Economics For Today
10th Edition
ISBN: 9781337613040
Author: Tucker
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 8, Problem 6SQ
To determine
The implication of the price of OD.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Mo owns a Coffee truck which operates in a perfectly competitive industry. He faces the following cost schedule (notice that his coffee maker makes ten cups at a time, and that he has a daily fixed cost of operating the truck). If the market price of a cup of coffee is $2.50, what Q would a profit-maximizer choose to produce? (Hint: compute MR and MC at each Q)
Q
TC
0
$30
10
$50
20
$63
30
$73
40
$78
50
$95
60
$120
Mo owns a Coffee truck which operates in a perfectly competitive industry. He faces the following cost schedule (notice that his coffee maker makes ten cups at a time, and that he has a daily fixed cost of operating the truck). If the market price of a cup of coffee is $2.50, what Q would a profit-maximizer choose to produce? (Hint: compute MR and MC at each Q)
Q
TC
0
$30
10
$50
20
$63
30
$73
40
$78
50
$95
60
$120
Select one:
a.
50
b.
40
c.
60
d.
30
e.
20
A profit-maximizing firm is producing where MR = MC and has an average total cost of $4, but it gets a price of $3 for each good it sells.a. What would you advise the firm to do?
The firm should shut down in the short run and exit the market in the long run.
The firm is producing where MR = MC, so it should produce in both the short run and long run.
As long as average variable costs are less than $3, in the short run, the firm should produce. In the long run, it should exit the market.
The firm should shut down in the short run. Once the firm recoups its fixed costs, it should produce in the long run.
b. What would you advise the firm to do if you knew average variable costs were $3.50?
The firm should exit the market in the long run, but it should produce in the short run since it is covering average fixed costs.
The firm should shut down in the short run. Once the firm recoups its fixed costs, it should reopen in the long run.
The firm…
Chapter 8 Solutions
Economics For Today
Ch. 8.5 - Prob. 1YTECh. 8.5 - Prob. 2YTECh. 8 - Prob. 1SQPCh. 8 - Prob. 2SQPCh. 8 - Prob. 3SQPCh. 8 - Prob. 4SQPCh. 8 - Prob. 5SQPCh. 8 - Prob. 6SQPCh. 8 - Prob. 7SQPCh. 8 - Prob. 8SQP
Ch. 8 - Prob. 9SQPCh. 8 - Prob. 10SQPCh. 8 - Prob. 11SQPCh. 8 - Prob. 12SQPCh. 8 - Prob. 1SQCh. 8 - Prob. 2SQCh. 8 - Prob. 3SQCh. 8 - Prob. 4SQCh. 8 - Prob. 5SQCh. 8 - Prob. 6SQCh. 8 - Prob. 7SQCh. 8 - Prob. 8SQCh. 8 - Prob. 9SQCh. 8 - Prob. 10SQCh. 8 - Prob. 11SQCh. 8 - Prob. 12SQCh. 8 - Prob. 13SQCh. 8 - Prob. 14SQCh. 8 - Prob. 15SQCh. 8 - Prob. 16SQCh. 8 - Prob. 17SQCh. 8 - Prob. 18SQCh. 8 - Prob. 19SQCh. 8 - Prob. 20SQ
Knowledge Booster
Similar questions
- Mink farming is a perfectly competitive industry and all mink farms have the same cost curves. When the market price is $38 a mink, farms maximize profit by producing 400 mink a week. At this output, average total cost is $36 and average variable cost is $22 a mink. Minimum average variable cost is $17 a mink. If the price of a mink falls to $17, the mink farmer will A.produce the profit-maximizing output B. shut down C.continue to produce 400 mink a week D.attempt to raise the price back to $38 a mink E.either shut down or produce the profit-maximizing outputarrow_forwardSuppose Robin's Clock Works produces in a perfectly competitive market. Suppose the average total cost of clocks is $95, the average variable cost of clocks is $90, and the price of clocks is $85. If the firm is producing the level of output where marginal cost equals price, then in the short run the firm: A) can increase profit by increasing output.B) is earning a positive economic profit.C) should continue to produce since total revenue exceeds total variable cost.D) should shut down.arrow_forwardFigure 14-13 Suppose a firm in a competitive industry has the following cost curves: 10 9- 8 7. 6 اکیه 3.5 2 1- Price 1 2 3 4 MC 5 6 7 8 ATC AVC Refer to Figure 14-13. If the price is $2 in the short run, what will happen in the long run? ◆a. Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the industry. b. Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry. ● C. Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the industry. d. Because the price is below the firm's average variable costs, the firms will shut down. 45arrow_forward
