Microeconomics: Principles & Policy
14th Edition
ISBN: 9781337794992
Author: William J. Baumol, Alan S. Blinder, John L. Solow
Publisher: Cengage Learning
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Taylor used to work as a yoga instructor at the local gym earning $27,000 a year. Taylor quit that job and started working as a personal trainer. Taylor makes $60,000 in total annual revenue. Taylor's only out-of-pocket costs are $12,000 per year for rent and utilities, $1,000 per year for advertising and $1,500 per year for equipment.
Taylor's accounting profit is _______, and Taylor's economic profit is _______.
Suppose Rosa runs a small business that manufactures frying pans. Assume that the market for frying pans is a perfectly competitive market, and the market price is $20 per frying pan. The following graph shows Rosa's total cost curve. Use the blue points (circle symbol) to plot total revenue and the green points (triangle symbol) to plot profit for the first seven frying pans that Rosa produces, including zero frying pans.
Radhika has started providing tutorial service to 10th standard students in mathematics. She charges Rs.750 per week for teaching mathematics to one student. She teaches 10 students every week. Let her weekly total cost be Rs.8000, of which Rs.1000 is fixed cost. Answer the following questions assuming Radhika's tutorial service to be a profit-maximizing competitive firm.
How much profit is Radhika making in the short run?
Will Radhika operate in the short run? Explain.
Demonstrate Radhika's profit maximizing behaviour in a graph. Label your graph clearly
There are 1000 ice cream sellers in your city with free entry and exit. Assume that each seller has an identical cost structure which remains unaffected by entry or exit of firms. Suppose the city municipal corporation decides to restrict the number of ice cream sellers to 800.
How does it affect an individual ice cream seller existing in the market in the short run? Explain with graphs of the market and the individual firm
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- Suppose Dmitri runs a small business that manufactures frying pans. Assume that the market for frying pans is a competitive market, and the market price is $20 per frying pan. The following graph shows Dmitri's total cost curve. Use the blue points (circle symbol) to plot total revenue and the green points (triangle symbol) to plot profit for frying pans quantities zero through seven (inclusive) that Dmitri produces. Dmitri's profit is maximized when he produces frying pans. When he does this, the marginal cost of the last frying pan he produces is , which is than the price Dmitri receives for each frying pan he sells. The marginal cost of producing an additional frying pan (that is, one more frying pan than would maximize his profit) is , which is than the price Dmitri receives for each frying pan he sells. Therefore, Dmitri's profit-maximizing quantity corresponds to the intersection of the curves. Because Dmitri is a price taker, this last condition…arrow_forwardUse Table: Total Cost and Output, which describes Sergei's total costs for his perfectly competitive all-natural ice cream firm. If the market price of a tub of ice cream is $50, what quantity will Sergei produce to maximize profit?arrow_forwardUsing the figure above, what is profit/loss for the firm?arrow_forward
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