Suppose the market for wind chimes is a competitive market. The following graph shows the daily cost curves of a particular firm operating in this PRICE (Dollars per wind chime) 40 36 32 28 24 20 16 12 8 0 0 MC 2 ATC 4 8 QUANTITY (Thousands of wind chimes per day) AVC 6 10 12 14 16 18 20 market: a) In short run, at a market price of $26 per wind chime, how much will firm choose to produce per day? How do you know? or loss in the graph. c) What is this firm's shutdown price, that is the price below which it is optimal for the firm to shut down in short run? d) In the long run, all firms can enter and exit the market, and all entrants have the same costs as above. As this market makes the transition to its long-run equilibrium, will the price rise or fall? Will the quantity demanded rise or fall? Will the quantity supplied by each firm rise or fall? Explain your answers. e) Graph the long-run supply curve in equilibrium for this market, with specific numbers on the axes as relevant.
Suppose the market for wind chimes is a competitive market. The following graph shows the daily cost curves of a particular firm operating in this PRICE (Dollars per wind chime) 40 36 32 28 24 20 16 12 8 0 0 MC 2 ATC 4 8 QUANTITY (Thousands of wind chimes per day) AVC 6 10 12 14 16 18 20 market: a) In short run, at a market price of $26 per wind chime, how much will firm choose to produce per day? How do you know? or loss in the graph. c) What is this firm's shutdown price, that is the price below which it is optimal for the firm to shut down in short run? d) In the long run, all firms can enter and exit the market, and all entrants have the same costs as above. As this market makes the transition to its long-run equilibrium, will the price rise or fall? Will the quantity demanded rise or fall? Will the quantity supplied by each firm rise or fall? Explain your answers. e) Graph the long-run supply curve in equilibrium for this market, with specific numbers on the axes as relevant.
Principles of Economics (MindTap Course List)
8th Edition
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter14: Firms In Competitive Markets
Section: Chapter Questions
Problem 9PA
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