The short run advice to the firm.

Question

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Answer 1

Question

Chapter P3, Problem 1KC

To determine

The short run advice to the firm.

Expert Solution & Answer

Answer to Problem 1KC

Option 'c' is correct.

Explanation of Solution

The firms produce the goods and services that are demanded by the people in the economy. The production takes place after making use of the factors of production and that means there will be factor costs to the firm while making production. The costs such as the cost of the raw materials, rent of land, interest on capital, as well as the wage of labor, are the costs of the firm. The additional output due to an additional input of production is known as the marginal product of the input. The profit is the excess revenue made by the firm after deducting the total cost from the total revenue of the firm. When the total cost is higher than the total revenue, there will be an economic loss to the firm. When the revenue of the firm is not even able to cover the average variable cost of production, the firm should shut down its production to avoid further loss to the firm.

Option (c):

It is given that the average fixed cost of the firm is $6 and the average variable cost is $25. When the price of the product is fixed at $24 where MR is equal to MC, the revenue is not even able to cover the AVC of the firm and carrying on further production will increase the loss above the fixed cost and thus, the firm should shut down. This means that option 'c' is correct.

Option (a):

When the firm increases the output, the point where MR is equal to MC, MC will start to increase further which will increase the loss of the firm and that means the loss of the firm will further increase. Hence, option 'a' is incorrect.

Option (b):

The decreasing of output makes the firm to get lower revenue and since the average variable cost is higher, the firm should shut down its operations and not decrease the level of output. It means option 'b' is also incorrect.

Option (d):

When the firm stays at the current output level, the total cost to the firm is $6200, whereas the revenue is $4800 which means that the firm is losing $1,400 and not earning a profit of $1,400. Hence, option 'd' is incorrect.

Option (d):

When the firm stays at the current output level, the total cost to the firm is $6200, whereas the revenue is $4800 which means that the firm is losing $1,400 and if the firm shutdowns its production, it makes the loss only equal to the fixed cost and thus, the firm should shut down its operations. This means that option 'd' is incorrect.

Economics Concept Introduction

Profit: The profit is the excess revenue made by the firm through the sale of goods and services after deducting the total cost from the total revenue.

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Problem 3 You are given the following demand for European luxury automobiles: Q=1,000 P-0.5.2/1.6 where P-Price of European luxury cars PA = Price of American luxury cars P, Price of Japanese luxury cars I= Annual income of car buyers Assume that each of the coefficients is statistically significant (i.e., that they passed the t-test). On the basis of the information given, answer the following questions 1. Comment on the degree of substitutability between European and American luxury cars and between European and Japanese luxury cars. Explain some possible reasons for the results in the equation. 2. Comment on the coefficient for the income variable. Is this result what you would expect? Explain. 3. Comment on the coefficient of the European car price variable. Is that what you would expect? Explain.

Problem 2: A manufacturer of computer workstations gathered average monthly sales figures from its 56 branch offices and dealerships across the country and estimated the following demand for its product: Q=+15,000-2.80P+150A+0.3P+0.35Pm+0.2Pc (5,234) (1.29) (175) (0.12) (0.17) (0.13) R²=0.68 SER 786 F=21.25 The variables and their assumed values are P = Price of basic model = 7,000 Q==Quantity A = Advertising expenditures (in thousands) = 52 P = Average price of a personal computer = 4,000 P. Average price of a minicomputer = 15,000 Pe Average price of a leading competitor's workstation = 8,000 1. Compute the elasticities for each variable. On this basis, discuss the relative impact that each variable has on the demand. What implications do these results have for the firm's marketing and pricing policies? 2. Conduct a t-test for the statistical significance of each variable. In each case, state whether a one-tail or two-tail test is required. What difference, if any, does it make to…

Answer 2

Question

Chapter P3, Problem 1KC

To determine

The short run advice to the firm.

Expert Solution & Answer

Answer to Problem 1KC

Option 'c' is correct.

Explanation of Solution

The firms produce the goods and services that are demanded by the people in the economy. The production takes place after making use of the factors of production and that means there will be factor costs to the firm while making production. The costs such as the cost of the raw materials, rent of land, interest on capital, as well as the wage of labor, are the costs of the firm. The additional output due to an additional input of production is known as the marginal product of the input. The profit is the excess revenue made by the firm after deducting the total cost from the total revenue of the firm. When the total cost is higher than the total revenue, there will be an economic loss to the firm. When the revenue of the firm is not even able to cover the average variable cost of production, the firm should shut down its production to avoid further loss to the firm.

