, B, C, and D to trace out the firm's profit-maximing output decisions, according to the instructions. Place point A at the shutdown decision point. Place point B at the point where the firm is making a loss but will continue to operate in the short run. Place point C at the break-even point. Place point D at the point where the firm is making an economic profit. 21 В с D 20 Marginal cost 19 18 17 16 15 Average total cost 14 13 12 Average variable cost 11 10 9 7 5 4 2 1 9. 12 15 18 21 24 27 30 33 36 39 42 titu Pricearrow_forwardSuppose the book-printing industry is competitive and begins in a long-run equilibrium. Then Hi-Tech Printing Company invents a new process that sharply reduces the cost of printing books. The following graph shows Hi-Tech's initial marginal-cost curve (MC1MC1) and average-total-cost curve (ATC1ATC1) before the new technology, and its marginal-cost curve (MC2MC2) and average-total-cost curve (ATC2ATC2) after the new technology. Now suppose the patent expires and other firms are free to use the technology. Which of the following statements are true about what happens in the long run? Check all that apply. The market price stays at P1P1. Hi-Tech's average-total-cost curve rise back to ATC1ATC1. All firms earn zero profit.arrow_forward
- Can someone please explain why the long run graph would look like this?arrow_forwardFor each of the following statements about perfect competition, identify whether the statement is true or false and briefly explain your reasoning. If the market price is below the break-even price for an individual firm in a perfectly competitive market, then the firm would always be better off shutting down and producing zero in the short-run. The size of a firm’s fixed cost in the short-run will have no impact on the profit maximizing level of output for a firm in the short-run. If all firms are identical, free entry and exit will cause perfectly competitive firms to earn zero economic profits in the long-run.arrow_forwardConsider the competitive market for rhodium. Assume that no matter how many firms operate in the industry, every firm is identical and faces the same marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves plotted in the following graph. COSTS (Dollars per pound) 80 2233 22 72 64 56 80 48 72 64 56 48 40 00 32 24 16 0 0 MCD ATC Demand 0 AVC The following graph plots the market demand curve for rhodium. -0. ☐ 3 6 9 12 15 18 21 QUANTITY (Thousands of pounds) D Use the orange points (square symbol) to plot the initial short-run industry supply curve when there are 10 firms in the market. (Hint: You can disregard the portion of the supply curve that corresponds to prices where there is no output since this is the industry supply curve.) Next, use the purple points (diamond symbol) to plot the short-run industry supply curve when there are 20 firms. Finally, use the green points (triangle symbol) to plot the short-run industry supply curve when there are 30…arrow_forward
- The graph shows the marginal cost (MC), average total cost (ATC), and marginal revenue (MR) curves for a perfectly (or purely) competitive firm. Note, for such firms, the demand (D) curve is the same as the MR curve. Answer two questions, specifying to at least one decimal place. How many units should this firm produce to maximize profit? number of units: What price will the firm receive for each unit at the profit maximizing level out output? $ MC/MR $12 9.7 5.6 D=MR MC ATC 6.6 10.2 12 16 Quantityarrow_forward7. Short-run supply and long-run equilibrium Consider the competitive market for rhodium. Assume that no matter how many firms operate in the industry, every firm is identical and faces the same marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves plotted in the following graph. COSTS (Dollars per pound) 100 90 80 70 60 50 40 30 20 2 10 0 MC 0 5 ATC AVC ☐ ■ 10 15 20 25 30 35 QUANTITY (Thousands of pounds) 40 45 50 ?arrow_forwardComplete the following cost and revenue schedules for a perfectly competitive firm, Instructions: Enter your responses as a whole number. If you are entering any negative numbers be sure to include a negative sign () in front of those numbers. Quantity Total Revenue Total Cost Price Marginal Cost $50 $50 50 60 2 50 90 50 140 50 200 50 280 a. Graph marginal cost (MC) a. Graph marginal cost (MC). Instructions: Use the MC' tool to draw the marginal cost curve point by point (plot 5 points total). 100 Tools 90 E 80 * 70 MC 60 8 50 40 P=MR 30 20 10 2 3 4 Quantity (units per time period) b. What quantity maximizes profit? units c. What is MC at that quantity? $4 Price or Cost (dollars per unit)arrow_forward
- In the short-run model of perfect competition, there is always a range of prices above the shutdown point where a firm is losing money, but we assume they are not going to shut down? Explain why this is the case, and why firms in the short-run may continue to operate even when making negative economic profit.arrow_forwardQuestion 5.5. T-Shirt Enterprises is selling in a purely competitive market. It is producing 3,000 units, selling them for $2 each. At this level of output, the average total cost is $2.50 and the average variable cost is $2.20. Based on these data, the firm should shut down in the short run. decrease output to 2,500 units. ontinue to produce 3,000 units. increase output to 3,500 units. Question 6.6. A firm should increase the quantity of output as long as its marginal revenue is greater than its marginal cost. marginal cost is greater than its marginal revenue. average revenue is greater than its average total cost. average revenue is greater than its average variable cost. Question 7.7. In pure competition, each extra unit of output that a firm sells will yield a marginal revenue that is equal to the price. less than the price. greater than the price. equal to the average cost. Question 8.8. The classic…arrow_forwardQuestion 5.5. T-Shirt Enterprises is selling in a purely competitive market. It is producing 3,000 units, selling them for $2 each. At this level of output, the average total cost is $2.50 and the average variable cost is $2.20. Based on these data, the firm should shut down in the short run. decrease output to 2,500 units. ontinue to produce 3,000 units. increase output to 3,500 units.arrow_forward
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