Chapter 9, Shut Down Rule Asg Revised-1
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Chapter 9 Assignment II – Shut Down Rule Example
Questions
1. Assume the cost data below is for a perfectly competitive firm.
a) Fill in Marginal Cost column in Table 1.
(1)
Quantity
Supplied
(2)
AFC
(3)
AVC
(4)
ATC
(5)
Total Cost
(6)
Marginal Cost
0
$60
0
60
60
60
1
60
45
105
105
45
2
30
42.5
72.5
145
40
3
20
40
60
180
35
4
15
37.5
52.5
210
30
5
12
37
49
245
35
6
10
37.5
47.5
285
40
7
8.57
38.57
47.14
330
45
8
7.5
40.63
48.13
385
55
9
6.67
43.3
50
450
65
10
6
46.5
52.5
525
75
Table 1. Note:
1
st
four columns are averages so that we’re looking at cost per unit.
2.
Use the table 1 above to fill in the firm’s Short-Run Supply Schedule (1
st
two col.s) shown below. a) In the short-run, will the firm produce or temporarily shut down for the prices listed in 1
st
column?
b) Suppose the industry has 1000 identical firms with the same cost data. In the last column, fill in the quantity supplied for the entire industry in the last column. Short-Run Supply Schedule
Short-Run Industry Supply Schedule
Pric
e
Firm Quantity
Supplied,
single firm
P > ATC ?
(yes or no)
P>=AVC?
Produce?
(yes or no)
Industry Quantity Supplied,
1000 identical firms
$75
10
yes
yes
10000
$65
9
yes
yes
9000
$55
8
yes
yes
8000
$45
7
no
yes
7000
$40
6
no
yes
6000
$35
5
no
no
5000
$30
4
no
no
4000
Table 2
2. Draw the firm’s
Short-Run Supply curve (using the 1
st
two columns of Table 2). Draw and label
the
following curves: AVC, ATC & Marginal Cost (Table 1) on the graph below.
A. Fill in and label the Shutdown point on the graph.
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Related Questions
QUESTION 20
Study the table below which represents the cost and price schedules facing a perfectly competitive firm that
manufactures bulbs. Use this information to answer the question.
Quantity of
the product
0
1
2
3
4
Price per
unit
(R)
10
10
10
10
10
10
c)
d)
38022222
Total
revenue
Total
profit
(R)
-10
-9
-5
-6
Marginal
cost
(R)
.
9
6
8
10
13
Average
variable cost
(R)
9,00
7,50
7,67
8,25
9,20
This perfectly competitive firm will produce
a) 3 bulbs, since losses are minimised.
b)
4 bulbs, but it will consider shutting down in the short run.
4 bulbs, since at this production level it earns normal profit.
4 bulbs and will stay in operation.
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Concept Question 3.21
Question Help v
The following table shows marginal and average total cost schedules for a perfectly competitive firm. Currently, the market price in this industry is $40.
Output (units)
(Q)
Marginal Cost
(MC)
Average Total Cost
(ATC)
10
35
20
28
3
30
18
40
31
50
35
A profit-maximizing firm will produce
units. (Enter your response as an integer.)
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Price (AUD)/20
Kg bag
60
MC
50
ATC
40
MR-DD=AR
AVC
30
20
10
100
200
300
400
500
600
700 800 900
Rice (Bags/month)
The above diagram illustrates the short run cost curves for Sarah Mat, a rice farmer in
Queensland. Calculate the profit or loss for Sarah Mat and, examine the key
characteristics for perfect competition firm with reference to Sarah's farm.
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Use table to find the required values:
Price
$32
Quantity
400,000
Explicit costs
$3,500,000
Implicit costs
$4,100,000
(A) Calculate total revenue.
(B) Calculate accounting profit.
(C) Calculate economic cost.
(D) Calculate economic profit.
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Question 3
The following graph shows the price, marginal cost, and average cost curves for a firm.
