Principles of Economics (MindTap Course List)
8th Edition
ISBN: 9781305585126
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 14, Problem 5CQQ
To determine
The relationship between price , marginal cost, and average total cost in the long run equilibrium of the competitive market.
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Students have asked these similar questions
Complete the table above.Ā
Graph AVC , ATC, and MC on the same graph.Ā
Suppose market price is $30. How much will the firm produce in the short run? How much are total revenue?Ā
Suppose market price is $50. How much will the firm produce in the short run? What are total profits?
Suppose the competitive market price is $60, and a competitive firmās total costs = q^2 - 6q + 990 and marginal cost = 2q - 6.
Ā
a. Solve for the profit-maximizing (or loss minimizing) quantity (q*).
Ā
b. What is the market equilibrium price?
Ā
c. Should the competitive firm produce q*? Explain why using one of the four key questions and solutions.
Ā
d. Does the competitive firm make a profit? Explain why using one of the four key questions and solutions.
e. How much profit (or loss) does the competitive firm make?
Consider a kettle firm A in a perfectly competitive market. Table 1 shows the quantity
produced per hour (Q) and the total cost (TC) in the short run.
Quantity
0
12345C70
2
6
8
Total cost
17
30
40
55
75
100
130
165
210
Fixed cost
17
17
17
17
17
17
17
17
Chapter 14 Solutions
Principles of Economics (MindTap Course List)
Ch. 14.1 - Prob. 1QQCh. 14.2 - How does a competitive firm determine its...Ch. 14.3 - Prob. 3QQCh. 14 - Prob. 1CQQCh. 14 - Prob. 2CQQCh. 14 - Prob. 3CQQCh. 14 - Prob. 4CQQCh. 14 - Prob. 5CQQCh. 14 - Prob. 6CQQCh. 14 - Prob. 1QR
Ch. 14 - Prob. 2QRCh. 14 - Prob. 3QRCh. 14 - Prob. 4QRCh. 14 - Prob. 5QRCh. 14 - Prob. 6QRCh. 14 - Prob. 7QRCh. 14 - Prob. 8QRCh. 14 - Prob. 1PACh. 14 - Prob. 2PACh. 14 - Prob. 3PACh. 14 - Prob. 4PACh. 14 - Prob. 5PACh. 14 - A firm in a competitive market receives 500 in...Ch. 14 - Prob. 7PACh. 14 - Prob. 8PACh. 14 - Prob. 9PACh. 14 - Prob. 10PACh. 14 - Suppose that each firm in a competitive industry...
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- ) In the long run equilibrium of a competitive market with identical firms, what is the relationship between price ( P ), marginal cost ( MC ), and average total cost ( ATC )? if P > MC and P > ATC. P > MC and P = ATC.arrow_forwardAssume that a firm in a competitive market faces the following cost information. If the market price for this firm's product is $40, calculate the profit maximizing level of output for this firm using marginal analysis. a.Approximately where do you think the price will end up in this market over the long run?Ā b.Last, instead of assuming a given price, how would you go about finding the equilibrium price if you were given information on market demand?arrow_forwardIn the long-run equilibrium of a competitive market with identical firms, what are the relationships among price (P), marginal cost (MC), and average total cost (ATC)?arrow_forward
- Assume that a firm in a competitive market faces the following cost information. If the market price for this firm's product is $40, calculate the profit maximizing level of output for this firm using marginal analysis. It may help to create your own cost table and fill in columns for Marginal Cost and Average Total Cost based on the Total Cost information below.Ā a.What is the level of profit for this firm at the profit maximizing output?Ā b.To convince yourself that the quantity you found is indeed the profit maximizing quantity, try calculating what the profit would be at the next higher level of output. What did you find?