This website uses cookies to ensure you have the best experience. Learn more

Econ Essay

5448 words - 22 pages

Suggested Exercises’ Answers
(Please note that these questions are from “Problems and Applications” part of the chapters, which are at the very end of the chapters)
CHAPTER 14
Q1. a. Profit is equal to (P – ATC) × Q. Therefore, profit is ($10 – $8) × 100 = $200.

b. For firms in perfect competition, marginal revenue and average revenue are equal. Since profit maximization also implies that marginal revenue is equal to marginal cost, marginal cost must be $10.

c. Average fixed cost is equal to AFC /Q which is $200/100 = $2. Since average variable cost is equal to average total cost minus average fixed cost, AVC = $8 - $2 = $6.

d. Since average total cost is less than marginal ...view middle of the document...

The equilibrium price rises from P1 to P2, but the price does not increase by as much as the increase in marginal cost for the firm. As a result, price is less than average total cost for the firm, so profits are negative.

In the long run, the negative profits lead some firms to exit the industry. As they do so, the industry-supply curve shifts to the left. This continues until the price rises to equal the minimum point on the firm's average-total-cost curve. The long-run equilibrium occurs with supply curve S3, equilibrium price P3, industry output Q3, and firm's output q3. Thus, in the long run, profits are zero again and there are fewer firms in the industry.

Q9. a. If firms are currently incurring losses, price must be less than average total cost. However, because firms in the industry are currently producing output, price must be greater than average variable cost. If firms are maximizing profits, price must be equal to marginal cost.

b. The present situation is depicted in Figure 6. The firm is currently producing q1 units of output at a price of P1.

Figure 6

c. Figure 6 also shows how the market will adjust in the long run. Because firms are incurring losses, there will be exit in this industry. This means that the market supply curve will shift to the left, increasing the price of the product. As the price rises, the remaining firms will increase quantity supplied. Exit will continue until price is equal to minimum average total cost. Average total cost will be lower in the long run than in the short run. The total quantity supplied in the market will fall.

Q11. a. The firms' variable cost (VC), total cost (TC), marginal cost (MC), and average total cost (ATC) are shown in the table below:

Quantity
VC
TC
MC
ATC
1
1
17
1
17
2
4
21
3
10.50
3
9
26
5
8.67
4
16
32
7
8
5
25
41
9
8.20
6
36
52
11
8.67

b. If the price is $10, each firm will produce five units, so there will be 5  100 = 500 units supplied in the market.

c. At a price of $10 and a quantity supplied of five, each firm is earning a positive profit because price is greater than average total cost. Thus, entry will occur and the price will fall. As price falls, quantity demanded will rise and the quantity supplied by each firm will fall.

d. Figure 8 shows the long-run industry supply curve, which will be horizontal at minimum average total cost.

Figure 8

Q13. a. Figure 10 illustrates the gold-mining industry and a representative gold mine (firm). The demand curve, D1, intersects the supply curve at industry quantity Q1 and price P1. Because the industry is in long-run equilibrium, the price equals the minimum point on the representative firm's average total cost curve, so the firm produces output q1 and makes zero profit.

b. The increase in jewelry demand leads to an increase in the demand for gold, shifting the demand curve to D2. In the short run, the price rises to P2, industry output rises to...

Other Papers Like Econ

Econ Solutions Essay

2353 words - 10 pages ECON-112 Principles of Microeconomics Problem Set #8 (Practice Only)-SOLUTIONS Posted: Wednesday, December 4th, 2013 Due Date: None 1. Mankiw (6th edition), Chp17, Problem 6 (page 370) a. The payoffs are: Your Decision Work You get 15 units of happiness Work Classmate gets 15 units of happiness You get 5 units of happiness Shirk Classmate gets 30 units of happiness Shirk You get 30 units of happiness Classmate gets 5 units of happiness

Econ Essay

1874 words - 8 pages   1. Amos McCoy is currently raising corn on his 100-acre farm and earning an accounting profit of $100 per acre. However, if he raised soybeans, he could earn $200 per acre. Is he currently earning an economic profit? Why or why not? -By raising corn instead of soybeans Amos is missing out on an economic profit of $100. Therefore Amos should start growing Soybeans to maximize his profit. 2. Determine whether each of the following is an

