ECON MICRO
5th Edition
ISBN: 9781337000536
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 8, Problem 6.13P
A
To determine
The short run response of a firm to a reduction in the price of a variable resource is to be determined.
Concept Introduction:
B
To determine
The process by which the industry returns to long run equilibrium followed a change in market demand is to be determined.
Concept Introduction: Perfect competition has supply curve depicting the marginal cost curve which is higher than the average variable cost. Firms maximise their profits by producing at price = marginal cost.
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27- Under perfect competition, entry of new firms into the market in the long run tends to:
Select one: a. raise the level of profit of the existing firms.
b. reduce the market power of the existing firms.
c. raise the aggregate supply. d. raise the aggregate demand for goods.
e. reduce the degree of competitiveness in the market.
With neat explanation
Question 1 A profit-maximizing firm in a competitive market is currently producing 100 units of output. It has average revenue of $10, average total cost of $8, and fixed costs of $200. a. What is its profit? b. What is its marginal cost? c. What is its average variable cost? d. Is the efficient scale of the firm more than, less than, or exactly 100 units?
Question 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
$1,600
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- 27- Under perfect competition, entry of new firms into the market in the long run tends to: Select one: a. raise the level of profit of the existing firms. b. reduce the market power of the existing firms. c.raise the aggregate supply. d. raise the aggregate demand for goods. e. reduce the degree of competitiveness in the market.arrow_forwardQuestion 1 a. Draw the marginal cost and average total cost curves for a typical firm. Explain why the curves have the shapes that they do and why they cross where they do. b. Does a competitive firm's price equal its marinal marginal cost in the short run, in the long run, or both? Explain c. What is the law of diminishing returns and what does it imply about the shape of the firm's average variable cost and marginal cost curves. d. Using the table below indicate which firm has (i) disc.nomiesof scale and (ii) constant returns to scale over the entire range of output. Explain your answer Question 2 a. Apple faces competition from many other firms in the owrld market for mobile phones; therefore, apple cannot have market power. Do ou agree with this statement? b. the mrginal revenue for a perfectly competitive firm is equal to the market price. Why is this not the case for a monopolist? c. A social cost is applied to the monopolist market structure. Why does this occur?…arrow_forwardConcept: Does Fairness Matter 1 In the presence of shortages, why would a firm, such as a restaurant with people waiting for a table or a theater with people waiting for a ticket, not raise prices when doing so would seem to increase profits? A. Increasing prices might result in short run gains at the expense of long run profits. B. Increasing prices might be seen as unfair. C. Increasing prices requires the firm to pay substantial "switching costs." D. Both a and b. E. All of the above.arrow_forward
- 11- Al Shaihani is a halwa manufacturer which is famous for Omani Saffron Halwa. They wanted to increase their supply of halwa for the coming month of August 2021. However, due to COVID-19 Pandemic, the only available resources they could change are the number of their workers. Determine which type of production period Al Shaihani business is facing? a. Long run b. All of these c. Short - run d. Mid-runarrow_forward13- Which one of these will continuously increase as more products are produced? a. Average fixed cost b. Fixed cost c. Variable cost d. None of the choicesarrow_forward(b) The profit maximization rule for a perfectly competitive firm states that the perfectly competitive firm will maximize its profits when it produces that quantity where marginal revenue equals marginal cost for the last unit produced and sold. In your own words explain why the firm is better off producing that quantity where MR = MC rather than that quantity where MR > MC or that quantity where MR < MC.arrow_forward
- 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 Truearrow_forward1. The law of diminishing returns indicates that:a. as extra units of a variable resource are added to a fixed resource the marginal product will decline beyond some point.b. because of economies and diseconomies of scale a competitive firm's long-run average cost curve will be U-shaped.c. the demand for goods produced by purely competitive industries is down sloping.d. beyond some point the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction. Why do marginal costs tend to rise, and marginal benefits tend to fall? 2. Is it possible to avoid Diminishing Marginal Return? Why?3. Suppose that the Law of Diminishing Returns sets in immediately (that is, there is no range of output over which the Division of Labor holds). What would the short run marginal cost, average cost, and average variable cost curves look like? Explain.4. Which situation below describes the increasing returns stage of the production…arrow_forward8- A business is below the economic break-even point and above the operational break-even point. Therefore, it can be said that: *a) gives operating and economic profitb) gives economic profit and operating lossc) gives operating profit and economic lossd) causes economic and operational lossarrow_forward
- Question 3 The market for fertilizer is perfectly competitive. Firms in the market are producing output but are currently incurring economic losses. a. How does the price of fertilizer compare to the average total cost, the average variable cost, and the marginal cost of producing fertilizer? b. Draw two graphs, side by side, illustrating the present situation for the typical firm and for the market. [Upload a picture] c. Assuming there is no change in either demand or the firms’ cost curves, explain what will happen in the long run to the price of fertilizer, marginal cost, average total cost, the quantity supplied by each firm, and the total quantity supplied to the market.arrow_forward1. Draw the following for a firm in a competitive industry. Assume that the firm faces diminishing marginal product at some point. Remember to label all curves and axes. a. Fixed cost and average fixed cost. b. Marginal cost c. Average variable cost and average total cost. d. Identify the price ranges that will induce entry, exit and shutdown assuming all firms face identical cost curves. e. Assuming firms are producing at minimum efficient scale, draw the industry long run supply curve in parallel with or in reference to the firm level curves from above. 2. A major proposed industry in the future is the provision of global satellite wifi. However, the actual willingness to pay for such a service is unknown. Assume there's a 40% chance that there are 1 billion people willing to pay $100/year for a service that would cost $60/year to provide and a 60% chance that those people would be willing to pay $10/year for a service that would cost $60/year to provide. Assume that the enterprise…arrow_forward3 examples of perfectly competitive markets and does these firms profit in long run or short runarrow_forward
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