consumer surplus, producer surplusjjyazar/econ110/midterm2studypacket.pdfconsumer surplus, producer...
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ConsumerSurplus,ProducerSurplusWhatiswillingnesstopay?Howdoesitrelatetothedemandcurve?Whatisconsumersurplus?Whatdoesitmeasure?
Writetheformulaforconsumersurplus.Supposetheconsumeriswillingtopay$20.00foraparticulargoodbutonlyhadtopay$14.00forit.Whatistheconsumersurplus?Ifaconsumeriswillingtopay$15.00foraparticulargoodbutthepriceofthegoodis$17.00,thenwhatwouldbetheconsumersurplus?Belvaiswillingtopay$65.00forapairofshoesforaformaldance.Shefindsapairatherfavoriteoutletshoestorefor$48.00.CalculateBelva’sconsumersurplus. Janinewouldbewillingtopay$50toseeLesMisérables,butbuysaticketforonly$30.HowmuchdoesJaninevaluestheperformance?Denisevaluesastainlesssteeldishwasherforhernewhouseat$500,butbuysitfor$350.WhatisDenise’swillingnesstopay? Nathanbuysanewsoundsystemforhisdormroomfor$500.Hereceivesconsumersurplusof$400fromthepurchase.HowmuchdoesNathanvaluehissoundsystem?
BUYER
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$50.00
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Ifthetablerepresentsthewillingnesstopayof4buyersandthepriceoftheproductis$15,thenwhowouldbewillingtopurchasetheproduct?Onagraph,describehowtofindtheconsumersurplusarea.Accordingtothegraphshown,whenthepriceisP1consumersurplusisgivenbywhicharea? Accordingtothegraphshown,atthepriceofP2,consumersurplusisgivenbywhicharea?Whatdopointsalongthesupplycurverepresent?Whatistheformulaforproducersurplus? Onagraph,describehowtofindtheproducersurplusarea.Rogerproducescomputerboards.Hisproductioncostis$10perboard.Hesellstheboardsfor$25each.Whatishisproducersurplus?
Accordingtothegraphshown,attheequilibriumprice,whatistheconsumersurplus? Accordingtothegraphshown,attheequilibriumprice,whatistheproducersurplus?Accordingtothegraphshown,attheequilibriumprice,whatisthetotalsurplus?ThereareonlyfiveconsumersinterestedinHangover3Blueraydiscs.ThemaximumwillingnesstopayoftheseconsumersforHangover3Blueraydiscaregivenbelow:
Emily $10Carter $14Angela $16Greyson $19Jack $20
a) DrawthemarketdemandcurveforHangover3blueraydisc.
b)SupposethepriceofHangover3blueraydiscis$15.Howmanyunitswouldbesold?Howmuchwouldbetheconsumersurplus?c)SupposethepriceofHangover3blueraydiscis$14.Howmanyunitswouldbesold?Howmuchwouldbetheconsumersurplus?
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Supposethedemandandsupplycurvesfortomatoesaregivenbelow.
Calculatetheconsumersurplus,producersurplusandtotalsurplusunderfreemarketequilibrium.PriceControlsGovernmentssometimesinterveneinmarketsusingpricecontrolsiftheequilibriumpriceistoohighforconsumersortoolowforproducers.Whatisapriceceiling?Assumethegraphontherightrepresentthemarketforburritos.Supposethegovernmentimposesapriceceilinginthismarketatapriceof$5.00,whatwouldbetheresult?Whatkindofpricecontrolisrentcontrolanexampleof?Listtheconsequencesofrentcontrols.
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Supposethefollowingtablerepresentsthedemandandthesupplyofbicycles.Whathappensifgovernmentimposesapriceceilingof$100perbicycle?Price Quantitydemanded Quantitysupplied$160 20 80$120 40 40$100 50 20$80 60 0Supposethefiguresshownbelowrepresentthemarketfor3Dprinters.Ononeofthemarketsaneffectivepriceceilingisimposed.Theothermarkethasanineffectivepriceceiling.Identifywhichoneiswhich.(Note:effectivepriceceilingisabindingpriceceilingthatwouldaltertheinitialmarketequilibrium.Ineffectivepriceceilingisnotabindingonewhichwouldnothaveanyeffectontheinitialmarketequilibrium)
Inwhichpanel(s)inthefigureshownabove,wouldtherebeashortagefor3Dprintersattheceilingprice?Whatisapricefloor?Whatkindofpricecontrolisminimumwageanexampleof?Supposethegraphshowsthemarketforunskilledlabor.Ifthegovernmentimposesaminimumwageof$14.00inthismarket,whatwouldbetheresult?