Ā c. What do you predict will happen in this market over the long run?arrow_forwardAssume that apples are produced in a perfectly competitive market. Grandeās Orchard is a typical firm that grows and sells apples. Currently, Grande earns zero economic profit, and the market price of apples is $10 per bushel. (a) Draw a correctly labeled graph showing Grandeās demand curve, average total cost curve, and marginal cost curve, and show the profit-maximizing quantity, labeledĀ QGĀ . (b) Suppose an increase in the popularity of apple cider increases the demand for apples. How will the increase in the demand for apples affect Grandeās economic profit in the short run? Explain. (c) What will happen to Grandeās economic profit in the long run? Explain. BoldItalicUnderlinearrow_forwardAssume that apples are produced in a perfectly competitive market. Grandeās Orchard is a typical firm that grows and sells apples. Currently, Grande earns zero economic profit, and the market price of apples is $10 per bushel. (a) Draw a correctly labeled graph showing Grandeās demand curve, average total cost curve, and marginal cost curve, and show the profit-maximizing quantity, labeled QG . (b) Suppose an increase in the popularity of apple cider increases the demand for apples. How will the increase in the demand for apples affect Grandeās economic profit in the short run? Explain. (c) What will happen to Grandeās economic profit in the long run? Explain.arrow_forward
- Suppose a perfect competitive firmās total cost curve and marginal cost curve are Ā Ā Ā Ā Ā TC= Q2+ 4Q+100 Ā Ā Ā Ā Ā Also suppose that the market equilibrium price is given as $20. A. Find equations for the firmās fixed cost (FC), variable cost (VC), average total cost (ATC), average variable cost (AVC) and Marginal cost (MC). B. Find the output level that minimizes average total cost (ATC). C. Calculate the price below which a firm in the market will not produce any output (the shutdown price).arrow_forwardThe graph below shows cost curves for a typical firm operating in a perfectly competitive market. Curve 1 represents Marginal Cost (MC), Curve 2 represents Average Variable Costs (AVC) and Curve 3 represents Average Total Costs (ATC). Suppose that the equilibrium price is $12. What will happen in this market in the long run? Ā Ā a. No new entry/no exit. b.Existing firms will exit. c.New firms will enter.arrow_forwardThe figure depicts the demand curve of a firm producing cars, together with its marginal cost, average cost, and isoprofit curves. Based on this figure, which of the following statements are correct? 8,000 Price, Marginal cost ($) 0 E Quantity of cars, Q At A, the firm makes positive profits. The firm makes the same profit at B and D. O Profit margin is the same at B and D. O The slope of the isoprofit is zero at D. MC Isoprofit A Isoprofit B AC 100arrow_forward
- A firm produces a product in a perfectly competitive industry and has a total cost function TC= 50+4q+2qĀ². a. At the short-run market price of $20, the firm is producing 5 units of output. Is the firm maximizing its profit? Explain. b. What quantity of output will the firm produce in the long run, assuming there is no change in cost structure? What will be the long-run equilibrium price? c. Graphically depict the long-run equilibrium for an individual firm within this market.arrow_forwarda) Write the expressions for the MC, AVC and ATC at Smell the Roses. In a diagram, draw the MC, AVC and ATC curves you found. (Keep in mind that the MC and AVC curves in this example are straight lines.) The market for cut flowers is perfectly competitive. On weekdays, the florist can sell bouquets at a unit price of $40. b) Should the florist stay open on weekdays? If so, how many bouquets should it sell to maximize profit? Would the florist be profitable on weekdays? On weekends, the market price of a bouquet drops to $20.Ā c) Should a typical florist stay open for business? If, so how many bouquets should it sell to maximize profit? Would the florist be profitable on weekends?arrow_forwardThe wheat industry is comprised of many firms producing an identical product. Market demand and supply conditions are indicated in the left-hand panel of the figure attached; the long-run cost curves of a wheat farmer are shown in the right-hand panel. Currently, the market price for wheat is $2 per pound, and at that price, consumers are purchasing 800,000 pounds of wheat per day. Ā Using the graphs attached, answer the following: Ā a. How many pounds of wheat will each farmer produce if they want to maximize profits? b. How many farmers are currently serving the industry (fractional numbers are fine)? c. In the long run, what will the equilibrium price of wheat be? Briefly explain your answer.arrow_forward
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