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 9, Problem 3.7P
To determine
Long run incentives for the firm.
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Under a PCM, the long run equilibrium situation is that, Economic profit is equal to zero. Is this a breakeven point for all firms in the market? Please explain conceptually.
The graph below shows a particular firms marginal revenue (mr) marginal cost (mc) and average total cost (atc) curves, where the market is competitive. Suppose that a new management team is brought in and that this team is initially less concerned about maximizing profits than it is simply about making a profit. What range of production quantities will allow the firm to operate while earning a profit?
Give you're answer by dragging the qmin to Qmax lines into their correct positions. The output will need to lie somewhere between those limits.
Demand in an industry is expected to decrease permanently. Before the decrease in demand the industry was in a long-run equilibrium in which the number of firms was stable. What does the perfect competition model predict will happen to the price in the long-run after the decrease in demand?
Group of answer choices
The price will decrease
The price will decrease if it is an increasing cost industry.
The price will increase if it is an increasing cost industry.
The price will increase
Chapter 9 Solutions
Principles of Economics (12th Edition)
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Similar questions
- Why is the perfect competition often used as a benchmark? Question 3 options: The perfect competition model is more frequently observed in the real world compared to other market models It provides a useful comparison to markets that operate in more complex, real-world conditions. It accounts for a variety of issues like pollution, inventions of new technology, poverty, and government programs that other models do not account for. In the real world, all markets are perfectly competitive, so this model allows us to compare them to one another.arrow_forwardUnit10 - Microeconomics Multiple choice A firm in perfect competition is a price taker because there are no good substitutes for its good. they are profit maximizers. it is very large. many other firms produce identical products. Under what condition would a perfectly competitive firm who is incurring an economic loss temporarily stay in business? if the total revenue is positive if the total revenue exceeds the variable cost if the total revenue exceeds the fixed cost if the total revenue is increasing When firms in a perfectly competitive market are making earning an economic profit, in the long run, firms will exit the market. firms will continue to earn a profit. average cost will shift downward. firms will enter the market.arrow_forwardWhat are the advantages of scale in capitalist competition?arrow_forward
- I got this question wrong because it was incomplete. Another option is correct, which one is it? For a firm that is not in perfect competition, why does the MRP slope downward? (mark all that apply) Because it is assumed that worker productivity declines due to on-the-job exhaustion Because as firms hire more workers, they face the law of diminishing marginal returns Because firms have to decrease their prices to sell more, which decreases MRP Because firms can charge higher than market prices for their products The MRP is actually horizontal, not downward slopingarrow_forwardpart 1. Leave 'r' and 'w' as constants. Solve the cost minimization problem to find L*(q) and K*(q). Then find the cost function C(q). part 2. At what price would the firm choose to shutdown and not produce? Provide calculations.arrow_forwardIf all assumptions of perfect competition hold, why would firms in such an industry have little incentive to carry out technological change or much research and development?arrow_forward
- Question 2. Automobile manufacturing is an industry subject to significant economies of scale. Suppose there are four domestic auto manufacturers, but the demand for domestic autos is no more than 2.5 times the quantity produced at the bottom of the long-run average cost curve. What do you expect will happen to the domestic auto industry in the long run? Provide graphs where applicablearrow_forwardThe elimination principle discussed in this chapter tells us what we can expect in the long run from perfectly competitive markets: zero (normal) profits across industries. If this were the case, and this fate were unavoidable, going into business would seem to be a fairly dismal choice, given that the end result of normal profits is known right out of the gate. Despite this, we constantly see entrepreneurs working hard to earn profits. Is this a waste of time, given what we know about the elimination principle? Is the fate of zero profit unavoidable?arrow_forwardExplain in detail why economic profits are zero in the long run in the Perfect Competition (PC) Model. As part of your explanation talk about what happens when profits are not zero. a) Explain the difference between economic profits and accounting profits. b) Use the MR, MC, and ATC curves along with supply and demand to show how profits will go to zero in the long run. Graph profits, losses, and a point where profit equals zero (Don’t forget get what MR is in perfect competition) c)Accompany your graphs with a story of a fictitious business. d) Thought Question – What would happen the PC model if one seller figured out a new cheaper production method? (There may be more than one correct answer to this question) Please answer barrow_forward
- Which of the following industries most closely approximates the perfectly competitive model? (a) Automobile,(b) cigarette, (c) newspaper, or (d) wheat farming.arrow_forwardwhat happens to ATC and MC when companies increase the productive capabilities after they invest in human or physical capital, or new technology or they improve their managerial capabilities.arrow_forwarda) suppose in the short run the amount of machines she has is fixed at 27. How many mixers should she use? How many baklavas will she produce? How much profit will she make? b) using an isoprofit line, as well as the production function, draw a diagram of your solution from a). Carefully label all the slopes and intercepts. c) In the long run, how many mixers should she use? How many machines? How many baklavas will she make?arrow_forward
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