ExplicitandImplicitCosts,AccountingandEconomicProfitWhatdoweassumeineconomicsthattheaimofthefirmsis?Howisprofitcalculated?Howistotalrevenuecalculated?Whatisthedifferencebetweenaccountingprofitandeconomicprofit?Whatisexplicitcost?Giveexamplesofexplicitcosts.Whatisimplicitcost?Giveexamplesofimplicitcosts.Wolfgangcurrentlyworksforalawfirmforayearlysalaryof$125,000.Heisconsideringquittinghisjobandopeninghisownlawpractice,whereheexpectstobring$200,000revenueperyear.Tostarthisownfirm,hewouldneedanofficespaceandalawclerk.Theofficespacehefoundrentsfor$50,000peryear.Alawclerkcouldbehiredfor$35,000peryear.ListWolfgang’sexplicitcosts.Howmuchishisexplicitcosts?CalculateWolfgang’saccountingprofit.ListWolfgang’simplicitcosts.Howmuchishisimplicitcosts?ShouldWolfgangopenhisownlawpractice?Toanswerthisquestion,whatelsewouldyouwanttoknow?ThenegativeeconomicprofitwouldmeanthatWolfgangwouldbeearning$10,000lessthanifheworkedforthecorporatefirm.Sohewouldbebetteroffstayingatthiscurrentjob.Supposeyouhavesecuredyourselfasummerjob,cuttinggrass.Youcharge$40perlawnandyoumow400lawnsoverthesummerbreak.Youspend$1,000onequipmentand$2,000ongasoline.YoucouldhaveworkedatMcDonaldsandearned$8,000overthesummer.Calculateyouraccountingprofitandeconomicprofit.WhichoptionisbetterforyoutoworkatMcDonaldsortocutgrass?
Nexttoeachstatement,writeTfortrueorFforfalse.__________1.TotalRevenue=PricexQuantity__________2.Thedifferencebetweenaccountingprofitandeconomicprofitisimplicitcosts.__________3.Economicprofitisusuallybiggerthanaccountingprofit.KeyTermsMatcheachtermwithitsdefinition.
A.AccountingProfit________Incomefromsellingafirm’sproduct;definedaspricetimesquantitysoldB.EconomicProfit________TotalrevenueminusexplicitcostsC.ExplicitCosts________Totalrevenueminus(explicitplusimplicitcosts)D.ImplicitCosts________TheprocessofcombininginputstoproduceoutputE.Production_______Anorganizationthatcombinesinputs(labor,capital,land,rawmaterials)toproduceoutputF.Revenue________OpportunitycostofresourcesalreadyownedbythefirmandusedinbusinessG.Profit________Outofpocketcostsforafirm;suchaspaymentsforwages,rent,etc.H.Firm________Thedifferencebetweenrevenueandcost,calculatesasRevenueminuscost
ProductionintheShortRunWhatarefixedinputs?Whatarevariableinputs?Howdowedefineshortrunineconomics?Howdowedefinelongrunineconomics?Supposeyouhaveapizzarestaurant.Yourrestaurantisbecomingpopularandyouneedto
increaseyourproduction.Intheshortrunwhichofyourinputswouldbefixedandwhichwouldbevariable?Definemarginalproduct.Definethelawofdiminishingmarginalproduct.Youhaveasmallbusinesswherelumberjackscuttreeswithatwoperson-saw.Yourproduction
dataisgiveninthetablebelow.Fillinthemarginalproductcolumn.
No.oflumberjacks
No.oftreescut MarginalproductMP
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Atwhichworkerdiminishingmarginalproductivitysetin?
