Managerial Economics: A Problem Solving Approach
5th Edition
ISBN: 9781337106665
Author: Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher: Cengage Learning
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Question
Chapter 9, Problem 1MC
To determine
Long run.
Expert Solution & Answer
Explanation of Solution
In the long run, firms produce according to the market situations. This would eliminate the excess demand or supply in the market. Hence, economic profit is eliminated in the long run and firms obtain normal profit (accounting profit). Thus, option ‘d’ is correct.
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Students have asked these similar questions
(1) Use the graph to answer the question below. The quantity is measured in thousands of units.
What will this firm decide to do in the long run?
A-It will stay in the market because the price is above its AVC at its profit-maximizing output.Ā
B-It will leave the market because the price is below its ATC at its profit-maximizing output.
C-It will increase its price to point B to earn normal profit.
D-It will increase its output until its profit-maximizing output level is equal to B.
E-Insufficient data to determine.
Ā
(2) A dairy farmer is operating in a perfectly competitive market. The market price for milk is between the farmer's average variable cost and average total cost at the profit-maximizing level of output. What will the farmer do?Ā
A-Produce more milk.Ā B-Produce less milk.Ā C-Shut down in the short run.Ā D-Operate in the short run and leave the industry in the long run.Ā E-Insufficient information to determine
(3) A firm operating in a perfectly competitive market cannotā¦
If a firm's marginal revenue is below its marginal cost, an increase in production will usually:
a. increase profits
b. leave profits unchanged
c. decrease profits
d. increase marginal revenue
Tim is thinking of opening a garment store. He estimates that it would cost $270000 per
year to rent the location and buy the merchandise. In addition, he would have to quit his
$63000 per year day job. Tim estimates he can sell $315600 worth of garments in a year.
a. What will be the accounting profit and economic profit for Tim?
b. If you are an economist, should you suggest opening the store? Why?
Chapter 9 Solutions
Managerial Economics: A Problem Solving Approach
Knowledge Booster
Similar questions
- c) what is the profit or loss at the profit maximizing output?arrow_forwardTrue or False? Briefly discuss. a. If a firm makes zero economic profit, the firm earns revenue that exceeds its economic costs. b. If a firm makes zero economic profit, it must shut down. c. If a firm makes zero economic profit, it can be earning positive accounting profit. d. If a firm makes zero economic profit, it has no fixed costs.arrow_forward1. What is profit? What is the difference between accounting profit and economic profit?2. What is the importance of ensuring profit maximization in an organization?arrow_forward
- Bob's lawn mowing service is a profit maximizing, competitive firm. Bob mows lawns for $27 each. His total cost each day is $280, of which $30 is a fixed cost. He mows 10 lawns a day. What can you say about Bob's economic and accounting profits in the short run ? A. Economic profits are minus $10 and accounting profits are $20 B.Economic profits are $20 and accounting profits are minus $10 C. None Which one?arrow_forwardWhen are you are you expecting companies to produce in the short run?A. costs equal equal revenueB. price equals marginal revenueC.Ā Average costs equal marginal costsD.marginal revenue equals marginal costarrow_forwardi. Calculate the marginal cost, marginal revenue and profit for each unit of production.Ā ii. How many units should the firm produce to maximise profit?arrow_forward
- Explain how short-run economic profits become long-run economic costs. When profits fall to zero, are owners worse off? Why or why not?arrow_forwardIf you're a manager in a highly competitive business such where should you put your most effort to maximize profit? Pricing or cost cutting?arrow_forwardWith the help of an example explain the difference between accounting and economic profit. Building on your answer then explains why a perfectly competitive firm would operate in the long run even if it makes 0 profitarrow_forward
- Would a firm earning zero economic profit continue to produce, even in the long run? In long-run competitive equilibrium, a firm earning zero economic profit A. will not continue to produce because this return is not covering its opportunity costs. B. will not continue to produce because it would be better off shutting down. C. will not continue to produce because such profit corresponds with negative accounting profit. D. will continue to produce because such profit is as high a return as could be earned elsewhere. E. will not continue to produce because it could earn a better return in another industry.arrow_forwardThe profit when the firm is profit maximizing is _______arrow_forwardIf you are a manager in a highly competitive business such where should you put your most effort to maximize profit? Pricing or cost cutting, please explain?arrow_forward
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