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1 Jan 2018

I believe I have figured out a-c, but I cannot get d.

I found that p=3

2.

Consider a perfectly competitive firm that faces the following market demand and market supply curves:

Demand : Qd = 10,000 -10,000P + 2M

Supply: Qs =40,000 +10,000P -4,000Pi

M=25,000 and Pi=10

The firm has also estimated its AVC function to be equal to :

AVC = 3.0 -.0027Q +.0000009Q2

And Fixed Costs =1600.

a. Find the profit maximizing output for this firm. What are profits?

b. Suppose demand shifts down and the new market price is $1.50. What is the profit maximizing output at this price? What are profits in this case?

c. Given your result in part b, should this firm produce or shut down? Graph the result in part b, assuming the price of $1.50, and label your SRMC, AVC and SRATC curves. Justify your answer graphically and numerically.

d. How far can market price fall before the profit maximizing perfectly competitive firm should shut down?

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Hubert Koch
Hubert KochLv2
2 Jan 2018
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Related questions

6. Power Printers Total Costs (per hour)

q TC

0 65

1 80

2 95

3 120

4 150

5 200

If the price of a printer is $50 in this perfectly competitive industry, what is the profit-maximizing rate of output?

7. Which of the following is NOT true in a perfectly competitive market?

a. There is free entry and exit into the industry.

b. Each firm produces a differentiated product.

c. Each firm faces a perfectly elastic demand curve.

d. Price is equal to marginal revenue at every output level for the firm.

8. A perfectly competitive firm should always continue to operate in the short run as long as:

a. P < ATC at the rate of output where MR = MC.

b. P < AVC at the rate of output where MR = MC.

c. MR > AVC at the rate of output where MR = MC.

d. MR > AFC at the rate of output where MR = MC.

9. A firm that makes zero economic profits:

a. Must eventually go bankrupt.

b. Should shut down.

c. Incurs a loss, but should not shut down.

d. Covers all its costs, including a provision for normal profit.

10. A monopoly firm is different from a competitive firm in that:

A. There are many substitutes for the monopolist’s product whereas the competitive firm’s demand curve is perfectly elastic.

B. The monopolist’s demand curve is perfectly inelastic, whereas the competitive firm’s demand curve is perfectly elastic.

C. The monopolist can influence the price in the market, whereas the competitive firm is a price taker.

D. All of the above

31) Refer to Figure 9-1. The diagram shows cost curves for a perfectly competitive firm. If the market price is P2, the profit-maximizing firm in the short run should A) produce output B. B) produce output C. C) produce output D. D) produce output E. E) shut down, as it is incurring losses.

20) When price is less than average variable cost at the profit-maximizing level of output, a firm should: A) continue to produce the level of output at which marginal revenue equals marginal cost if it is operating in the long run. B) shutdown, because it cannot even cover all of its variable costs let alone its fixed costs if it stays in business. C) shutdown, because it will lose nothing in that case. D) continue to produce the level of output at which marginal revenue equals marginal cost if it is operating in the short run. 21) When price is greater than average variable cost but less than average total cost at the profit-maximizing level of output, a firm should: A) continue to produce the level of output at which marginal revenue equals marginal cost. B) shutdown to minimize its losses. C) reduce output to the level at which price equals average variable cost to minimize its losses. D) increase output to minimize its losses. 22) Assume that at the current market price, a perfectly competitive firm's profit-maximizing level of output yields total revenues that are just equal to total costs. Which of the following statements applies to this firm? A) The firm should increase its explicit costs to reduce its tax burden. B) The firm should shut down right now. C) The firm should continue to operate in the short run to minimize losses, but shut down if things don't improve over the long run. D) The firm is earning zero economic profit and should continue to operate. 23) The perfectly competitive firm's supply curve: A) coincides with its perfectly elastic demand curve. B) is the firm's average total cost curve above the shutdown point. C) is perfectly inelastic at the market price. D) is the firm's marginal cost curve above the minimum point on the AVC curve. 24) Assume there is a decrease in the market demand for a good sold by price-taking firms that are initially producing the profit-maximizing level of output. How will the market adjust over time? A) Firms will exit the market, causing price to rise until losses are eliminated. B) Firms will exit the market, causing price to fall until positive profits are eliminated. C) Firms will enter the market, causing price to fall until positive profits are eliminated. D) Firms will enter the market, causing price to rise until losses are eliminated. 25) What is the "most efficient capacity" for the perfectly competitive firm? A) The plant size for which Price = AR. B) The plant size at which LRAC is at its minimum. C) The plant size at which MR = MC. D) The plant size at which any of the SRATC curves are tangent to the LRAC curve.

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