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 3.8P
To determine
Short run and long run cost
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Suppose a firm in a perfectly competitive industry develops a manufacturing innovation that lower its variable cost of production. Use words and graphs to explain the short run impacts of this innovation on both the firm and the industry.
Use words and graphs to explain the long run impacts on both the firm and industry.
The graph below shows the marginal cost (MC), average variable cost (AVC), and average total cost (ATC) curves for a firm in a
competitive market. These curves imply a short-run supply curve that has two distinct parts. One part, not shown, lies along the vertical
axis (quantity-0); this represents a condition of production shutdown. Where is the other part? Use the straight-line tool to drawit.
To refer to the graphing tutorial for this question type, please click here
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Chapter 9 Solutions
Principles of Economics (12th Edition)
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- A perfectly competitive firm is currently maximizing profits. The market for its product is in a long-run equilibrium. Market demand for the product decreases. Briefly explain what happens in the market by describing what will happen to this firm’s production (and most importantly why) as a result of that change. Describe what will happen and why to the firm’s costs and profits as the firm makes its choices. Emphasize why each type of individual cost does or does not change as the firm changes its level of production.arrow_forwardA market in perfect competition is in long-run equilibrium. What happens to the market if labor unions are able to increase wages for workers? Include a detailed set of graphs showing both the market and firm long run equilibration in reaction to the change.arrow_forwardThe long-run supply curve indifferent cost industries The following graph shows the market for milk. Initially, the market is in a long-run equilibrium. Suppose that a change in tastes resulted in a leftward shift in demand. On the following graph, shift the demand or supply curve to reflect this change in tastes. Then use the grey point (star symbol) to indicate the new short-run equilibrium. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. *INSERT PICTURE* In the short run, firms will___. In the long run, the supply curve will____. On the previous graph, show the shift in the supply curve and then use the purple point (diamond symbol) to indicate the resulting new long-run equilibrium. Comparing the two long-run equilibria on the graph, you can see that the milk market is an example of_____.…arrow_forward
- Related to the Economics in Practice on page 195: If firms have long-run average cost curves with a long, flat section, larger firms have a cost advantage over smaller firms. the optimal number of firms in the industry is one. their long run supply curves are downward sloping. it is impossible to predict the size of the firm.arrow_forwardThe following graph shows the demand curve, as well as the AVC, ATC and MC curves of a company selling rolled oats in a perfectly competitive market. Use the graph to answer the questions. The goal of the company is to maximize its profit. How many boxes of rolled oats should it sell to attain this goal? What price will it charge? How much profit does this firm make per month? Will this company produce or shut down in the short run? Why? Will this firm exit the market for rolled oats in the long run or not? Why?arrow_forwardSuppose you are the production manager of a small perfectly competitive firm making a single product. Explain whether each of the following factors does or does not affect the profit maximizing level of output your perfectly competitive firm makes. Is your answer different in the short run compared to the long run. Explain. 1. Employee wages increase 2. Interest rates go down on the loans held by the firm 3. Deamnd for the firm's product increasesarrow_forward
- Graph the long-run supply curve for this market, with specific numbers on the axes as relevantarrow_forwardMalaysia is the world's largest producer of rubber gloves. The Rubber gloves industry is perceived as a highly competitive industry. Explain in detail how rubber glove manufacturers are able to increase their production in the short-run and long run.arrow_forwardNow suppose that an FDA report announces that coffee is harmful to cardiovascular health. Starting from the diagrams show and discuss with your group how the market will adjust towards a short-run equilibrium and then return to a long-run equilibrium. What happen to the market price and quantity in the short-run? What happens to individual firm output and the number of firms in the short-run? What is the profit in the short-run? What happen to the market price and quantity in the long-run? What happens to individual firm output and the number of firms in the long-run? What is the profit in the long-run? (in reference to: https://www.bartleby.com/questions-and-answers/market-for-coffee-shop-coffee-sarbucks-store-market-for-coffee-shop-coffee-sarbucks-store/0b934604-546c-4b2a-ae02-e65f6f9c2eb2 and https://www.bartleby.com/questions-and-answers/o-baby-fifty-quit-or-x-dessie-summ-g-love-island-season-m-gmail-email-from-h-m-inbox-96-o_folor-x-o-/fb1f7acb-7bb6-46ad-85e6-72aa635db643arrow_forward
- Describe how we can identify a competitive firm’s short-run supply curve.arrow_forwardAccording to the accompanying table, what quantity of output should the firm produce? Explain your answer.arrow_forwardA single firm in a perfectly competitive market is relatively small compared to the rest of the market. What does this mean? How “small” is “small”?arrow_forward
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