1. Skip and Peggy are brother and sister and they fight about everything. Skip says that perfectly competitive firms maximize profit where marginal revenue equals marginal cost. Peggy says perfectly competitive firms maximize profit where price equals marginal cost. Settle this sibling rivalry once and for all. 2. Gisella runs a small stand selling lemonade in a perfectly competitive market. Her husband, Dustin, tells her that forecasted cold weather is going to lower the market price for the day and that she is likely to lose money today if she opens her stand. He suggests that she shuts down for the day (i.e., the short run) to avoid the negative profit. Is he right? Why or why not? 3. Grandma promises to sneak you some bourbon while your parents are cleaning up the dinner dishes, but only if you can impress her with something you learned in your economics class. Carefully explain to Grandma why the short run average total cost curve is U-shaped so that the two of you can sip a little Maker's together.

1. Skip and Peggy are brother and sister and they fight about everything. Skip says that perfectly competitive firms maximize profit where marginal revenue equals marginal cost. Peggy says perfectly competitive firms maximize profit where price equals marginal cost. Settle this sibling rivalry once and for all. 2. Gisella runs a small stand selling lemonade in a perfectly competitive market. Her husband, Dustin, tells her that forecasted cold weather is going to lower the market price for the day and that she is likely to lose money today if she opens her stand. He suggests that she shuts down for the day (i.e., the short run) to avoid the negative profit. Is he right? Why or why not? 3. Grandma promises to sneak you some bourbon while your parents are cleaning up the dinner dishes, but only if you can impress her with something you learned in your economics class. Carefully explain to Grandma why the short run average total cost curve is U-shaped so that the two of you can sip a little Maker's together.

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter13: Firms In Competitive Markets

Section: Chapter Questions

Problem 5PA

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