MC
Price (RM)
ATC
40
27
16
12
MR
250
500
570
Quantity (Units)
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Output (unit)
Total Cost (RM)
Price (RM)
-
-
1
550
660
2
670
585
3
720
510
4
740
435
5
800
360
960
285
1190
210
1520
135
2160
60
Table 3
Table 3 shows data for a firm's production and costs in the long run.
b. What is the fixed cost of this production?
d. Does the firm make a profit or loss?
e. Can we consider this is an imperfectly competitive firm? Why?
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Total
Revenue
Total C ost
Proit/Loss/
Price( P)
Quantity
(TR)
(TC)
Break Even
$3
5.
2
9.
3
8.
4
11
5.
15
6.
21
30
8.
42
6.
60
10
85
Yummy Cupcakes is a purely competitive firm. The firm's costs are shown in the table above. The market price is $5 (USE THIS TO FILL IN
THE PRICE COLUMN) When Yummy Cupcakes produces 1 cupcakel Q-1).the firm :
O breaks even
incurs a loss
O earns profits
will shutdown
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Click on the table icon
that shows the fixed costs,
variable costs, and total costs for different output levels.
Then use this data to help fill in the missing information in
the table below.
Quantity
0
1
2
3
Average
Average
Fixed Cost Variable Cost
4.67
-
$5.00
Average
Total Cost
$
15.00
C
Price
Quantity
B
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Case D: Apex Company.
Apex is a perfectly competitive firm. It has total fixed costs of $300/day and a daily variable cost schedule in the table below. Apex’s product sells for $200 per unit.
Quantity (units)
0
1
2
3
4
5
6
7
8
9
10
Total Variable Cost (TVC)
0
100
180
220
300
390
500
640
800
1000
1250
Answer the following questions:
What is the profit-maximizing level of output? Calculate Apex’s profit.
If the market price dropped to $80, what is the profit-maximizing level of output? What is Apex’s
profit (or loss) in this case?
If the market price dropped further to $40, what is the profit-maximizing level of output? What
is Apex’s profit (or loss) in this case?
Comment on your answers to parts (2) and (3).
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Required information
The following figure shows the costs for a perfectly competitive producer.
AVC, ATC, MC
$45
40
35
30
25
201
15
10
5
0
C
10 20 30 40 50 60 70 80 90 100
ATC
AVC
Output per period
Refer to the above figure to answer this question. If the price of the product is $35, what is the profit-maximizing output?
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only typed answer
Assume a competitive firm faces a market price of $120, a cost curve of:
C = 13q3 + 20q + 500,
and a marginal cost of:
MC = q2 +20.
What is the firm's profit maximizing output level?
?? Units (round your answer to two decimal places)
What is the firm's profit maximizing price?
??? (round to the nearest penny)
What is the firm's profit?
??? (round to the nearest npenny)
In the short-run, this firm should ??
produce or shut down??
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16. In the accompanying table, you are given information about
two firms that compete in a price-taker market. Assume that
fixed costs for each firm are $20.
a. Complete the table.
b. What is the lowest price at which firm A will produce?
c. How many units of output will it produce at that price?
(Assume that it cannot produce fractional units.)
d. What is the lowest price at which firm B will produce?
e. How many units of output will it produce?
f. How many units will firm A produce if the market price
is $20?
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The following table shows Farmer Parker's revenue, cost, and profit from wheat farming
Quantity
(bushels)
(Q)
Total
Revenue Total Cost
Marginal
Revenue
(MR)
Marginal
Cost
(MC)
Profit
(TR-TC)
$-3.00
-2.00
0.00
2.50
4.50
6.00
6.00
5.50
2.50
-3.00
(TR)
$0.00
(TC)
$3.00
6.00
8.00
9.50
11.50
1.
2
3.
