Econ Micro (book Only)
6th Edition
ISBN: 9781337408066
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 8, Problem 8P
To determine
Whether a firm should continue its production or shut down in various conditions mentioned in sub parts.
Introduction:
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3 examples of perfectly competitive markets and does these firms profit in long run or short run
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?
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.
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- 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?arrow_forwardIt is clear that businesses operate in the short run, but do they ever operate in the long run? Discuss.arrow_forwardDo entry and exit occur in the short run, the long run, both, or neither?arrow_forward
- 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_forward8. (The Short-Run Firm Supply Curve) Each of the followingsituations could exist for a perfectly competitive firm in the short run. In each case, indicate whether the firm should produce in the short run or shut down in the short run, or whether additional information is needed to deter- mine what it should do in the short run.a. Total cost exceeds total revenue at all output levels. b. Variable cost exceeds total revenue at all output levels. c. Total revenue exceeds fixed cost at all output levels. d. Marginal revenue exceeds marginal cost at the currentoutput level. e. Price exceeds average total cost at all output levels. f. Average variable cost exceeds price at all output levels. g. Average total cost exceeds price at all output levels.arrow_forward3 examples of perfectly competitive markets and dose these firms profit in long run or short runarrow_forward
- 26.A firm operates in a perfectly competitive market and is producing at the profit-maximizing output. It is incurring economic losses. Based on this information, which of the following is true? A-Average total cost = price; marginal cost > marginal revenue. B-Average total cost = price; marginal cost = marginal revenue C-Average total cost > price; marginal cost = marginal revenue D-Average total cost > price; marginal cost > marginal revenue E-Average total cost < price; marginal cost > marginal revenue 27.In the short run, a price-taking firm decides to produce zero units of output. Which of the following must have been the case? A-The market price was less than the firm's average variable cost. B-The firm was earning normal profits in the short run but projected economic losses in the long run. C-The firm's average total cost was higher than its average revenue. D-The market price was between the firm's average variable cost and average total cost. E-The…arrow_forward26) The short run supply curve of a firm is a) marginal cost curve b) average total cost curve c) average variable cost curve d) marginal revenue curvearrow_forwardM/c questions - Microeconomics 15) The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above which average cost? A. fixed cost B. variable cost C. total cost D. sunk cost 14) When a perfectly competitive firm makes a decision to shut down, which is most likely? A. price is below the minimum of average variable cost B. marginal cost is above average total cost C. marginal cost is above average variable cost D. fixed costs exceed variable costsarrow_forward
- Only typed answer Briefly describe some of the key characteristics of a perfectly competitive market. Explain the impact of the number of firms and the type of product that is produced. Describe what happens in a competitive market when firms in the market are earning profits.arrow_forward28.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…arrow_forward7 A local tavern in a perfectly competitive market was in a long-run equilibrium. Then, a scientific breakthrough determines that beer prevents heart attacks, resulting in an increase in demand for beer. Describe the market processes that affect the tavern in both the short run and the new long-run equilibrium.arrow_forward
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