8. Which one of the following statements below on a competitive industry with zero entry costs and identical technologies of firms is definitely correct? a) If the competitive price is smaller than the average cost of a firm, the firm shuts down both in the short-run and the long-run. b) The long-run profits of the industry are always strictly positive. c) There will be no entry in the market if the competitive price remains below average cost in the short-run. d) The long-run average cost function of firms is the envelope of the short-run marginal cost functions.

8. Which one of the following statements below on a competitive industry with zero entry costs and identical technologies of firms is definitely correct? a) If the competitive price is smaller than the average cost of a firm, the firm shuts down both in the short-run and the long-run. b) The long-run profits of the industry are always strictly positive. c) There will be no entry in the market if the competitive price remains below average cost in the short-run. d) The long-run average cost function of firms is the envelope of the short-run marginal cost functions.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter22: Getting Divisions To Work In The Firm’s Best Interests

Section: Chapter Questions

Problem 22.1IP

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Suppose that each firm in a competitive industry has the following costs: Total cost: TC = 50 + q2 Marginal cost: MC = q where q is an individual firms quantity produced. The market demand curve for this product is Demand:QD = 120 P where P is the price and Q is the total quantity of the good. Currently, there are 9 firms in the market. a. What is each firms fixed cost? What is its variable cost? Give the equation for average total cost. b. Graph average-total-cost curve and the marginal-cost curve for q from 5 to 15. At what quantity is average-total-cost curve at its minimum? What is marginal cost and average total cost at that quantity? c Give the equation for each firms supply curve. d. Give the equation for the market supply curve for the short run in which the number of firms is fixed. e. What is the equilibrium price and quantity for this market in the short run? f. In this equilibrium, how much does each firm produce? Calculate each firms profit or loss. Is there incentive for firms to enter or exit? g. In the long run with free entry and exit, what is the equilibrium price and quantity in this market? h. In this long-run equilibrium, how much does each firm produce? How many firms are in the market?
6.a) Figure 8.7 shows cost curves for Penny's Parasols, a perfectly competitive firm. At which of the point would Penny's Parasols be certain to close down? A, B, C, D, or E. Explain: b) Figure 8.7 shows cost curves for Penny's Parasols, a perfectly competitive firm. At which point(s) would Penny's Parasols endure economic losses, but continue to produce in the short run? D, F, A, C, or E. Explain: 6.c) Which point in Figure 8.7 represents a break-even situation for a perfectly competitive firm? A, B, C, D, or E. Explain: 6.d) At which point in Figure 8.7 would a perfectly competitive firm earn the same profit, or suffer the same loss, by producing rather than by shutting down? A, B, C, D, or F. Explain: Choose and explain your answer above thoroughly--graphical, algebraically, numerically.
6.a) Figure 8.7 shows cost curves for Penny's Parasols, a perfectly competitive firm. At which of the point would Penny's Parasols be certain to close down? A, B, C, D, or E. Explain: b) Figure 8.7 shows cost curves for Penny's Parasols, a perfectly competitive firm. At which point(s) would Penny's Parasols endure economic losses, but continue to produce in the short run? D, F, A, C, or E. Explain: 6.c) Which point in Figure 8.7 represents a break-even situation for a perfectly competitive firm? A, B, C, D, or E. Explain: 6.d) At which point in Figure 8.7 would a perfectly competitive firm earn the same profit, or suffer the same loss, by producing rather than by shutting down? A, B, C, D, or F. Explain: Choose and explain your answer above thoroughly--graphical, algebraically, numerically. Kindly see screenshot attached. Please explain with as much detail as possible, using the graph in your answer.
total cost function for this market is TC = 500 + 10Q2 1. What are the profit-maximizing quantity, price, and profit for this market? 2. If there are two firms Atlas and Bowden in this market with the same earlier total cost function and they engage in Cournot competition, what is each firm's equilibrium quantity, price, and profit? [NB: round quantities to nearest integer to find equilibrium quantity, price, and profit] Is this a long run equilibrium? Why or why not?