Supposeyouhaveasmallstandwhereyousellsnowcones.Thefollowingtableshowsthenumberofworkersandtheresultingsnowconeoutputthattheyproduce.Numberofworkers(L)
Totaloutput(Q)
MarginalProduct
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a) CalculateMPandAPoflaborandfillinthetable.b) Whendoesdiminishingmarginalproductivitybegin?
Yournewaccountantaccidentlylostsomeofyourdata.Luckilyusingtherelationshipbetweentotalproduct,averageproductandmarginalproductyouareabletofillinthebelowtable.Labor(L) TotalProduct
(Q)AverageProduct(APL)
MarginalProduct(MPL)
0 0 0 -1 19 2 36 3 4 256 64 1035 375 6 1297 637 91 1338 96 Nexttoeachstatement,writeTfortrueorFforfalse.__________1.Marginalproductistheadditionaloutputofonemoreworker.__________2.Laboristypicallyafixedinput.__________3.Marginalproductcanneverbenegative.KeyTermsMatcheachtermwithitsdefinition.
A.Diminishing________FactorsofproductionthatafirmcaneasilyincreaseordecreaseinmarginalproductivityashortperiodoftimeB.Fixedinputs________Asfirmemploysmorelabor,capitalbeingfixed,additionaloutputproducedeventuallydeclinesC.Marginalproduct________Synonymforfirm’soutputD.Shortrun________ResourcesfirmsusetoproducetheirproductsE.Totalproduct________Periodoftimeduringwhichatleastoneormoreofthefirm’sinputsisfixedF.Variableinputs________Changeinfirm’soutputwhenitemploysonemoreworkerG.Factorsofproduction________Periodoftimeduringwhichallofthefirm’sinputsarevariableH.Longrun________Factorsofproductionthatcan’teasilybeincreasedordecreasedinashortperiodoftime
CostsintheShortRunDefinefixedcosts.Definevariablecosts.Definetotalcosts.Supposeyouownalawncarebusinesswhereyouprovidemowingservices.Yourfixeinputis
twolawnmowersthatyourented.Therentforeachlawnmoweris$80permonth.Yourvariableinputisworkersyouhire.Yourtotalcostisprovidedinthetablebelow.Fillinthemissingentries.
Quantity FixedCost(FC) VariableCost(VC) TotalCost(TC)0 $160 10 $160 $20018 $160 $25023 $160 $32029 $160 $40035 $160 $49040 $160 $500Writetheformulasforaveragetotalcost(ATC),averagevariablecost(AVC),averagefixedcost(AFC)andmarginalcost(MC).Pleaserefertothelawncarebusinessproblemgivenabove.Usingthetableyoufilledpleaseanswerthefollowingquestions:Whatistheaveragevariablecostofproducing18lawnservices?Whatistheaveragefixedcostofproducing35lawnservices?Whatistheaveragetotalcostofproducing40lawnservices?DescribetherelationshipbetweenMCandATC.(thesamerelationshipappliestoMCandAVC)WhenMCishigherthanATC,ATCrises.WhenMCislowerthanATC,ATCdecreases.SupposeyouareoperatingabicyclemessengerservicefordowntownColumbus.Thenumberofemployeesandthecorrespondingnumberofparcelsthattheycandeliverinamonthisgivenbythefirsttwocolumnsofthebelowtable.Youleased5bicycleswitha$500leaseoneachthatincludestheliabilityinsurance.Youarealsopaying$3,000permonthtorenttheofficespaceand$500forwebsitehostingandphoneservice.Youpay$800monthlysalarytoeveryworkeryouemploy.Giventhisinformation,fillinthetablebelow.