Option (c):

It is given that the average fixed cost of the firm is $6 and the average variable cost is $25. When the price of the product is fixed at $24 where MR is equal to MC, the revenue is not even able to cover the AVC of the firm and carrying on further production will increase the loss above the fixed cost and thus, the firm should shut down. This means that option 'c' is correct.

Option (a):

When the firm increases the output, the point where MR is equal to MC, MC will start to increase further which will increase the loss of the firm and that means the loss of the firm will further increase. Hence, option 'a' is incorrect.

Option (b):

The decreasing of output makes the firm to get lower revenue and since the average variable cost is higher, the firm should shut down its operations and not decrease the level of output. It means option 'b' is also incorrect.

Option (d):

When the firm stays at the current output level, the total cost to the firm is $6200, whereas the revenue is $4800 which means that the firm is losing $1,400 and not earning a profit of $1,400. Hence, option 'd' is incorrect.

Option (d):

When the firm stays at the current output level, the total cost to the firm is $6200, whereas the revenue is $4800 which means that the firm is losing $1,400 and if the firm shutdowns its production, it makes the loss only equal to the fixed cost and thus, the firm should shut down its operations. This means that option 'd' is incorrect.

Economics Concept Introduction

Profit: The profit is the excess revenue made by the firm through the sale of goods and services after deducting the total cost from the total revenue.

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Answer 3

Question

Chapter P3, Problem 1KC

To determine

The short run advice to the firm.

Expert Solution & Answer

Answer to Problem 1KC

Option 'c' is correct.

Explanation of Solution

The firms produce the goods and services that are demanded by the people in the economy. The production takes place after making use of the factors of production and that means there will be factor costs to the firm while making production. The costs such as the cost of the raw materials, rent of land, interest on capital, as well as the wage of labor, are the costs of the firm. The additional output due to an additional input of production is known as the marginal product of the input. The profit is the excess revenue made by the firm after deducting the total cost from the total revenue of the firm. When the total cost is higher than the total revenue, there will be an economic loss to the firm. When the revenue of the firm is not even able to cover the average variable cost of production, the firm should shut down its production to avoid further loss to the firm.

Option (c):

It is given that the average fixed cost of the firm is $6 and the average variable cost is $25. When the price of the product is fixed at $24 where MR is equal to MC, the revenue is not even able to cover the AVC of the firm and carrying on further production will increase the loss above the fixed cost and thus, the firm should shut down. This means that option 'c' is correct.

Option (a):

When the firm increases the output, the point where MR is equal to MC, MC will start to increase further which will increase the loss of the firm and that means the loss of the firm will further increase. Hence, option 'a' is incorrect.

Option (b):

The decreasing of output makes the firm to get lower revenue and since the average variable cost is higher, the firm should shut down its operations and not decrease the level of output. It means option 'b' is also incorrect.

Option (d):

When the firm stays at the current output level, the total cost to the firm is $6200, whereas the revenue is $4800 which means that the firm is losing $1,400 and not earning a profit of $1,400. Hence, option 'd' is incorrect.

Option (d):

When the firm stays at the current output level, the total cost to the firm is $6200, whereas the revenue is $4800 which means that the firm is losing $1,400 and if the firm shutdowns its production, it makes the loss only equal to the fixed cost and thus, the firm should shut down its operations. This means that option 'd' is incorrect.

Economics Concept Introduction

Profit: The profit is the excess revenue made by the firm through the sale of goods and services after deducting the total cost from the total revenue.

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Answer 4

Question

Chapter P3, Problem 1KC

To determine

The short run advice to the firm.

Expert Solution & Answer

Answer to Problem 1KC

Option 'c' is correct.

Explanation of Solution

The firms produce the goods and services that are demanded by the people in the economy. The production takes place after making use of the factors of production and that means there will be factor costs to the firm while making production. The costs such as the cost of the raw materials, rent of land, interest on capital, as well as the wage of labor, are the costs of the firm. The additional output due to an additional input of production is known as the marginal product of the input. The profit is the excess revenue made by the firm after deducting the total cost from the total revenue of the firm. When the total cost is higher than the total revenue, there will be an economic loss to the firm. When the revenue of the firm is not even able to cover the average variable cost of production, the firm should shut down its production to avoid further loss to the firm.