4.00
$4.00
3.00
8.00
4,00
2.00
12.00
16.00
20.00
4.00
1.50
4
4.00
4.00
4.00
4.00
2.00
2.50
4.00
14.00
6
18.00
22.50
29.50
39.00
51.50
24.00
7
28.00
32.00
36.00
40.00
4.50
8.
4.00
7.00
9.50
4.00
10
- 11.50
4.00
12.50
Farmer Parker's profit-maximizing level of production is 6 bushels of wheat. At this level of production he produces following the rule Marginal Revenue = Marginal
Cost and earns the maximum possible profit of $6.00.
Farmer Parker's fixed costs are $3. (Enter your responso rounded to two decimal places.)
Suppose that foced costs increase by $1.50.
Farmer Parker's new profit-maximizing level of production after the increase in fixed costs is bushels of wheat
The amount of profit that…
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Choco Lovers Cost and Revenue
Quantity of Gift Boxes
TC ($)
MC ($)
MR ($)
AR ($)
5
60
2
12.00
10
67
1.50
1.4
6.7
15
77
2
2
5.13
20
92
3
3
4.6
25
117
5
5
4.68
30
152
7
7
5.06
The table below shows the total cost (TC) and marginal cost (MC) for Choco Lovers, a purely competitive firm producing different quantities of chocolate gift boxes. The market price for a box of chocolates is $3 per box.
Instructions: Enter your answers as a whole number.
a. Fill in the marginal revenue (MR) and average revenue (AR) columns.
Instructions: For profit/loss, round your answers to two decimal places. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. A loss should be entered as a negative number.
b. Given a price of $3 per gift box, how many boxes of chocolate should Choco Lovers produce?
gift boxes
What will the profit or loss be per gift box?
$ per gift box
c.…
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The following diagram shows cost curves for a perfectly competitive firm.
SMC
2.60
ATC
AVC
1.60
1.50
0.80
0.70
0.60
500
800
1100
Output
Price and cost (dollars)
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0
1
2
3
4
5
Problem 1. Fill out the missing data.
Quantity
Total Cost
Marginal Cost
Fixed Cost
Variable Cost
Average Total Cost
-
Average Variable Cost
7
10
37
22.5
10.50
15
The market price for the firm's output is $14.50.
a) What quantity will the firm produce?
Q =
b) What is the firm's profit?
Profit=
P =
P =
c) What is the breakeven price?
d) What is the shutdown price?
f) Are consumers or producers affected by the tax more? Explain.
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3.1. Fill out the table below.
Unit
Marginal
Marginal
Quantity
(Q)
Price (P)
Total Revenue (TR)
Fixed Cost (FC)
Variable Cost (VC)
Total Cost
(TC)
Profit
Cost
Revenue
14
$10
140
$3
40
$43
-
15
$10
150
$3
48
$51
10
16
$10
160
$3
57
$60
10
17
$10
170
$3
67
$70
10
18
$10
180
$3
78
$81
10
3.2. Is the table above pertaining to a perfectly competitive firm or monopoly? How can you tell?
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QUESTION 9
John lives in the small island nation of Vanuatu, and is a producer in the perfectly competitive market for galip nuts. A summary of some
of his costs, which are given in the local currency (the "vatu"), is shown below.
Quantity (kg of galip nuts)
0
30
60
90
120
150
Total Fixed Cost TFC (vatu)
5600
5600
5600
5600
5600
5600
Total Variable Cost TVC (vatu)
0
640
1520
2640
4800
9120
If John's profit-maximising quantity is 90kg of galip nuts, what is the marginal revenue per kilogram of galip nuts at this profit maximising
quantity? Answer to the nearest whole number.
