ECON MICRO
5th Edition
ISBN: 9781337000536
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 8, Problem 4.7P
To determine
Complete the table and answer the subparts.
Introduction: Not required.
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3 examples of perfectly competitive markets and does these firms profit in long run or short run
1
Hypothetical Case 1
The following equations describe the long-run situation for prices and costs, where the numbers indicate the amounts of labor and capital needed to produce a unit of
wheat and cloth. W is the wage rate/hour and R is the rental rate/hour.
Price of wheat = 1 W + 2 R
Price of cloth = 2 W + 1 R
In autarky, the price of wheat is 5 and the price of cloth is 4. As trade opens up wheat price rises from 5 to 6. Cloth price remains at 4.
Consider Hypothetical Case 1 above. After trade opens up, how many units of wheat can a worker buy with one hour of labor?
Question 1
When do firms decide to shut down production in the short run? Explain it.
How is the short-run average cost curve and the long-run average cost curve-shaped? What is the difference between them?
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Similar questions
28.The following information is available for a company that operates in a perfectly competitive market.
Current Output
5000 units
Current Market Price
$5
Total Cost
$25,000
Marginal Cost
$4
Total Variable Cost
$20,000
What is the best action for this firm?
A-Increase output in the short run and stay in the market the long run.
B-Increase output in the short run and decrease output in the long run
C-Shut down in the short run and exit in the long run
D-Shut down in the short run and produce in the long run
E-Reduce output in the short run and increase output in the long run
29.Which of the following statements is true of a perfectly competitive market in the long run?
A-No firms can enter or exit. B-All firms earn normal profits, and there is both productive and allocative efficiency. C-Individual firms produce where average variable cost equals marginal cost and marginal revenue. D-It is allocatively efficient but may or may not be productively…
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Question 4
a. The following presents the costs and revenues for a firm.
Calculate the marginal cost, marginal revenue and profit for each unit of production.
How many units should the firm produce to maximise profit?
b. Describe the relationship between the marginal product and the total product of a firm?
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Why is it important for managers to understand the mechanics of supply and demand both in the short run and the long run?
Give examples of companies whose business was either helped or hurt by changes in supply or demand in the market in which they are competing.
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2. Given the following data about an organization works in the short run:
Q
TFC
TVC
TC
AFC
AVC
ATC
MC
0
1
44
2
48.5
3
96
4
50
5
310
6
Complete the table
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15. Explain the following quotations;
1. " Greater production is not tantamount to greater profit"2. "Higher selling price does not equate to higher profit"!
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(a) Suppose initially there is a long run equilibrium in a perfeetly competitive market. If suddenly there is a negative demand shock in the market, how the market will adjust to a new long-run equilibrium? Provide adequate graph to supplement your answer.
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Legendary for his business and investment acumen, Warren Buffett is frequently called the “Oracle of Omaha” after his birthplace in Omaha, Nebraska. As one of the world’s wealthiest business owner-investors, business executives are always interested in any insight or opinion Mr. Buffett might wish to share.
Explain each one of the following statements made by Warren Buffett. (Quotations from The Wall Street Journal, September 23, 2002.)
“You cannot be the high-cost producer in a commodity business.”“Sometimes it’s not even any good to be the low-cost producer.”
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24.Use the graph to answer the question
Where on the graph would firms be experiencing diseconomies of scale?
A-Between A and B. B-Point B. C-Between B and C. D-Between C and D E-Beyond D
25.A firm has a total revenue of $90,000. Its total explicit costs are $50,000, and its total implicit costs are $40,000. What economic profit is the firm earning?
A-$50,000. B-$40,000. C-$10,000. D-Indeterminate. E-Normal
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Table 11.4
Number of Workers
Total
Product
Product
Price ($)
0
0
4
1
15
4
2
29
4
3
42
4
4
54
4
5
65
4
6
75
4
7
84
4
8
92
4
9
99
4
10
105
4
Refer to Table 11.4 for the data for a perfectly competitive firm. The first column shows the number of workers employed in production, the second column shows the total product of the firm, and the third column shows its product price. From the data in the table, it can be said that the marginal revenue product begins to decline with the second worker hired.
Group of answer choices
False
True
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1. Give an example of how the profits change from the short run to the long run for a firm in a perfectly competitive market.
2. What are the similarities and differences between a short-run supply curve and a short-run market supply curve?
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In the short run, firms will 1. (earn economic profits, suffer economic losses). In the long run, the supply curve will 2. (shift rightward, shift leftward, remain unchanged)
Comparing the two long-run equilibria on the graph, you can see that the milk market is an example of 3. (a decreasing-cost industry, an increasing-cost industry, a low-cost industry, a high-cost industry)
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