Question

market typical firm D1 D2 ATC 105 gn 90 75 55- 40 - 17 4400 5200 18 80 110 130 q

1. If the current market demand is D1 then price will equal _ __ dollars. The individual firm’s demand

curve will be _______________________________ at a price of ______ dollars. Average revenue will be

equal to ______ dollars. Marginal revenue will be equal to ______dollars. The typical firm will produce

______ units of output. Its total revenue will equal ________ dollars. The firm will earn a profit / suffer a

loss of _______dollars.

2. Now assume that a change in consumer preferences causes the market demand curve to shift to D2.

Demand has increased/decreased causing a shortage / surplus at the previous equilibrium price. The

new equilibrium price is _______ dollars. If the typical firm produces at all, it would maximize profit by

producing ______ units of output. The firm’s total revenue would equal ________ dollars. Total cost

would equal _ _____ dollars. The firm would earn a profit / suffer a loss equal to _______ dollars. If the

firm shuts down it would lose _____ _ dollars. Thus the firm will operate / shut down in the short run.

In fact, the firm will operate in the short run at any price above _______ dollars. The firm’s short-run

supply curve is its _______curve above _____ dollars.

How many firms are in the market.

Answer 1

If the current market demand is DI then price will equal 105 dollars. The individual firm's demand curve will be perfectly elastic at a price of $ 105. Average revenue will be equal to price which is $ 105. Marginal revenue is also $ 15 and is equal to price. The typical firm will produce 130 unit of output at which MR = MC. Its total revenue is 105 * 130 = $ 13650. Average cost is 90 so the firm will earn a profit of (105 - 90) * 130 = 1950 Demand has decreased, causing a surplus at the previous equilibrium price. The new equilibrium price is $ 75. If the typical firm produces at all, it would maximize profit by producing 110 units of output with a total revenue of 110 * 75 = $ 8250. Total cost is $ 90 * 110 = $ 9900. The firm would suffer a loss of $ 1650. If the firm