Numberofworkers(L)
Totaloutput(Q)
FixedCosts VariableCosts TotalCost
0 0 1 30 2 65 3 100 4 130 5 150 6 160 7 165 Choosethecorrectanswerforthefollowingmultiple-choicequestions:SupposeJanisstartingupasmallcoffeecartbusinessinfrontofCornsbuilding.VariablecostsforJan’scoffeecartbusinesswouldincludethecostofwhichofthefollowing: a. costofbuildingthecart b. costofhiringagraphicdesignertodesignherbannerforherbusiness c. costofgroundcoffee d. costoftheespressomachinesheleasedforonesemestere. AlloftheaboveIfafirmproducesnothing,whichofthefollowingcostswillbezero? a. totalcost b. fixedcost c. opportunitycost d. variablecostAveragetotalcostisequalto a. output/totalcost. b. totalcost–totalquantityofoutput. c. averagevariablecost+totalfixedcost. d. totalcost/output.Thecostofproducinganadditionalunitofoutputisthefirm’s a. marginalcost. b. productivityoffset. c. variablecost. d. averagevariablecost.Marginalcosttellsusthe a. valueofallresourcesusedinaproductionprocess. b. marginalincrementtoprofitabilitywhenpriceisconstant. c. amountbywhichtotalcostriseswhenoutputisincreasedbyoneunit. d. amountbywhichoutputriseswhenlaborisincreasedbyoneunit.Diminishingmarginalproductsuggeststhatthemarginal a. costofanextraworkerisunchanged. b. costofanextraworkerislessthanthepreviousworker’smarginalcost. c. productofanextraworkerislessthanthepreviousworker’smarginalproduct. d. productofanextraworkerisgreaterthanthepreviousworker’smarginalproduct.
Theaveragefixedcostcurve a. alwaysdeclineswithincreasedlevelsofoutput. b. alwaysriseswithincreasedlevelsofoutput. c. declinesaslongasitisabovemarginalcost. d. declinesaslongasitisbelowmarginalcost.Whenmarginalcostislessthanaveragetotalcost, a. marginalcostmustbefalling. b. averagevariablecostmustbefalling. c. averagetotalcostisfalling. d. averagetotalcostisrising.Whenmarginalcostexceedsaveragetotalcost, a. averagefixedcostmustberising. b. averagetotalcostmustberising. c. averagetotalcostmustbefalling. d. marginalcostmustbefalling.Thecurvesbelowreflectinformationaboutthecoststructureofafirmwhichproducescellphones.Usethefiguretoanswerquestionsbelow.
Writetheletterofthecurvethatismostlikelytorepresentaveragetotalcost:____________ Writetheletterofthecurvethatismostlikelytorepresentaveragefixedcost:____________ Writetheletterofthecurvethatismostlikelytorepresentaveragevariablecost:____________Writetheletterofthecurvethatismostlikelytorepresentmarginalcost:____________ Foralargefirmthatproducesandsellsautomobiles,whichofthefollowingcostswouldbeavariablecost? a. the$20millionpaymentthatthefirmpayseachyearforaccountingservices b. thecostofthesteelthatisusedinproducingautomobiles c. therentthatthefirmpaysforofficespaceinasuburbofSt.Louis d. Alloftheabovearecorrect.
Staplers–R-Usproducesandsellsstaplers.Lastyear,itproduced5,000staplersandsoldeachstaplerfor$8.Inproducingthe5,000staplers,itincurredvariablecostsof$30,000andatotalcostof$45,000.Howmuchisthefirm’sfixedcosts? Inproducingthe5,000staplers,whatwasthefirm’saveragefixedcost?Inproducingthe5,000staplers,whatwasthefirm’saveragevariablecost? Inproducingthe5,000staplers,whatwasthefirm’saveragetotalcost? Whatwashefirm’seconomicprofitfortheyear? Harry'sHotdogsisasmallstreetvendorbusinessownedbyHarryHuggins.IfHarrymakes15hotdogsinhisfirsthourofbusinessandincursatotalcostof$16.50,whatishisaveragetotalcostperhotdog?Yoursmallpizzashop,BishopsPizzahasthefollowingcosts.Totaloutput
TC FC VC AFC AVC ATC MC
0 $100 10 $120 20 $140 30 $170 40 $200 50 $260 60 $360 Fillinthebelowtablebycalculatingfixedcosts,variablecosts.averagefixedcosts,averagevariablecosts,averagetotalcostsandmarginalcosts.
