Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 9, Problem 1.5P
To determine
To graph the
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Price
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Marginal cost
A
Average total cost
Average variable cost
0 3 6 9 12 15 18 21 24 27 30 33 36 39 42
Quantity
Which point or points are included in the firm's supply curve in the short run?
None of these points are on the firm's short-run supply curve.
B
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Macmillan Learning
Consider the graphs of a constant cost industry and a perfectly competitive firm within it. Initially, the industry is in long-run
equilibrium at point E, then demand shifts from Demand1 to Demand2. Answer the questions where P is the price, MR is the
marginal revenue, AR is the average revenue, MC is the marginal cost, SRATC is the short-run average total cost, and LRAC
is the long-run average total cost.
Manipulate both of the graphs to reflect the adjustments that yield the long-run equilibrium.
Price ($)
10
9
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2
1
0
0 10
20
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E
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30 40 50
Quantity (in thousands)
The demand shift results in
70
Supply
a short-run economic loss for the firm.
Demand1 Demand2
10
80 90 100
0
0
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SRATC
30
40 50 60
Quantity
70
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LRAC
P=MR=A
90 100
Suppose the book-printing industry is competitive and begins in a long-run equilibrium. Then Hi-Tech Printing Company invents a new process that
sharply reduces the cost of printing books.
The following graph shows Hi-Tech's initial marginal-cost curve (MC1) and average-total-cost curve (ATC1) before the new technology, and its
marginal-cost curve (MC2) and average-total-cost curve (ATC2) after the new technology.
ATC,
ATC2
MC1
MC2
Quantity of Books
+---
P.
Price of Books
Chapter 9 Solutions
Principles of Economics (12th Edition)
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- Suppose the book-printing industry is competitive and begins in a long-run equilibrium. Then Hi-Tech Printing Company invents a new process that sharply reduces the cost of printing books. The following graph shows Hi-Tech's initial marginal-cost curve (MC1) and average-total-cost curve (ATC1 ) before the new technology, and its marginal-cost curve (MC2) and average-total-cost curve (ATC2) after the new technology. Price of Books ATC1 * MC₁ MC 2 Quantity of Books ATC2 ?arrow_forwardQuestion The graph shows the cost curves of an individual firm in a perfectly (or purely) competitive industry. Use the points A, B, C, and D to trace out the firm's profit-maximing output decisions, according to the instructions. Place point A at the shutdown decision point. Place point B at the point where the firm is making a loss but will continue to operate in the short run. Place point C at the break-even point. Place point D at the point where the firm is making an economic profit. 21 В с D 20 Marginal cost 19 18 17 16 15 Average total cost 14 13 12 Average variable cost 11 10 9 7 5 4 2 1 9. 12 15 18 21 24 27 30 33 36 39 42 titu Pricearrow_forwardSuppose the book-printing industry is competitive and begins in a long-run equilibrium. Then Hi-Tech Printing Company invents a new process that sharply reduces the cost of printing books. The following graph shows Hi-Tech's initial marginal-cost curve (MC1MC1) and average-total-cost curve (ATC1ATC1) before the new technology, and its marginal-cost curve (MC2MC2) and average-total-cost curve (ATC2ATC2) after the new technology. Now suppose the patent expires and other firms are free to use the technology. Which of the following statements are true about what happens in the long run? Check all that apply. The market price stays at P1P1. Hi-Tech's average-total-cost curve rise back to ATC1ATC1. All firms earn zero profit.arrow_forward
