A
Short run adjustments for markets and the firm to a decrease in consumer incomes are to be illustrated graphically.
Concept Introduction :
B
Long run adjustments to the drop in income are to be shown graphically.
Concept Introduction : Perfectly competitive firms are the ones with many firms producing same product in the market at a homogenous prices. The entry and exit in competitive market is free , the firms always face competition due to high substitutability of the products. Under perfect competition , long run equilibrium is when all factors of production are variable , new firms entering the market supply of firm’s increases reducing price per product. They need to ensure p> AVC to stay in the market so the loss making firm exit. Thus, firms enjoy market efficiency P=MR.
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Check out a sample textbook solution- 5. Study Questions and Problems #5 Suppose there is a decrease in the demand for high-definition televisions. What effect might this change have on the short-run average total cost curve for this product? _____ a) A decrease. When demand decreases, the short-run average total cost falls. b) An increase. When demand decreases, the short-run average total cost increases. c) No change. Demand determines the final price but not the costs for the product.arrow_forwardQuestion 11 A manufacturing company has a fixed amount of capital that cannot be increased rapidly. Suppose there is a sudden increase in the price of their product. Their supply curve is: a inelastic and not very responsive to changes in prices. b elastic and not very responsive to changes in prices. c inelastic and very responsive to changes in prices. d elastic and very responsive to changes in prices.arrow_forward1 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?arrow_forward
- 1. The market for manicures and other nail treatments is very competitive. How would the following developments affect the number of nail treatments that a typical nail salon wants to supply in the short run? a. Heightened concern about their appearance causes people to want more manicures at a given price. b. The government requires all nail salons to pay a new yearly licensing fee to operate. c. Worse job prospects elsewhere in the economy cause more people to want to become manicurists, causing the wages of manicurists to fall.arrow_forwardTitle Case: Ford to Shutdown Australian Production by 2016 The Ford Motor Company has decided to wind down production in Australia after 85 years. The carmaker says the closure of two plants and the loss of 1,200 jobs are because of production losses and the small market. “Manufacturing is not viable for Ford in Australia for the longer term,” said Chief Executive of Ford Australia Bob Graziano. “Our locally made products continue to be unprofitable, while our imported products continue to be profitable.” Analysts estimate the company has approximately $580 million in losses in the last fiscal year, and profit fell by 72 percent. Ford’s decision in Australia follows effort to also close shop in Europe. Graziano told reporters, Australian production was no longer sustainable as it was double the costs of Europe and quadruple the costs in Asia. The average hourly manufacturing salary in Australia in 2011 was $46.29, slightly lower than in Germany but 30 percent higher than the US and…arrow_forwardTitle Case: Ford to Shutdown Australian Production by 2016 The Ford Motor Company has decided to wind down production in Australia after 85 years. The carmaker says the closure of two plants and the loss of 1,200 jobs are because of production losses and the small market. “Manufacturing is not viable for Ford in Australia for the longer term,” said Chief Executive of Ford Australia Bob Graziano. “Our locally made products continue to be unprofitable, while our imported products continue to be profitable.” Analysts estimate the company has approximately $580 million in losses in the last fiscal year, and profit fell by 72 percent. Ford’s decision in Australia follows effort to also close shop in Europe. Graziano told reporters, Australian production was no longer sustainable as it was double the costs of Europe and quadruple the costs in Asia. The average hourly manufacturing salary in Australia in 2011 was $46.29, slightly lower than in Germany but 30 percent higher than the US and…arrow_forward
- Title Case: Ford to Shutdown Australian Production by 2016 The Ford Motor Company has decided to wind down production in Australia after 85 years. The carmaker says the closure of two plants and the loss of 1,200 jobs are because of production losses and the small market. “Manufacturing is not viable for Ford in Australia for the longer term,” said Chief Executive of Ford Australia Bob Graziano. “Our locally made products continue to be unprofitable, while our imported products continue to be profitable.” Analysts estimate the company has approximately $580 million in losses in the last fiscal year, and profit fell by 72 percent. Ford’s decision in Australia follows effort to also close shop in Europe. Graziano told reporters, Australian production was no longer sustainable as it was double the costs of Europe and quadruple the costs in Asia. The average hourly manufacturing salary in Australia in 2011 was $46.29, slightly lower than in Germany but 30 percent higher than the US and…arrow_forwardTitle Case: Ford to Shutdown Australian Production by 2016 The Ford Motor Company has decided to wind down production in Australia after 85 years. The carmaker says the closure of two plants and the loss of 1,200 jobs are because of production losses and the small market. “Manufacturing is not viable for Ford in Australia for the longer term,” said Chief Executive of Ford Australia Bob Graziano. “Our locally made products continue to be unprofitable, while our imported products continue to be profitable.” Analysts estimate the company has approximately $580 million in losses in the last fiscal year, and profit fell by 72 percent. Ford’s decision in Australia follows effort to also close shop in Europe. Graziano told reporters, Australian production was no longer sustainable as it was double the costs of Europe and quadruple the costs in Asia. The average hourly manufacturing salary in Australia in 2011 was $46.29, slightly lower than in Germany but 30 percent higher than the US and…arrow_forwardTitle Case: Ford to Shutdown Australian Production by 2016 The Ford Motor Company has decided to wind down production in Australia after 85 years. The carmaker says the closure of two plants and the loss of 1,200 jobs are because of production losses and the small market. “Manufacturing is not viable for Ford in Australia for the longer term,” said Chief Executive of Ford Australia Bob Graziano. “Our locally made products continue to be unprofitable, while our imported products continue to be profitable.” Analysts estimate the company has approximately $580 million in losses in the last fiscal year, and profit fell by 72 percent. Ford’s decision in Australia follows effort to also close shop in Europe. Graziano told reporters, Australian production was no longer sustainable as it was double the costs of Europe and quadruple the costs in Asia. The average hourly manufacturing salary in Australia in 2011 was $46.29, slightly lower than in Germany but 30 percent higher than the US and…arrow_forward
- topic : Industry equilibrium Question : What determines the number of firms in an industry (a) in the short run, (b) in the long run.arrow_forwardQuestion 3 A profit maximizing firm in a competitive market is currently producing 150 units of output at a price of $20. Average total cost is $8 and fixed cost is $200. What is this firm’s profit? $1,800 $2,000 $800 $1,600arrow_forward3 examples of perfectly competitive markets and does these firms profit in long run or short runarrow_forward