Fillintheblanks.Totalcostdividedbythequantityofoutputisthe______________________________________.TheaveragetotalcostisusuallyaUshapedcurvethatstartsrelatively__________________duetohigh_________________costsatlowlevelsofoutput,fallstoaminimumasoutputincreases,andthenrisesagaindueto_____________________________________.DrawyourownsketchoftheATC,AVCandMCcurves.PayattentiontotheshapesofthecurvesandthepointofintersectionbetweentheMC,AVCandATC.Alsodon’tforgettofactorinaveragefixedcostforthedistancebetweenyourAVCandATCasoutputrises.KeyTermsMatcheachtermwithitsdefinition.
A.Averagetotalcost________Costofproductionthatincreaseswiththequantityproduced;thecostofvariableinputsB.Averagevariablecost________TotalcostdividedbythequantityofoutputC.Fixedcost________ThesumoffixedandvariablecostsofproductionD.Marginalcost________VariablecostdividedbythequantityofoutputE.Totalcost________Costofthefixedinputs;expenditurethatafirmmustmakebeforeproductionstartsanddoesnotchangeregardlessoftheproductionlevelF.Variablecost________TheadditionalcostofproducingonemoreunitG.Averagefixedcost________Fixedcostdividedbythequantityofoutput
Nexttoeachstatement,writeTfortrueorFforfalse.__________1.Marginalcostwillalwaysbegreaterthanaveragevariablecost.__________2.Sunkcostsshouldbeconsideredwhenmakingeconomicdecisionsaboutfutureproduction.__________3.WhenMCishigherthanATC,ATCrises.
CostsintheLongRunWhatareeconomiesofscale?Whatarediseconomiesofscale?Howdoweobtainthelongrunaveragecostcurvefromtheshortrunaveragecostcurves?Sketchagraphofafirm’slongrunaveragecostcurveshowingeconomiesofscale,constantreturnstoscaleanddiseconomiesofscale.Labelyouraxesandthethreescaleareasonyourgraph.Thefigurebelowdepictsaveragetotalcostfunctionsforafirmthatproducesautomobiles.
Whichofthecurvesismostlikelytocharacterizetheshort-runaveragetotalcostcurveofthesmallestfactory?________________ Whichcurverepresentsthelong-runaveragetotalcost?________________Writethenameoftheaveragetotalcostcurvesthatthefirmcanoperateoninthelongrun________________Whatoutputlevelsdoesthisfirmexperiencediseconomiesofscale?AtlevelsofoutputbelowMwhattypeofreturnstoscaledoesthefirmexperience?
KeyTermsMatcheachtermwithitsdefinition.
A.Constantreturns________ThelongrunaveragecostofproducingoutputdecreasesastotaloutputtoscaleincreasesB.EconomiesofScale________Theaveragetotalcostcurveintheshortterm;showsthetotaloftheaveragefixedcostsandaveragevariablecostsC.DiseconomiesofScale________Showsthelowestpossibleaveragecostofproduction,allowingalltheinputstoproductiontovarysothatthefirmischoosingallinputsoptimallyD.Longrunaverage________Thelongrunaveragecostofproducingoutputincreasesastotaloutputcostcurve(LRAC)increasesE.Shortrunaverage________Expandingoutputdoesnotchangethelongrunaveragecostofproductioncostcurve
ExercisesonPerfectCompetitionWhenafirmhasnoabilitytoinfluencemarketpricesitissaidtobeinwhatkindofamarket?
Inacompetitivemarket,howwilltheactionsofanysinglebuyerorsellerimpactthemarketprice?Listanddescribethecharacteristicsofaperfectlycompetitivemarket.
Whywouldafirminaperfectlycompetitivemarketalwayschoosetosetitspriceequaltothecurrentmarketprice?Ifafirmsetitspricebelowthecurrentmarketprice,whateffectwouldthishaveonthemarket?
