CH 2200 Lecture 15: Chinese common phrases and words 15

Say you are the manager of a perfectly competitive firm selling a product. Your business is making a loss because total revenue is less than total costs. What would you do, shut down or continue to operate? How do fixed costs play a role in your analysis? What is the difference between shutting down and going out of business?

Say you are the manager of a perfectly competitive firm selling a product. Your business is making a loss because total revenue is less than total costs. What would you do--shut down or continue to operate? Use hypothetical numbers to explain. Information you need to provide include--state the product you are selling, the price of the product, the quantity of the product you produce, fixed costs, total cost, figure out total revenue, total and average variable costs. Then go ahead and make your decision.

Explain carefully why it makes better sense to shut down rather than continue to operate or to continue to operate rather than shut down, as the case may be. How do fixed costs play a role in your analysis? 

Why can a monopolist continue to make positive profits even inthe long-run while a perfectly competitive firm can make only zeroeconomic profits in the long-run?


A.Because a monopoly only has one firm while perfect competitionhas many.

B.Because monopoly has barriers to entry and perfect competitionhas free entry.

C.Because perfect competition has barriers to entry and monopolyhas free entry.

D.Because in perfect competition everyone produces the same productand because in monopoly there are no close substitutes

2. Because of a patent, Alcoa is the only manufacturer of soda canswith a stay-put tab. Alcoa can earn a profit on the sale of sodacans with stay-put tabs


A. in the short run but not in the long run because new firms canenter the industry in the long run.


B. only in the long run because government regulations preventmonopolists from earning profits in the short run.


C. in the long run but not the short run because the monopolistwill face competition in the short run.


D. not only in the short run but also in the long run because entryinto the industry by new firms is blocked until the patentexpires.