MyLab Economics with Pearson eText -- Access Card -- for Principles of Microeconomics
17th Edition
ISBN: 9780134081168
Author: CASE, Karl E.; Fair, Ray C.; Oster, Sharon E.
Publisher: PEARSON
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Chapter 8, Problem 2.4P
To determine
Whether to agree or disagree with the given statements.
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Suppose an increase in the cost of land increases the firm's fixed costs, as a result, average total cost increases from ATC2 to ATC1. What is profit maximizing quantity and price after the increase in average total costs?
After the increase in average total costs does the firm make economic profit, economic loss or breaks even? How do you know? explain your answer.
Using the table (Check if the values are correct), answer the questions below:
a. What is the firms total fixed cost
b. Suppose the price of the product is 20
- What is the firms output level?
- What is its profit (or loss)-per-unit at that output level? $
- What is its total profit? $
c. Now suppose the price of the product is $10.
- What is the firm’s profit-maximizing output level?
- What is the firm's profit or loss per-unit? $
- What is the firm's total profit (or loss)? $
d. At a price of $10, will the firm produce?
e. If the price remains $10, what will happen to this firm in the long-run?
Explain why a firm might want to produce its good even after diminishing marginal returns have set in and marginal cost is on the rise.
People often believe that large firms in an industry have cost advantages over small firms in the same industry. For example, they might think a big oil company has a cost advantage over a small oil company. For this to be true, what condition must exist? Explain your answer.
Chapter 8 Solutions
MyLab Economics with Pearson eText -- Access Card -- for Principles of Microeconomics
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- [TRUE / FALSE] Please explain In the real-world, marginal cost curve is usually U-shaped.Therefore, in a perfectly competitive market, a firm can maximize profit at two different output levels in the short-runarrow_forwardLetters are used to represent the terms used to answer this question: price(P),quantity of output(Q),total cost(TC)and average total cost(ATC).Which of the following equations is equal to a firm's average profit? A. (P −ATC) × Q B. P−ATC C. (P×Q)−TC D. P−TCarrow_forwardQUESTION 2 (a) Use the concepts of economies and diseconomies of scale to explain the shape of a firm’s long-run ATC curve. What is the concept of minimum efficient scale? What bearing can the shape of the long-run ATC curve have on the structure of an industry? (b) If a firm in monopoly maximizes revenue, does it automatically maximize profit too? Explain the content with relevant example and diagrams.arrow_forward
- Which of the following statements is (are) correct? (x) In the short run, if a firm produces nothing, then, by definition, fixed costs will equal zero. (y) Fixed costs can be defined as costs that are incurred even if nothing is produced. (z) Although fixed costs do not vary as a firm varies the output amount that it produces, average fixed costs for the firm do vary as the amount of output varies. (x), (y) and (z) (x) and (y) only (x) and (z) only (y) and (z) only (z) onlyarrow_forwardProblem 3 : Perfect competitionThe firm’s production function has the following form: Q = f(L) = √L, where L is the numberof employees. Fixed cost is $10, wage is $1, and the buyers pay the firm $10 for its product.a) For the levels of quantity of 0, 1, 2, 3, 4, 5, 6, and 7:• Calculate the fixed cost, the variable cost, the total cost, the total revenue, and theprofit.• If the firm wants to maximize profit, what level of output should it choose?b) For the change in quantity from 0 to 1, from 1 to 2, …, from 6 to 7:• Calculate the marginal product of labor, the marginal cost, and the marginalrevenue.• Is the marginal product of labor diminishing?• On a graph, show the marginal cost and the marginal revenue. Put the pointsbetween the whole numbers. Make sure you label the axes and the curves. Show thepoint where the two curves cross. c) Provide a brief explanation for the following questions:• Is the firm operating on a perfectly competitive market?• Is the market in the long-run…arrow_forwardA manufacturing firm faces the cost of production as follows : Quantity Total Fixed Costs Total Variable Costs 0 $ 100 0 1 $ 100 $ 40 2 $ 100 $ 60 3 $ 100 $ 80 4 $ 100 $ 130 5 $ 100 $ 190 6 $ 100 $ 350 (a) Calculate the company's average fixed costs, average variable costs, average total costs,, and marginal costs at each level of quantity larger than zero (b) Suppose the price of the firm's product is $ 90, what is the firm's optimal production quantity? What is the firms profit under this quantity?arrow_forward
- Given the following short run production cost schedule: Short Run Total Cost Function Quantity Produced Total Cost ($) 0 20 10 27 20 38 30 53 40 73 50 100 60 130 The table above gives the short run total cost function for a typical firm in a perfectly competitive industry. Please answer related questions below If the firm enjoys market power than the firm’s market price will be higher or lower than the competitive market price? Why?arrow_forwardSuppose a perfectly competitive firm uses labor and capital to produce. In the short run, the quantity of labor is variable and the quantity of capital is fixed. The cost curve estimated by the manufacturer based on capital and labor is: *EQUATION ATTACH AS PHOTO, a. What is the lowest price the manufacturer expects in the long run?b. If factors prices remain constant, what is the lowest product price that firms will continue to operate in the short run?c. If the product price is $120 , how many products will the manufacturer produce in the short run?arrow_forwardGiven the following short run production cost schedule: Short Run Total Cost Function Quantity Produced Total Cost ($) 0 20 10 27 20 38 30 53 40 73 50 100 60 130 The table above gives the short run total cost function for a typical firm in a perfectly competitive industry. Please answer related questions below (a) What is the dollar value of the firm’s total fixed cost? (b) At what level of quantity, the average total cost is minimized? Show your work. (c) Calculate the marginal cost of producing the first 10 units of output? (d) At what level of quantity, the marginal cost is lowest? (e) Explain the average-marginal rule in cost curves? (f) What is the market price? (Assume the firm is operating in a pure competitive market.) (g) If the firm enjoys market power than the firm’s market price will be higher or lower than the competitive market price? Why? What is natural monopoly? Explain why governments…arrow_forward
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