MangeroffirmX,reportsthathefacesthefollowingpriceandquantityrelationshipforhisproduct:Quantity(q)Price(P) 1 13 2 13 3 13 4 13 5 13 6 13 7 13 8 13 9 13 a)Thepriceandquantityrelationshipinthetableaboveismostlikelythatfacedbyafirmin
whattypeofmarketstructure?b)Overwhichrangeofoutputismarginalrevenueequaltoprice? c)Overwhatrangeofoutputismarginalrevenuedeclining? d)Forafirm,likefirmXinaperfectlycompetitivemarket,whattypeofrelationshipisthere
betweenthepriceofthegoodandmarginalrevenue?e)ManageroffirmXisdebatingwhetherheshoulddecreasehispricebelow$13tosellmore
units.Pleaseadvise.f)InclasswesaidthatthefirmslikefirmXinperfectcompetitionarepricetakers,itimpliesthat
iffirmXraisesitsprice,whatwillhappen?
g)IffirmXinacompetitivemarketreportstohavezeroeconomicprofit,whatcanyouinfer
aboutitsaccountingprofit?
Whenafirminacompetitivemarketproduces10unitsofoutput,ithasamarginalrevenueof$8.Whatwouldbethefirm’sprice?Choosethecorrectanswerforthefollowingmultiple-choicequestions:Inacompetitivemarket, a. eachsellercansellallhewantstosellatthegoingprice. b. buyersandsellersarepricetakers. c. thegoodsofferedbythedifferentsellersarelargelythesame. d. Alloftheabovearecorrect.Forafirminaperfectlycompetitivemarket,thepriceofthegoodisalways a. equaltomarginalrevenue. b. equaltototalrevenue. c. greaterthanaveragerevenue. d. Alloftheabovearecorrect.WhichofthefollowingisNOTacharacteristicofaperfectlycompetitivemarket? a. Firmsarepricetakers. b. Firmshavedifficultyenteringthemarket. c. Therearemanysellersinthemarket. d. Goodsofferedforsalearelargelythesame.Whichofthefollowingstatementsbestreflectsaprice-takingfirm? a. Ifthefirmweretochargemorethanthegoingprice,itwouldsellnoneofitsgoods. b. Thefirmhasnoincentivetochargelessthanthegoingprice. c. Thefirmcansellasmuchasitwantstosellatthegoingprice. d. Alloftheabovearecorrect.Youaregiventhefollowingdataforafirmoperatinginacompetitivemarket.FillintheremainingcolumnsforMRandMC. QuantityTotalRevenueTotalCostMarginalRevenueMarginalCost 0 $0 $10 1 9 14 2 18 19 3 27 25 4 36 32 5 45 40 6 54 49 7 63 59 8 72 70Ataproductionlevelof4unitswhatistherelationshipbetweenTRandVC?
Atwhichquantityofoutputismarginalrevenueequaltomarginalcost? Whatistheformulatocalculatetotalprofitforafirm?Canyouexpressthetotalprofitformulaintermsofperunitprofit?Whatistheruleforprofitmaximization?
TheWheelerWheatFarm,whichoperatesinacompetitivemarket,sellswheattoagrainbrokerinSeattle,Washington.TheWheelerWheatFarmreportsthefollowingdata: Quantity(q)TotalRevenue TotalCost 0 $0 $10 1 9 14 2 18 19 3 27 25 4 36 32 5 45 40 6 54 49 7 63 59 8 72 70 9 81 82 Atwhichquantityofoutputismarginalrevenueequaltomarginalcost?
Supposeinthewheatindustry,achangeindemandresultsthewheatpricestoriseto$11.Whatshouldthewheatfarmdotomaximizeitsprofit?Supposeadecreaseindemandcausedwheatpricestodropto$5intheindustry.Whatshouldthewheatfarmdotomaximizeitsprofit?Wheelerfarm’smanagertellsyouthatthetotalrevenueislessthanvariablecostsattheirprofit
maximizingoutput.Whatwouldyouadvise?TheRoadrunnerfarm,Wheeler’soneofcompetitors,reportsthatattheirprofitmaximizing
output,thepriceisbelowaveragevariablecost.Whatwouldyouadvise? Whenwouldaprofit-maximizingfirmshutdownintheshortrun?(Writeyourexpressionintermsofoneunitofoutput)Whenwouldaprofit-maximizingfirmshutdownintheshortrun?(Writeyourexpressionintermsofqunitsofoutput)Inthelongrunallofafirm’scostsarevariable.Inthiscase,whatistheexitcriterionforaprofit-
maximizingfirm?Whenprofit-maximizingfirmsincompetitivemarketsareearningprofits,inthelongrunwhatwouldhappen?
