All questions are related.
Here is the cost information for a typical shoe store in a perfectly competitive industry.
Need answer for h and i
A perfectly competitive firm increases its output level as long as price is higher than or equal to marginal cost to maximize profit.
At the same time price should be higher than the minimum AVC otherwise firm will minimize losses by shutting down the production.
If the market price is $55,
We observe that price of $55 is lower than minimum AVC i.e. $58. So, output of a firm will be zero in short run (it will shut down)
If the market price is $65,
We observe that price of $65 is higher than minimum AVC. So, firm will decide to produce in short run. We observe that P>MC for Q=5 but P<MC for Q=6. So, optimal output of firm is 5 units.
If the market price is $75,
We observe that price of $75 is higher than minimum AVC. So, firm will decide to produce in short run. We observe that P>MC for Q=6 but P<MC for Q=7. So, optimal output of firm is 6 units.
If the market price is $135,
We observe that price of $135 is higher than minimum AVC. So, firm will decide to produce in short run. We observe that P>MC for Q=7 but P<MC for Q=8. So, optimal output of firm is 7 units.
If the market price is $185,
We observe that price of $185 is higher than minimum AVC. So, firm will decide to produce in short run. We observe that P>MC for Q=8 So, optimal output of firm is 8 units. (We do not have any information about costs after 8 units)
Market Price, P | Firm's quantity supplied, q | Industry Supply, Qs=10q | Industry Supply, Qs=50q |
55 | 0 | 0 | 0 |
65 | 5 | 50 | 250 |
75 | 6 | 60 | 300 |
135 | 7 | 70 | 350 |
185 | 8 | 80 | 400 |
i)
We have observed that at a market price of $75
Price for firm=$75
Output of a firm in short run=6
Total Cost =TC=$410 (Refer the given table)
Total Revenue =TR=75*6=$450
Profit=TR-TC=450-410=$40
We can see that the firm is making positive economic profit. Other firms will be attracted towards the market. So, we can say that number of firms in long run will be more than 10.
Price in long run=Minimum ATC=$68
Output of a firm in long run=5
Economic Profit=(P-ATC)*q=(68-68)*5=0
All questions are related. Here is the cost information for a typical shoe store in a...
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The typical long-run average cost a firm in the perfectly competitive widget market reaches its minimum average cost at $35/unit at 10,000 units. Draw the long-run market supply curve. Assume that factor prices do not change as the industry expands or contracts.
Possible Answers
1: Earn zero profit, Earn positive profit, shut down, operate at
a loss
2: Enter, Exit, Neither
3:Zero, Positive, Negative
4:10,15,20
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