1.1. The market price is $6. Hence for one gallon of milk, the revenue received is 6 dollars.
1.2. The marginal revenue measures the additional revenue. Here it is fixed at 6 dollars for any additional gallon of milk
1.3. Production cost at 2 gallons is 8 dollars and when the third gallon is produced, the cost rises to 12, which means marginal cost of 3rd gallon is 4 dollars. Additional cost of 3rd gallon is 4 dollars
1.4. Profit is increasing till the production milk reaches 5 gallons. Hence it should produce the third gallon as profit is increased.
1.5 Profit is maximized when MR = MC. Here it is $6 when 5 gallons are produce so it is the profit maximizing production.
2.1 Long run price is minimum of ATC. Values of ATC are $5 for 1 gallon, $4 for 2 gallons, $4 for 3 gallons, $4.25 for 4 gallons and so on. Note that ATC is minimum (and constant) when 3 gallons are produced. Hence long run price is $4.
2.2. Each farm will produce 3 gallons in the long run which it observes from the ATC schedule.
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The table below gives you information on the revenue and cost structures of the Vaca family dairy farm. The farm is a monopolist in the local market. How does the farm decide the number of gallons of milk to produce and the market price per gallon to charge? 1. In column 6, identify which of the 2 effects dominate as the quantity of output is increased: Price or Output. Assume that there is no fixed cost, and that the marginal...
8. A perfectly competitive firm is earning an economic profit. In the short run it should In the long run it should A. shut down; expand B. produce where MC = MR; leave the industry C. produce where MC = MR; expand production D. shut down; exit the industry 9. In the long-run equilibrium of a competitive market with identical firms, what is the relationship between price P, marginal cost MC, and average total cost ATC? A. P> MC and...
Consider a competitive rm with total costs given by TC(q) = 100 + 10q + q^2, The firm faces a market price p = 50. (a) Write expressions for total revenue TR and marginal revenue MR as functions of output q. (b) Write expressions for average total cost ATC, average variable cost AVC, and marginal cost MC as functions of output q. (c) For what value of output is ATC minimized? (d) Find the profit maximizing level of output q...
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Quantity (gallons) Total Cost ($) Average Total Marginal Cost Cost ($) ($/gallon) 0 9 1 10 2 13 3 18 4 25 5 34 a. Compute each producer's marginal cost and average total cost for 1 to 5 gallons. b. The price of a gallon of milk is now $10. How many gallons are sold? How many gallons does each producer make? How many producers are there? How much profit does each producer earn? c. Is the situation described in...
a) What is the market price? p = 8 b) Derive the average variable cost, average total cost, and marginal cost function. avc = 1 + q atc = 4/q + 1 + q mc = 1 + 2q c) In the short run, how much does each firm produce? qs = 6 d) In the short run, how much economic profit or loss will be obtained? ep = 2 e) Based on the results in...
Click on the icon to read the news clip, then use this information to complete the following steps. In the left graph 1 Use the line tool to draw the market demand and supply curves in 2016. Label the curves. 2. The market equilibrium is 5 million gallons and the price is $50 a gallon Use the point tool to draw the market equilibrium and label it In the right graph Price (dollars per gallon) 30 85 Price and cost...
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