ECONOM 1014 Chapter Notes - Chapter 9, 11: Sunk Costs, Demand Curve, Savings Account

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fuchsiaeagle209

4 Mar 2017

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The product being sold is similar across different firms, many buyers and sellers, each buyer and seller represents a small portion of the total market: soda. Gold would be a good example of a market that meets these conditions. The price a profit-maximizing firm in this market will charge is: the market price. Assume the price elasticity of demand for a firm"s product is perfectly elastic. The price this profit-maximizing firm will charge is: the market price. When zero profits occur in the market: p=ac. The cost of producing a given quantity of output is total cost. Which is not an example of a sunk cost: the costs of buying the wrong printer ink cartridges at staples. If you borrow money from a bank to start a business, the interest you pay is an explicit cost. If you take money out of your savings account to start a business, the interest you forgo is an implicit cost.

Related Questions

You are the manager of a firm producing a product in a specific market structure. Provide the following information:

Describe your product and the specific cost components of your product. Make the distinction between the fixed and variable costs associated in the production of your product.

Provide reasons why your firm meets the characteristics of a particular market structure. Explain how this impacts your ability to set price. Does your firm face a downward sloping demand curve? What price do you charge for your product and why?

In a table using hypothetical data, please provide total fixed cost, average fixed cost, total variable cost, average variable cost, total cost, average total cost, and marginal cost schedules.

In a second table, indicate your profit maximizing output using price, marginal revenue, and marginal cost schedules. What profit/loss does your firm earn/incur?

champagnesheep933

The market for wheat consists of 500 identical firms, each with the total and marginal cost functions shown:

TC = 90,000 + 0.00001Q2

MC = 0.00002Q,

where Q is measured in bushels per year. The market demand curve for wheat is Q = 90,000,000- 20,000,000P, where Q is again measured in bushels and P is the price per bushel.

a. Determine the short-run equilibrium price and quantity that would exist in the market.

b. Calculate the profit-maximizing quantity for the individual firm. Calculate the firm's short-run profit (loss) at that quantity.

c. Assume that the short-run profit or loss is representative of the current long-run prospects in this market. You may further assume that there are no barriers to entry or exit in the market. Describe the expected long-run response to the conditions described in part b. (The TC function for the firm may be regarded as an economic cost function that captures all implicit and explicit costs.)

peartoad748

1. Suppose that a perfectly competitive firm's Total Cost function is given by:
TC = 50 + 80q - 10q² + 0.6q³
a. What is fixed cost equal to? What is Variable Cost equal to?
b. What is Marginal Cost equal to? What is the Average Variable Cost equal to?
c. Find an equation for the inverse supply curve of the firm. Hint: the supply curve presumes profit-maximizing outputs at any market price.
d. Below which market price (a number) will this firm choose to produce 0 output?
e. Choose a market price that is between Average Cost and Average Variable Cost. Will, the firm choose to produce a positive output level?
Depict this output level in a graph that includes all the
appropriate curves. Explain verbally (and with numbers) why this firm would choose to produce the output you chose.
f. What does it mean for a firm to be a price taker? What is the
implication of this for the individual firm's demand curve? You must also mention in your answer the term elasticity (correctly of course).
g. If the firm's cost curve shifted down, what would this do to?
the firm's supply curve? Justify your answer with an example using the short-run total cost curve above.
Q2. Suppose there are two demand curves (e.g two different sets of consumers) for a particular product (two distinct markets that can be segmented-so somehow the consumers in one market cannot buy in the other market and resale from lower-priced consumers to higher-priced consumers is not possible).
The two demand curves are given by the following equations:
Q1 = 14 - P1 (group 1)
Q2 = 12 - 2P2 (group 2)
a. Solve for the inverse demand curve for group 1 and then graph the inverse demand curve with P on the vertical and Q on the horizontal axis.
b. Calculate MR for each group above and graph on the graphs in part a.
c. Suppose MC=AC is constant and equal to 2 for the firm (So the MC curve applies for both groups (because it is the same supplier of a single product for the two groups), although demand and MR are unique to each group since the markets can be segmented. Find the profit-maximizing output, price, and profits in each market. You may assume that TC = AC*Q (cost per unit*number of units). Label the correct price and quantity for each graph in part a.
d. What are the elasticities at the profit-maximizing quantities that you found in part c?
e. Can you say anything about how the price charged in each market relates to the relative price elasticities of demand you calculated in part d? Try to explain intuitively using an example of a real product that you might consume, in which the supplier of a single product can segment the market and in fact charge different prices to two different groups.
f. Now suppose that the above firm cannot segment the two markets. Solve for the single profit-maximizing price and quantity. What are profits equal to?

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ECONOM 1014 Chapter Notes - Chapter 9, 11: Sunk Costs, Demand Curve, Savings Account

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