Managerial Economics: A Problem Solving Approach
5th Edition
ISBN: 9781337106665
Author: Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher: Cengage Learning
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Question
Chapter 9, Problem 8MC
To determine
Profit.
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Students have asked these similar questions
Consider a firm in a perfectly competitive market. If this firm were to raise its price, its
a. revenue would fall dramatically
b. profits would increase as long as costs remained constant
C. total costs would increase
revenue would increase only if market demand were inelastic
e. revenue would decrease only if market demand were elastic
Edward Scahill produces table lamps in the perfectly competitive desk lamp market. The equilibrium price of lamps is $50.
a. Fill in the blanks in the table for total revenue and marginal revenue, as represented by (i and ii). (Enter your responses
as integers.)
(1) Total revenue is $.
(ii) Marginal revenue is $.
b. How many table lamps will Edward produce to maximize profit? lamps.
c. If next week the equilibrium price of desk lamps drops to $30, should Edward shut down?
O A. Yes because he is not covering his fixed costs.
OB. Yes because price is less than ATC.
OC. No because price is greater than minimum AVC.
D. No because he is covering his fixed costs and some of his AVC.
Output per Total Costs Marginal
week
Cost
0
1
2
3
4
5
6
7
8
9
$120
150
170
185
195
215
260
310
385
495
$30
20
15
10
20
45
50
75
110
Total Marginal
Revenue Revenue
SO
50
100
(1)
200
250
300
350
400
450
$50
50
50
(if)
50
50
50
50
50
In a market this is highly competitive with little product differentiation and easy market entry, prices tend to be
Group of answer choices
a. Marginal
b. Elastic
c. Inelastic
d. Static
Chapter 9 Solutions
Managerial Economics: A Problem Solving Approach
Knowledge Booster
Similar questions
- Explain how demand is seen by a purely competitive seller.arrow_forwardWhat is a price taker? A price taker is A. a firm with a perfectly inelastic demand curve. B. a firm that has the ability to charge a price greater than marginal cost. C. a firm that is unable to affect the market price. D. a firm that does not seek to maximize profits. E. a firm with a downward-sloping demand curve. When are firms likely to be price takers? A firm is likely to be a price taker when A. it has market power. B. firms in the industry collude. C. it sells a differentiated product. D. it represents a small fraction of the total market. E. barriers to entry are substantial.arrow_forwardFor a perfectly competitive firm, a. demand is perfectly elastic. b. producers must lower the price of its product in order to sell additional units of the product. c. price equals marginal revenue only for the first unit of the good produced and sold. d. demand is perfectly inelastic.arrow_forward
- 3 The graph below shows the costs and revenue curves for Dollar-Daze, a typical profit-maximizing firm in a perfectly competitive market producing Good X. Answer the following questions based on the graph below d. As the market for Good X moves into the long-run equilibrium, explain what will happen to the price of Good X and why.e. Assume the cross-price elasticity of demand between Good X and Good B is positive, what will happen to the quantity demanded of Good B given the change in the long-run price of Good X in part (d)?arrow_forwarda perfectly competitive market over the long run, a. an increase in market demand or a decrease in firms' costs will lead to a decrease in the number of firms operating within the market. b. an improvement in production technology will increase profits at fust, but those profits will be competed away over time as more firms enter the industry and reduce market price. c. market price will equal maximum possible average total cost in long-run equilibrium. d. an increase in demand will cause the final market equilibrium to be at the original price but at a lower output level.arrow_forward16. The accompanying graph shows the short-run demand and cost situation for a price searcher in a market with low barri- ers to entry. a. What level of output will maximize the firm's profit level? b. What price will the firm charge? c. How much revenue will the firm receive in this situation? How much is total cost? Total profit? d. How will the situation change over time?arrow_forward
- Assume that the market for pasta is in long-run equilibrium and that the pasta industry is a constant-cost industry. Explain with a graph and words what will happen to the price and quantity in the market when the demand for pasta decreases.arrow_forwardexplain your answers in detail and use graphs whenever appropriate: The market for rental cars is very competitive. How would the following developments affect the quantity of car rentals that a typical rental car company wants to supply in the short run? a. With the easing of fears about Covid 19, people are more excited to travel than before. b. Local governments reduce the yearly fee that rental car companies have to pay for their facilities. Note, these fees do not vary with how many cars the company rents. c. Rental car companies have to pay higher wages for their workers. Suppose that initially the market for rental cars is in long-run equilibrium. a. What does the fall in the yearly fee rental car companies have to pay for their facilities do to the profits of a typical rental car company in the short run? b. What will happen to the equilibrium price and quantity of rental cars in the long run? Why? What will happen to the profits of a typical rental car company in the long run?arrow_forwardSuppose Melody owns a business giving piano lessons. Assume that the market for piano lessons is perfectly competitive and that the equilibrium price of a piano lesson is $20. Melody's total costs vary depending on the number of piano lessons she offers each day, as shown in the table below. Number of lessons Total cost per day per day ($) 0 30 1 50 2 68 3 78 4 96 5 115 6 138 168 208 7 8 a. When Melody gives 3 lessons per day, what is her average variable cost? b. What is the profit-maximizing number of lessons for Melody to give each day? lessons per day c. What is Melody's daily economic profit at her profit-maximizing number of lessons? Instructions: If you are entering a negative number, be sure to include a negative sign (-). +Aarrow_forward
- No image solutionarrow_forward“An upward – sloping demand curve doesn’t make sense in my business. All I know is that if I raise my prices, revenue doesn’t go up, it goes down. I don’t sell more products, I sell less. “Can you straighten out this business man’s thinking?arrow_forwardThe figures below show (on the left) two possible demand curves and (on the right) two possible supply curves in the perfectly competitive hamburger market. Price per hamburger 0 B D₂ D₁ Hamburgers per month A Price per hamburger 0 F Select one: a. Movement along D₁ from Point A to Point B. b. Demand shifts from D₁ to D₂. c. Movement along S₁ from Point F to Point G. d. Demand shifts from D₂ to D₁. G S₂ S₁ Hamburgers per month Assume that people consume either hamburgers or hot dogs. What will be the result of a decrease in the price of hot dogs? Hint: Are hamburgers and hotdogs complements or substitutes?arrow_forward
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