Microeconomics For Today (MindTap Course List)
9th Edition
ISBN: 9781305507111
Author: Irvin B. Tucker
Publisher: Cengage Learning
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Question
Chapter 8, Problem 6SQ
To determine
The shutdown point of a
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According to the figure above:
a. Is the firm maximizing economic profit?
b. What is the firm's short run shutdown price?
Bubba's Burgers sells hamburgers in a perfectly competitive market at a price of $1.50 each. At the profit-maximizing (cost-minimizing) level of output, average total cost is $1.90 per hamburger and average variable cost is $1.75 per hamburger. Should the firm continue to operate in the short run?
Rose growing is perfectly competitive and all growers have the same costs.
The market price is $16 a bunch and each grower maximizes profit by producing 1,100 bunches a week.
Average total cost is $18 a bunch and average variable cost is $10 a bunch.
Minimum average variable cost is $5 a bunch.
What is each grower's economic profit at the shutdown point?
Each grower's economic profit at the shutdown point is dollars a week.
>>> If the firm incurs an economic loss, indicate the loss with a minus sign. If the firm earns an economic profit, do not include a plus sign.
Chapter 8 Solutions
Microeconomics For Today (MindTap Course List)
Ch. 8.5 - Prob. 1YTECh. 8.5 - Prob. 2YTECh. 8 - Prob. 1SQPCh. 8 - Prob. 2SQPCh. 8 - Prob. 3SQPCh. 8 - Prob. 4SQPCh. 8 - Prob. 5SQPCh. 8 - Prob. 6SQPCh. 8 - Prob. 7SQPCh. 8 - Prob. 8SQP
Ch. 8 - Prob. 9SQPCh. 8 - Prob. 10SQPCh. 8 - Prob. 11SQPCh. 8 - Prob. 12SQPCh. 8 - Prob. 1SQCh. 8 - Prob. 2SQCh. 8 - Prob. 3SQCh. 8 - Prob. 4SQCh. 8 - Prob. 5SQCh. 8 - Prob. 6SQCh. 8 - Prob. 7SQCh. 8 - Prob. 8SQCh. 8 - Prob. 9SQCh. 8 - Prob. 10SQCh. 8 - Prob. 11SQCh. 8 - Prob. 12SQCh. 8 - Prob. 13SQCh. 8 - Prob. 14SQCh. 8 - Prob. 15SQCh. 8 - Prob. 16SQCh. 8 - Prob. 17SQCh. 8 - Prob. 18SQCh. 8 - Prob. 19SQCh. 8 - Prob. 20SQ
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Similar questions
- If a perfectly competitive firm is producing an output level where average variable cost is equal to the marginal cost but the price is less than average variable cost, then in the short run the firm should Group of answer choices a) increase its price. b) decrease its price. c) increase its output. d) decrease its output. e) shut down. f) maintain its current level of output.arrow_forwardIdentify a perfectly competitive firmarrow_forwardFarmer Johnson producers Eggs in a perfectly competitive egg market. The short run cost curves are displayed below. $4.00 MC $3.50 ATC AVC $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0 20 40 60 80 100 120 140 160 Dozens of Eggs Price of Eggsarrow_forward
- Suppose the current market price for bar stools is $25 each. My friend René's profit-maximizing output is to produce 10 bar stools. If he produces 10 bar stools, his average variable cost will be $30 per unit and his average total cost will be $40 per unit. In the short run, what is René's profit?Hint: Should René keep operating or shut down? a.$150. b.$0. c.-$100. d.-$150.arrow_forwardPerfectly competitive firm that makes economic loses in the short run must cease its operations. do you agree? Expalin using illustrationsarrow_forwardIn the above figure, The cost curves of a typical perfectly competitive curve are show. What will price settle at in the long run?arrow_forward
- Lentz's Incorporated sells paper in a perfectly competitive market at a price of $2 per ream. At the profit-maximizing (cost-minimizing) level of output, average total cost is $2.50 per ream and average variable cost is $1.95 per ream. Should the firm continue to operate in the short run?arrow_forwardIn the short run, a perfectly competitive firm can Select one: a. earn an economic profit. b. earn an economic profit, earn a normal profit, or incur an economic loss. c. earn a normal profit. d. incur an economic loss.arrow_forwardTomato Farms is selling tomatoes in a purely competitive market. Its output is 25,000 bushels, which sell for $30 a bushel. At this level of output, the marginal cost is $30 a bushel, average variable cost is $30.50 a bushel, and average total cost is $34.50 a bushel. Should the firm increase output, decrease output, or not produce? Explain.arrow_forward
- A profit-maximizing firm is producing where MR = MC and has an average total cost of $4, but it gets a price of $3 for each good it sells.a. What would you advise the firm to do? The firm should shut down in the short run and exit the market in the long run. The firm is producing where MR = MC, so it should produce in both the short run and long run. As long as average variable costs are less than $3, in the short run, the firm should produce. In the long run, it should exit the market. The firm should shut down in the short run. Once the firm recoups its fixed costs, it should produce in the long run. b. What would you advise the firm to do if you knew average variable costs were $3.50? The firm should exit the market in the long run, but it should produce in the short run since it is covering average fixed costs. The firm should shut down in the short run. Once the firm recoups its fixed costs, it should reopen in the long run. The firm…arrow_forwardJuan makes dining room chairs in a perfectly competitive industry. He is looking for economic advice and tells you the following data about his business. (Assume cost curves have their standard shapes.) Total revenue is $120,000, Total fixed costs are $100,000 Total variable costs are $110,000 Marginal cost is $200/unit Quantity produced is 600 units What will you suggest to Juan? A: Shut down immediately B: Do not shut down and increase production C: Do not shut down but decrease production D: Do not shut down and do not change the current production level.arrow_forwardWhat are the profits or losses when a competitive firm shuts down in the short run? Group of answer choices it will realize a loss equal to its total fixed costs. its loss will be zero. it will realize a loss equal to its explicit costs. it will realize a loss equal to its total variable costs.arrow_forward
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