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Lisa lawn company (LLC) is a lawn mowing business in a perfectly competitive market for lawn moving services. The following tables set out Lisa's costs
Quantity(lawn per hour)
Total Cost(dollars per lawn)
0
$30
1
$40
2
$55
3
$75
4
$100
5
$130
6
$165
A. If the market price is $30 per lawn, How many lawns per hour does Lisa's LLC now?
B. If the market price is 30 per lawn, What is Lisa"s profit in the short run?
C. if the market price falls to $20 per lawn, how many lawns per hour does Lisa's LLC now?
D. if the market price falls to $20 per lawn, what is Lisa's profit in the short run?
E. At What market price will Lisa shut down?
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AP
CollegeBoard
Test Booklet
Unit 4 Problem Set
Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must
have all axes and curves clearly labeled and must show directional changes. If the question prompts you to
"Calculate," you must show how you arrived at your final answer.
Use the graph provided below to answer parts (a)-(e).
Marginal Cost
Average Total
Cost
Average Variable
Cost
30
25
19
17
11
10
Demand
0 4 9 15 20 28
38 43
Quantity
Marginal
Revenue
EarthScience, a profit-maximizing firm, has a patent on a carbon capture technology, making it the only producer of that
technology. The graph above shows EarthScience's demand, marginal revenue, average total cost, average variable cost,
and marginal cost curves.
(a) Calculate EarthScience's total revenue
the firm produces the allocatively efficient quantity. Show your work.
(b) Starting at a price of $30, if EarthScience were to increase the price by 6%, will the quantity…
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Case D: Apex Company.
Apex is a perfectly competitive firm. It has total fixed costs of $300/day and a daily variable cost schedule in the table below. Apex’s product sells for $200 per unit.
Quantity (units)
0
1
2
3
4
5
6
7
8
9
10
Total Variable Cost (TVC)
0
100
180
220
300
390
500
640
800
1000
1250
Answer the following questions:
If the market price dropped to $80, what is the profit-maximizing level of output? What is Apex’s profit (or loss) in this case?
If the market price dropped further to $40, what is the profit-maximizing level of output? What is Apex’s profit (or loss) in this case?
Comment on your answers to parts (1) and (2).
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36
Total
Total
Average
Average
Output
Fixed
Variable
Total
Variable
Total
Marginal
(Q)
Cost
Cost
Cost
Cost
Cost
Cost
I of
150
$500
$400
$900
$2.67
200
$500
$800
$1,300
$6.50
The table above shows costs for a firm. When Output (Q) changes from 150 to 200, Marginal Cost (MC) is equal to:
Select one:
a. $400
b. $8.00
c. $4.00
d. $5.00
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Required information
The following figure shows the costs for a perfectly competitive producer:
AVC, ATC, MC
$46
235
30
25
20
15
10
5
0
MC
10 20 30 40 50 60 70 80 90 100
ATC
AVC
Output per period
Refer to the above figure to answer this question. If the price of the product is $10, what is the profit-maximizing (or loss-minimizing) output?
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Related Questions
- QUESTION 20 Study the table below which represents the cost and price schedules facing a perfectly competitive firm that manufactures bulbs. Use this information to answer the question. Quantity of the product 0 1 2 3 4 Price per unit (R) 10 10 10 10 10 10 c) d) 38022222 Total revenue Total profit (R) -10 -9 -5 -6 Marginal cost (R) . 9 6 8 10 13 Average variable cost (R) 9,00 7,50 7,67 8,25 9,20 This perfectly competitive firm will produce a) 3 bulbs, since losses are minimised. b) 4 bulbs, but it will consider shutting down in the short run. 4 bulbs, since at this production level it earns normal profit. 4 bulbs and will stay in operation.arrow_forwardConcept Question 3.21 Question Help v The following table shows marginal and average total cost schedules for a perfectly competitive firm. Currently, the market price in this industry is $40. Output (units) (Q) Marginal Cost (MC) Average Total Cost (ATC) 10 35 20 28 3 30 18 40 31 50 35 A profit-maximizing firm will produce units. (Enter your response as an integer.)arrow_forwardPrice (AUD)/20 Kg bag 60 MC 50 ATC 40 MR-DD=AR AVC 30 20 10 100 200 300 400 500 600 700 800 900 Rice (Bags/month) The above diagram illustrates the short run cost curves for Sarah Mat, a rice farmer in Queensland. Calculate the profit or loss for Sarah Mat and, examine the key characteristics for perfect competition firm with reference to Sarah's farm.arrow_forward