Option (c):

It is given that the average fixed cost of the firm is $6 and the average variable cost is $25. When the price of the product is fixed at $24 where MR is equal to MC, the revenue is not even able to cover the AVC of the firm and carrying on further production will increase the loss above the fixed cost and thus, the firm should shut down. This means that option 'c' is correct.

Option (a):

When the firm increases the output, the point where MR is equal to MC, MC will start to increase further which will increase the loss of the firm and that means the loss of the firm will further increase. Hence, option 'a' is incorrect.

Option (b):

The decreasing of output makes the firm to get lower revenue and since the average variable cost is higher, the firm should shut down its operations and not decrease the level of output. It means option 'b' is also incorrect.

Option (d):

When the firm stays at the current output level, the total cost to the firm is $6200, whereas the revenue is $4800 which means that the firm is losing $1,400 and not earning a profit of $1,400. Hence, option 'd' is incorrect.

Option (d):

When the firm stays at the current output level, the total cost to the firm is $6200, whereas the revenue is $4800 which means that the firm is losing $1,400 and if the firm shutdowns its production, it makes the loss only equal to the fixed cost and thus, the firm should shut down its operations. This means that option 'd' is incorrect.

Economics Concept Introduction

Profit: The profit is the excess revenue made by the firm through the sale of goods and services after deducting the total cost from the total revenue.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter P3, Problem 1KC

To determine

The short run advice to the firm.

Expert Solution & Answer

Answer to Problem 1KC

Option 'c' is correct.

Explanation of Solution

The firms produce the goods and services that are demanded by the people in the economy. The production takes place after making use of the factors of production and that means there will be factor costs to the firm while making production. The costs such as the cost of the raw materials, rent of land, interest on capital, as well as the wage of labor, are the costs of the firm. The additional output due to an additional input of production is known as the marginal product of the input. The profit is the excess revenue made by the firm after deducting the total cost from the total revenue of the firm. When the total cost is higher than the total revenue, there will be an economic loss to the firm. When the revenue of the firm is not even able to cover the average variable cost of production, the firm should shut down its production to avoid further loss to the firm.

Option (c):

It is given that the average fixed cost of the firm is $6 and the average variable cost is $25. When the price of the product is fixed at $24 where MR is equal to MC, the revenue is not even able to cover the AVC of the firm and carrying on further production will increase the loss above the fixed cost and thus, the firm should shut down. This means that option 'c' is correct.

Option (a):

When the firm increases the output, the point where MR is equal to MC, MC will start to increase further which will increase the loss of the firm and that means the loss of the firm will further increase. Hence, option 'a' is incorrect.

Option (b):

The decreasing of output makes the firm to get lower revenue and since the average variable cost is higher, the firm should shut down its operations and not decrease the level of output. It means option 'b' is also incorrect.

Option (d):

When the firm stays at the current output level, the total cost to the firm is $6200, whereas the revenue is $4800 which means that the firm is losing $1,400 and not earning a profit of $1,400. Hence, option 'd' is incorrect.

Option (d):

When the firm stays at the current output level, the total cost to the firm is $6200, whereas the revenue is $4800 which means that the firm is losing $1,400 and if the firm shutdowns its production, it makes the loss only equal to the fixed cost and thus, the firm should shut down its operations. This means that option 'd' is incorrect.

Economics Concept Introduction

Profit: The profit is the excess revenue made by the firm through the sale of goods and services after deducting the total cost from the total revenue.

Answer 6

Chapter P3, Problem 1KC

To determine

The short run advice to the firm.

Expert Solution & Answer

Answer to Problem 1KC

Option 'c' is correct.

Explanation of Solution

The firms produce the goods and services that are demanded by the people in the economy. The production takes place after making use of the factors of production and that means there will be factor costs to the firm while making production. The costs such as the cost of the raw materials, rent of land, interest on capital, as well as the wage of labor, are the costs of the firm. The additional output due to an additional input of production is known as the marginal product of the input. The profit is the excess revenue made by the firm after deducting the total cost from the total revenue of the firm. When the total cost is higher than the total revenue, there will be an economic loss to the firm. When the revenue of the firm is not even able to cover the average variable cost of production, the firm should shut down its production to avoid further loss to the firm.