- Mo owns a Coffee truck which operates in a perfectly competitive industry. He faces the following cost schedule (notice that his coffee maker makes ten cups at a time, and that he has a daily fixed cost of operating the truck). If the market price of a cup of coffee is $2.50, and he is producing at a profit maximizing level Q*, calculate his profit. (Hint: compute MR and MC to find Q*) Q TC 0 $30 10 $50 20 $63 30 $73 40 $78 50 $95 60 $120 Select one: a. $45 b. $30 c. $35 d. $15 e. $0 Clear my choicearrow_forwardSuppose that a perfectly competitive firm's marginal revenue equals $12 when it sells 10 units of output. If the marginal cost of producing the 10th unit is $14, to maximize its profit the firm should A) decrease its production. B) shut down. C) increase its production. D) increase the price it charges for its product. E) do nothing because it is already maximizing its profit.arrow_forwardIn the short run, a strawberry farm operating in a perfectly competitive market would produce strawberries at a profit if... Group of answer choices They sell each package of strawberries for $5, and the average variable cost is $4.75. Their fixed costs are less than their variable costs. Set the price for each package of strawberries above the prevailing equilibrium price. They sell each package of strawberries for $5, and the average cost is for each package is $5arrow_forward
- If a firm is producing at a quantity in which the marginal cost exceeds marginal revenue, the firm must decrease output to increase profit must increase output to increase profit is maximizing profit O must shut-down to increase profitarrow_forwardIn a perfectly competitive market, the market price is $23. At the current level of output, a firm has a marginal cost of $28. What should the firm do? A) shut down B) produce a larger output to make more profit C) nothing, it is currently maximizing profit D) produce less output to make more profit O E) raise the price of its productarrow_forwardThe figure below shows the long-run average cost curve for the only firm producing electricity in the market. The current quantity demanded is indicated at 100,000 kilowatts per hour. Price per unit LRAC 100,000 Q Number of kilowatts per hour Due to economies of scale, which of the following is true? a. This firm should not be allowed to provide electricity. b. It makes economic sense for this firm to be the only producer of electricity. C. The government should take over the electricity market. d. Many firms should be in this industry.arrow_forward
- In the perfectly competitive guidebook industry, the market price is $35. A firm is currently producing 10,000 guidebooks; average total cost is $38, marginal cost is $30, and average variable cost is $30. The firm should: OA. raise the price of guidebooks, because the firm is losing money. B. keep output the same, because the firm is producing at minimum average variable cost. C. produce more guidebooks, because the next guidebook produced increases profit by $5. OD. shut down, because the firm is losing money.arrow_forwardFirms in the market for dog food are selling in a purely competitive market. A firm producing dog food has an output of 10,000 pounds of dog food, for which it sells for $0.50 a pound. At the output level of 10,000 pounds the average variable cost is $0.40, the average total cost is $0.70, and the marginal cost is $0.50. (a) What would you expect the firm to do in the short run? Explain.arrow_forwardA firm operating in a perfectly competitive market has a total cost function: CT = Q3 - 24Q2 + 260Q + 350Supply and demand functions in this market are Qo = 10 P - 750 and Qd = 6,000 - 15 Pa. Calculate what quantity you will produce to maximize profits and find profit you will make.b. Graph tmarket equilibrium and firm's equilibrium and calculate minimum operating profit.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you