EBK ECONOMICS TODAY
18th Edition
ISBN: 9780133920116
Author: Miller
Publisher: YUZU
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Chapter 23, Problem 1CTQ
To determine
The type of short run average cost, below which, the price of ethanol has dropped.
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Sometimes firms should produce even if the price falls below minimum ATC. Why?
Assume that the marginal cost curve is given by MC(qi) = 6 + 4qi. And the average variable cost is AVC(qi) = 6 +8qi+ 2qi.
(a) Find the shutdown price.
(b) If the current market price is $12. What is the optimal quantity produced?
(c) What is the optimal quantity produced? If the current market price is $15. What is the optimal quantity produced?
The oversupply of bananas in Mexico, which is recorded in the months of September and October, causes prices to farmers to be reduced by up to 50 percent below the cost of production, said Adrián Prats, president of the banana product system at the national. "It is a critical situation, we are selling the fruit below the cost of production, which is when it really impacts the producer, since he has to continue maintaining his plantations healthy and vigorous and that costs. We have to invest in it, even though the price is not giving to pay, even, the costs", explained Prats. The above causes:
a. By decreasing the price of bananas, marginal income decreases and therefore, production must be increased (T/F) _________
b. By lowering the price, the company will have to take care of its costs. To avoid leaving the market, the producer must ensure that, at least, the average variable costs (T/F) _______ are covered
c. It is recommended that a banana producer who invests in keeping his…
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