- Use table to find the required values: Price $32 Quantity 400,000 Explicit costs $3,500,000 Implicit costs $4,100,000 (A) Calculate total revenue. (B) Calculate accounting profit. (C) Calculate economic cost. (D) Calculate economic profit.arrow_forwardQuestion 3 The following graph shows the price, marginal cost, and average cost curves for a firm. MC Price (RM) ATC 40 27 16 12 MR 250 500 570 Quantity (Units)arrow_forwardOutput (unit) Total Cost (RM) Price (RM) - - 1 550 660 2 670 585 3 720 510 4 740 435 5 800 360 960 285 1190 210 1520 135 2160 60 Table 3 Table 3 shows data for a firm's production and costs in the long run. b. What is the fixed cost of this production? d. Does the firm make a profit or loss? e. Can we consider this is an imperfectly competitive firm? Why?arrow_forward
- Total Revenue Total C ost Proit/Loss/ Price( P) Quantity (TR) (TC) Break Even $3 5. 2 9. 3 8. 4 11 5. 15 6. 21 30 8. 42 6. 60 10 85 Yummy Cupcakes is a purely competitive firm. The firm's costs are shown in the table above. The market price is $5 (USE THIS TO FILL IN THE PRICE COLUMN) When Yummy Cupcakes produces 1 cupcakel Q-1).the firm : O breaks even incurs a loss O earns profits will shutdownarrow_forwardClick on the table icon that shows the fixed costs, variable costs, and total costs for different output levels. Then use this data to help fill in the missing information in the table below. Quantity 0 1 2 3 Average Average Fixed Cost Variable Cost 4.67 - $5.00 Average Total Cost $ 15.00 C Price Quantity Barrow_forwardCase D: Apex Company. Apex is a perfectly competitive firm. It has total fixed costs of $300/day and a daily variable cost schedule in the table below. Apex’s product sells for $200 per unit. Quantity (units) 0 1 2 3 4 5 6 7 8 9 10 Total Variable Cost (TVC) 0 100 180 220 300 390 500 640 800 1000 1250 Answer the following questions: What is the profit-maximizing level of output? Calculate Apex’s profit. If the market price dropped to $80, what is the profit-maximizing level of output? What is Apex’s profit (or loss) in this case? If the market price dropped further to $40, what is the profit-maximizing level of output? What is Apex’s profit (or loss) in this case? Comment on your answers to parts (2) and (3).arrow_forward
- Required information The following figure shows the costs for a perfectly competitive producer. AVC, ATC, MC $45 40 35 30 25 201 15 10 5 0 C 10 20 30 40 50 60 70 80 90 100 ATC AVC Output per period Refer to the above figure to answer this question. If the price of the product is $35, what is the profit-maximizing output?arrow_forwardonly typed answer Assume a competitive firm faces a market price of $120, a cost curve of: C = 13q3 + 20q + 500, and a marginal cost of: MC = q2 +20. What is the firm's profit maximizing output level? ?? Units (round your answer to two decimal places) What is the firm's profit maximizing price? ??? (round to the nearest penny) What is the firm's profit? ??? (round to the nearest npenny) In the short-run, this firm should ?? produce or shut down??arrow_forward16. In the accompanying table, you are given information about two firms that compete in a price-taker market. Assume that fixed costs for each firm are $20. a. Complete the table. b. What is the lowest price at which firm A will produce? c. How many units of output will it produce at that price? (Assume that it cannot produce fractional units.) d. What is the lowest price at which firm B will produce? e. How many units of output will it produce? f. How many units will firm A produce if the market price is $20?arrow_forward
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