Youwitnessednewfirmsenteringacompetitivemarket.Whatcanyouinferfortheexistingfirmsinthatmarket?Indoorknobmanufacturingindustry,youobservedthatthefirmsaremakinglosses.Inthelong
runwhatwouldhappen?Youobservedthatinthelongrun,aprofit-maximizingfirmchosetoexitamarket.Whatcanyou
inferabouttheprofitsofthisfirm?Whatsignalsthefirmstoenterorexitamarketinacompetitiveindustry?Youobservedthatfirmsareneitherenteringnorexitingthecompetitiveindustrywhere
soybeansareproduced.Listallthatyoucaninferaboutexistingfirmsdatafromthisobservation.Afirminacompetitivemarkethasthefollowingcoststructure: Output TotalCost 0 $5 1 $10 2 $12 3 $15 4 $24 5 $40 Ifthemarketpriceis$3,whatwillthisfirmdointheshortrun?Ifthemarketpriceis$3,whatwillthisfirmdointhelongrun?Ifthemarketpriceis$9,whatwillthisfirmdointheshortrun?
Ineachofthediagramsbelowthefigureontherightrepresentstheperfectlycompetitivemilkindustry.Theoneontheleftrepresentsanindividualmilkproducerinthismarket.Inalldiagramstheverticalaxisismeasuredindollars,andthehorizontalaxisrepresentsoutput.ThediagramsarelabeledA,BandC.Matchtheletterofthegraphtothecorrectscenariogivenbelow.
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individualfirmsaremakingnegativeeconomicprofit.Theindustrysupplywillincreaseandnewfirmswillentertheindustryindiagram________since
individualfirmsaremakingpositiveeconomicprofit.Themarketindiagram______isintheLRequilibriumsinceindividualfirmsaremakingzero
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‘Squeaky-Clean’isacarwashcompanyoperatinginaperfectlycompetitivemarketintheshortrun.Thetotalcostofprovidingcarwashserviceforvariousoutputlevelsisgivenbelow.Moreover,theSqueaky-Clean’sfixedcosts(FC)aregivenas$30.Output(Q) TotalCost(TC)
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‘Squeaky-Clean’intheshortrun?Whatisthetotalprofitofthisfirm?TheshortRunCostCurvesforafirmoperatinginaperfectlycompetitivemarketaregivenbelow.
Ifthemarketpriceis$7intheperfectlycompetitiveindustry,intheshortrunhowmanyunits
willthisfirmproduce?Howmuchprofitwillitmake?Giveanexampleofapricewherethisfirmmakespositiveeconomicprofit?Giveanexampleofapricewherethisfirmmakesnegativeeconomicprofit?CanyoucalculatetheFCoftheabovefirmfromthecostcurvesdrawnabove?Describethechangesthatwouldtakeplaceinthelongruninacompetitivemarketwherefirms
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TheresidentialguttercleaningindustrycomprisesofmanyidenticalfirmsofferingthesameserviceinColumbus.Thediagramontherightrepresentstheperfectlycompetitiveguttercleaningindustry.Thelongruncostsof“WeGutGutters”,arepresentativefirmintheindustry,areshownintheleft-handpanel.
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Giventhedataabove,whatisthecurrentmarketpriceforguttercleaning?Giventhecurrentmarketprice,determinehowmanyguttercleaningserviceswill“WeGut
Gutters”provideintheshortrunifitwantstomaximizeprofit?Atthecurrentmarketpricewhatisthetotalindustryoutput?
Istheguttercleaningindustrycurrentlyinlongrunequilibrium?Ifnot,willthefirmsenterorexittheindustry?Whatwillbetheequilibriumpriceofaguttercleaningserviceinthelongrun?Inthelongrun,howmanyguttercleaningserviceswill“WeGutGutters”provide?