Option (c):

It is given that the average fixed cost of the firm is $6 and the average variable cost is $25. When the price of the product is fixed at $24 where MR is equal to MC, the revenue is not even able to cover the AVC of the firm and carrying on further production will increase the loss above the fixed cost and thus, the firm should shut down. This means that option 'c' is correct.

Option (a):

When the firm increases the output, the point where MR is equal to MC, MC will start to increase further which will increase the loss of the firm and that means the loss of the firm will further increase. Hence, option 'a' is incorrect.

Option (b):

The decreasing of output makes the firm to get lower revenue and since the average variable cost is higher, the firm should shut down its operations and not decrease the level of output. It means option 'b' is also incorrect.

Option (d):

When the firm stays at the current output level, the total cost to the firm is $6200, whereas the revenue is $4800 which means that the firm is losing $1,400 and not earning a profit of $1,400. Hence, option 'd' is incorrect.

Option (d):

When the firm stays at the current output level, the total cost to the firm is $6200, whereas the revenue is $4800 which means that the firm is losing $1,400 and if the firm shutdowns its production, it makes the loss only equal to the fixed cost and thus, the firm should shut down its operations. This means that option 'd' is incorrect.

Economics Concept Introduction

Profit: The profit is the excess revenue made by the firm through the sale of goods and services after deducting the total cost from the total revenue.

Answer 7

Chapter P3, Problem 1KC

To determine

The short run advice to the firm.

Answer 8

Expert Solution & Answer

Answer to Problem 1KC

Option 'c' is correct.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Explanation of Solution

The firms produce the goods and services that are demanded by the people in the economy. The production takes place after making use of the factors of production and that means there will be factor costs to the firm while making production. The costs such as the cost of the raw materials, rent of land, interest on capital, as well as the wage of labor, are the costs of the firm. The additional output due to an additional input of production is known as the marginal product of the input. The profit is the excess revenue made by the firm after deducting the total cost from the total revenue of the firm. When the total cost is higher than the total revenue, there will be an economic loss to the firm. When the revenue of the firm is not even able to cover the average variable cost of production, the firm should shut down its production to avoid further loss to the firm.

Option (c):

It is given that the average fixed cost of the firm is $6 and the average variable cost is $25. When the price of the product is fixed at $24 where MR is equal to MC, the revenue is not even able to cover the AVC of the firm and carrying on further production will increase the loss above the fixed cost and thus, the firm should shut down. This means that option 'c' is correct.

Option (a):

When the firm increases the output, the point where MR is equal to MC, MC will start to increase further which will increase the loss of the firm and that means the loss of the firm will further increase. Hence, option 'a' is incorrect.

Option (b):

The decreasing of output makes the firm to get lower revenue and since the average variable cost is higher, the firm should shut down its operations and not decrease the level of output. It means option 'b' is also incorrect.

Option (d):

When the firm stays at the current output level, the total cost to the firm is $6200, whereas the revenue is $4800 which means that the firm is losing $1,400 and not earning a profit of $1,400. Hence, option 'd' is incorrect.

Option (d):

When the firm stays at the current output level, the total cost to the firm is $6200, whereas the revenue is $4800 which means that the firm is losing $1,400 and if the firm shutdowns its production, it makes the loss only equal to the fixed cost and thus, the firm should shut down its operations. This means that option 'd' is incorrect.

Answer 12

Economics Concept Introduction

Profit: The profit is the excess revenue made by the firm through the sale of goods and services after deducting the total cost from the total revenue.

Answer 13

Ch. P3 - Prob. 1KC Ch. P3 - Prob. 2KC Ch. P3 - Prob. 3KC Ch. P3 - Prob. 4KC Ch. P3 - Prob. 5KC Ch. P3 - Prob. 6KC Ch. P3 - Prob. 7KC Ch. P3 - Prob. 8KC Ch. P3 - Prob. 9KC Ch. P3 - Prob. 10KC

The short run advice to the firm.

The short run advice to the firm.

Answer to Problem 1KC

Explanation of Solution

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Chapter P3 Solutions