- For each of the following statements about perfect competition, identify whether the statement is true or false and briefly explain your reasoning. If the market price is below the break-even price for an individual firm in a perfectly competitive market, then the firm would always be better off shutting down and producing zero in the short-run. The size of a firm’s fixed cost in the short-run will have no impact on the profit maximizing level of output for a firm in the short-run. If all firms are identical, free entry and exit will cause perfectly competitive firms to earn zero economic profits in the long-run.arrow_forwardConsider the competitive market for rhodium. Assume that no matter how many firms operate in the industry, every firm is identical and faces the same marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves plotted in the following graph. COSTS (Dollars per pound) 80 2233 22 72 64 56 80 48 72 64 56 48 40 00 32 24 16 0 0 MCD ATC Demand 0 AVC The following graph plots the market demand curve for rhodium. -0. ☐ 3 6 9 12 15 18 21 QUANTITY (Thousands of pounds) D Use the orange points (square symbol) to plot the initial short-run industry supply curve when there are 10 firms in the market. (Hint: You can disregard the portion of the supply curve that corresponds to prices where there is no output since this is the industry supply curve.) Next, use the purple points (diamond symbol) to plot the short-run industry supply curve when there are 20 firms. Finally, use the green points (triangle symbol) to plot the short-run industry supply curve when there are 30…arrow_forwardThe graph shows the marginal cost (MC), average total cost (ATC), and marginal revenue (MR) curves for a perfectly (or purely) competitive firm. Note, for such firms, the demand (D) curve is the same as the MR curve. Answer two questions, specifying to at least one decimal place. How many units should this firm produce to maximize profit? number of units: What price will the firm receive for each unit at the profit maximizing level out output? $ MC/MR $12 9.7 5.6 D=MR MC ATC 6.6 10.2 12 16 Quantityarrow_forward
- Consider the competitive market for rhodium. Assume that no matter how many firms operate in the industry, every firm is identical and faces the same marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves plotted in the following graph. 82 8 80 72 64 COSTS (Dollars per pound) 238 16 8 0 0 3 MC ATC O AVC 0 0 6 9 12 15 18 21 QUANTITY (Thousands of pounds) 24 27 30 The following graph plots the market demand curve for rhodium. ?arrow_forward7. Short-run supply and long-run equilibrium Consider the competitive market for rhodium. Assume that no matter how many firms operate in the industry, every firm is identical and faces the same marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves plotted in the following graph. COSTS (Dollars per pound) 100 90 80 70 60 50 40 30 20 2 10 0 MC 0 5 ATC AVC ☐ ■ 10 15 20 25 30 35 QUANTITY (Thousands of pounds) 40 45 50 ?arrow_forwardThe graph attached illustrates the Demand, Marginal Revenue, Marginal Costs, Average Total Costs and Average variable Cost curves for a firm in a perfectly competitive market. What is the breakeven price? Explain your answer. What is the shot down price? Explain your answer.arrow_forward
- Delvin has a hot dog stand in a busy midtown area with similar stands on every block. The graph above shows the cost curves of Delvin’s Hot Dogs. The market price of a hot dog is $3. Answer the questions below and show all calculations where necessary. From the diagram, what is Delvin’s profit-maximizing output per day? Explain your answer. Calculate Delvin’s accounting profit per day. How will Delvin’s price and profit change in the long-run, assuming no change in technology or demand?arrow_forwardComplete the following cost and revenue schedules for a perfectly competitive firm, Instructions: Enter your responses as a whole number. If you are entering any negative numbers be sure to include a negative sign () in front of those numbers. Quantity Total Revenue Total Cost Price Marginal Cost $50 $50 50 60 2 50 90 50 140 50 200 50 280 a. Graph marginal cost (MC) a. Graph marginal cost (MC). Instructions: Use the MC' tool to draw the marginal cost curve point by point (plot 5 points total). 100 Tools 90 E 80 * 70 MC 60 8 50 40 P=MR 30 20 10 2 3 4 Quantity (units per time period) b. What quantity maximizes profit? units c. What is MC at that quantity? $4 Price or Cost (dollars per unit)arrow_forwardThe following attached graph represents the situation of Sindbad’s caps, a firm selling caps in the perfectly competitive caps industry. QUESTION 1 How much output should Sindbad produce to maximize his profit, if the market price is equal to $11? How much profit (loss) will he earn? Indicate the profit (loss) area on the graph. Suppose Sindbad decides to shut down. What would his loss be?arrow_forward
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