Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 9, Problem 3.7P
To determine
Long run incentives for the firm.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
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)
Knowledge Booster
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_forwardI 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_forward
- part 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_forwardQuestion 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_forward
- Explain 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_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
- 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_forwardA Jakarta City cab operator appears to be making positive profits in the long run after carefully accounting for the operating and labor costs. Does this violate the competitive model? Why or why not?arrow_forwardINDUSTRIAL ECONOMICS Is higher Industry concentration always associated with higher profitability? Explain your answer.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning