EP ECONOMICS,AP EDITION-CONNECT ACCESS
20th Edition
ISBN: 9780021403455
Author: McConnell
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Question
Chapter 10, Problem 5RQ
To determine
Relevance of perfect competition .
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The coffee industry is comprised of many firms producing an identical product. Market demand and supply conditions are indicated in the left-hand panel of the figure below; the long-run cost curves of a representative coffee farmer are shown in the right-hand Currently, the market price for coffee is $2 per pound, and at that price consumers are purchasing 800,000 pounds of coffee per day.
Using the graphs shown in the images find:a. How many pounds of coffee will each farmer produce if they want to maximize profits?b. How many farmers are currently serving the industry (fractional numbers are fine)?c. In the long run, what will the equilibrium price of coffee be? Briefly explain your answer.
After serving as President of the United States for eight years, Dena has retired from politics and has decided to become a wheat farmer. The market for wheat is perfectly competitive and the current market price for wheat is $10 per bushel. Dena is currently producing 8 bushels (Dena can only produce this good in whole units). Her total cost at 8 units of output is $88 and her variable cost at 8 units of output is $64. Dena knows that if she produces a 9th unit her total cost will become $97, and if she produces a 10th unit her total cost will become $110. Dena’s goal is to maximize her profits. Based on this information, identify whether each of the following would be true or false and briefly explain your reasoning.
Dena is currently losing money in the short-run and she would be better off if she shutdown and produced zero.
Dena is not currently profit maximizing at 8 units of output and she could increase her profits if she expanded output by one unit.
Dena would increase her…
The information below applies to a competitive firm that sells its output for $44.00 per unit.
. When the firm produces and sells 100 units of output, its average total cost is $24.50.
. When the firm produces and sells 101 units of output, its average total cost is $24.75.
Suppose the firm is currently producing and selling 100 units of output. Should the firm increase its output
to 101 units?
Yes. This is because the marginal revenue exceeds the marginal cost.
Yes. This is because the marginal revenue exceeds the average total cos
No. This is because the marginal cost exceeds the marginal revenue.
No. This is because the average total cost exceeds the marginal revenue.
Chapter 10 Solutions
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- question 8 A firm in a perfectly competitive industry is currently producing 1,000 units per day at a total cost of $450. If the firm produced 800 units per day, its total cost would be $300, and if it produced 500 units per day, its total cost would be $275. What are the firm's ATC per unit at these three levels of production? ( If every firm in this industry has the same cost structure, is the industry in long-run competitive equilibrium? ( 11 D AT F10 (PC) or ALT+FN+F10 (Mac) 出色 A Ara AI XDQ5 تی Xarrow_forwardSuppose that the perfectly competitive turkey industry is in long-run equilibrium at a price of $3 per pound of turkey and a quantity of 600 million pounds per year. Suppose the Surgeon General issues a report saying that eating turkey is bad for your health. The Surgeon General's report will cause consumers to demand _________________ turkey at every price. In the short run, firms will respond by _____________ . Shift the supply curve, the demand curve, or both on the following diagram to illustrate these short-run effects of the Surgeon General's announcement.arrow_forwardSuppose that the development of a new drought-resistant hybrid seed corn leads to a 50 percent increase in the average yield per acre without increasing the cost to the farmers who use the new technology. If the producers in the corn production industry were price takers, what would happen to the following? a. the price of corn b. the profitability of corn farmers who quickly adopt the new technology c. the profitability of corn farmers who are slow to adopt the new technology d. the price of soybeans, a substitute product for cornarrow_forward
- A firm in a purely competitive industry is currently producing 1,000 units per day at a total cost of $450. If the firm produced 800 units per day, its total cost would be $300, and if it produced 500 units per day, its total cost would be $275. What are the firm’s ATC per unit at these three levels of production? If every firm in this industry has the same cost structure, is the industry in long-run competitive equilibrium? From what you know about these firms’ cost structures, what is the highest possible price per unit that could exist as the market price in long-run equilibrium? If that price ends up being the market price and if the normal rate of profit is 10 percent, then how big will each firm’s accounting profit per unit be?arrow_forwardA manufacturer of electric switches in a competitive industry has a fixed monthly cost of $50,000, total monthly variable cost $100,000, and marginal cost of $5. What is the profit if the monthly production is 100,000 units? Assuming that prices of switches fluctuate from month to month, what is the lowest price the manufacturer can accept in order to stay in business in the long run and in the short run. Will those prices be the same? Show your workarrow_forwardSuppose you are the economic advisor of Jackie Brown Company, a perfectly competitivecompany that is suffering economic losses due to unforeseen continuous drop in the market price.Jackie Brown is a price taker; hence it cannot influence the market price, nor could it changeproduction technology in the short run. You are asked to decide whether the company should shutdown its operations or to continue to operate at a loss. Jackie Brown is selling 50 units of outputper day, at a price of $20 per unit. The cost of raw material, direct labor, energy, and othervariable inputs is about $24000 monthly. Unfortunately, an estimate of Jackie Brown fixed costs iscurrently unavailable. So, what is your decision?arrow_forward
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