22-1 Suppose that a paper mill “feeds” a downstream box mill. For the downstream mill, the marginal profitability of producing boxes declines with volume. For example, the first unit of boxes increases earnings by $10, the second by $9, the third by $8, and so on, until the tenth unit increases profit by just $1. The cost the upstream mill incurs for producing enough paper (one “unit” of paper) to make one unit of boxes is $3.50. Assume the two mills operate as separate profit centers, and the paper mill sets the price of paper. It follows that the marginal profitability of boxes represents the highest price that the box division would be willing to pay the paper division for boxes.. Furthermore, assume that fixed costs are $0 for the paper mill. The following table summarizes the quantity, total revenue, and marginal costs from the perspective of the paper mill for selling paper to the box mill at various prices. In the following table, fill in the marginal revenue, total…
2. Consider a firm that has no fixed costs and that is currently losing money. Are there any situations in which it would want to stay open for business in the short run? 3. Why is the equality of marginal revenue and marginal cost essential for profit maximization in all market structures? Explain why price can be substituted for marginal revenue in the MR = MC rule when an industry is purely competitive.
Demand Schedule Assume MC = 0 Price Quantity $24 0 $22 1 $20 2 $18 3 $16 4 $14 5 $12 6 $10 7 $8 8 $6 9 $4 10 $2 11 $0 12 1. If the market is perfectly competitive, what will the market equilibrium price and quantity be in the long-term? Explain how you arrived at that answer. 2. If the market is a duopoly and the firms collude to maximize joint profits, what will market price and quantity be? Explain how you arrived at that answer. 3. If the market is a duopoly and the firms collude to maximize joint profits, what is each firm's total revenue if the firm split the market equally? Explain how you calculated that answer.
Explain in words why a profit-maximizing film will not choose to produce at a quantity where marginal cost exceeds marginal revenue.
Question 3 The current market price in a competitive industry is $15. Every firm in the industry operates a technology that implies costs described by the function C = 12.5 + 0.3Q2. In the future, the technology is expected to change, and the new cost function will then be C = 10 + 0.2Q2. How much profit is the typical firm making today and in the long run? O. Profit is zero both today and in the long run. O. Profit is 125 both today and in the long run. O. Profit is 175 today and zero in the long run. O. Profit is 250 today and 125 in the long run.
Question #5What is the MC=MR Profit Maximization point? What quantity should Delicious Deserts be producing at 'and' what price should they be charging to maximize their profits? Question #6 Why isn't it a good idea for them to produce and sell as many cakes as they can? Is it more profitable to sell less cakes at this current stage of their business? Question #7Do you have any other recommendations for Delicious Deserts to increase their revenues, profits, market share, and client retention?
21. A long-run equilibrium in an industry exists when cost per unit is at its lowest possible level. O. there is only one firm in the industry. O. the size of the market remains constant. O. price equals cost per unit. O. price equals marginal cost. 22. A tariff imposed on a country as a penalty for dumping goods is called a(n) O. antidumping duty. O. quota tariff. O. ad valorem tariff. O. revenue tariff. O. dumping duty.
1. Which statement must be false?a) A firm with constant returns to scale in production will not have fixed costs.b) When a firm has increasing returns to scale, the upward sloping marginal cost curve lies above the average cost curve.c) All firms face diminishing returns to scale when they have a high output.d) When a firm produces the output which minimises average cost, marginal cost and average cost will be equal. 2. Which of the following statements about the relationship between marginal revenue, price, and the price elasticity of demand, is true?a) A perfectly elastic demand curve will be vertical, showing that the firm sells a fixed output at all prices.b) The more inelastic the demand curve, the flatter it will be where it meets the price (vertical) axis.c) If the price elasticity of demand PED = -1 at all points on a demand curve, then the firm can choose any level of output, and earn the same revenue.d) When a monopoly maximises its profits, demand for its output will be…