Econ

2191 words - 9 pages Multiple Choice Questions (Only one correct answer for each question. 4 points each, 40 points total. Please put your answers to all the 10 questions in the table after Question 10.) Question 1. When an economist talks of scarcity, the economist is referring to the A) ability of society to employ all of its resources. B) ability of society to consume all that it produces. C) inability of society to satisfy all human wants because of limited

Econ

466 words - 2 pages American Federation of Labor (AFL) | The leading labor organization in America, founded in 1881 by Samuel Gompers and composed of craft unions rather than a single national union | American Socialist Party | Political party formed in 1901 and led by Eugene V. Debs that advocated replacing the nation’s capitalist system | anarcho-syndicalism | A radical form of political protest that advocates the use of labor activism to overthrow the

Econ - 7170 words

7170 words - 29 pages Quiz Note: It is recommended that you save your response as you complete each question. Question 1 (1 point) Senator Brown wants to increase taxes on people with high incomes and use the money to help the poor. Senator Johnson argues that such a tax will discourage successful people from working and will therefore make society worse off. An economist would say that Question 1 options: we should agree with Senator Brown. we

Econ - 660 words

660 words - 3 pages Question 1a The table below illustrates the effect of price (P), on the quantity supplied (QS), quantity demanded (QD), and the resulting surplus (+), where demand is less than supply or shortage (-), where demand is more than supply. The derivation of the figures below is by taking the difference between the quantity supplied and the quantity demanded at various price levels. Price $1.00 $1.10 $1.20 $1.30 $1.40 $1.50 $1.60 $1.70 $1.80 $1.90

Econ 401 Assignment 2

754 words - 4 pages ECON 401 Assignment 2, version E 1. (a) Explain the new trade theory. What is the role of economies of scale in this theory?  The new trade theory specialize in the production and export of particular products not because of underlying differences in factor endowments, but because in certain industries the world market can support only a limited number of firms. So a country’s pattern of trade may be a reflection of the

Econ Test

5345 words - 22 pages 56 out of 100 . Answer Key  Chapter one ------------------------------------------------- Top of Form Question 1 (Worth 4 points) Your friend says your car is worth about a dollar. Your friend is using money as a  standard.  store of value.  medium of exchange.  measure of value. Points earned on this question: 4 Question 2 (Worth 4 points) Currency is  an adjective for current economic news.  stocks and bonds.  paper bills

Econ Islmbp

5623 words - 23 pages Open Economy Macroeconomics: The IS-LM-BP Model When we open the economy to international transactions we have to take into account the effects of trade in goods and services (i.e. items in the current account) as well as trade in assets (i.e. items in the capital account). Opening the economy to international trade in goods and services means that we have to take into account the increased demand for our goods by foreigners (our exports), as

Econ Essay

1519 words - 7 pages Chapter 1: What is Economics? The Economics of the Super Bowl Thinking Critically Questions 1. Why is the Super Bowl such an attraction for advertisers? Advertisers are attracted to the Super Bowl because of the amount of people that watch the game. The big budget commercials are also part of the experience. "According to a survey recently conducted by the Retail Advertising & Marketing Assn., 36.3 percent of consumers will tune in

Econ 303

1605 words - 7 pages 1. The Classical Model builds on the principles developed in microeconomics to explain how equilibrium production and employment might be determined from profit maximizing and utility maximizing behavior. From the system of dynamic model of the economy we can see that, as the production increased, the income will increase. And then both saving and consumption will increase. From this point, there are two ways to go. More consumption will

Related Essays

Econ Application Essay

950 words - 4 pages committee’s decision. Application Checklist (please see econ.washington.edu/undergrad for complete details):  Completion of Prerequisite Coursework  All applicants must have:  At least 45 academic credits earned (“sophomore”class standing).  Completion of one English Composition course.  2.5 minimum GPA for coursework completed at UW; 2.5 minimum Weighted GPA (see application form).  Applicants to the Bachelor of Arts must have ECON 200, ECON 201

Econ Class Essay

492 words - 2 pages ECON 300 Assignment #3 1. Suppose that in a chemical plant: . Q =AL1/3 K1/2 Where Q is the output rate, L is the labor input, and K is the rate of capital input. Statistical analysis indicates that α =1/3 and β =1/2, A=10 a) The owner of the plant claims that there is increasing return to scale, Is he right? b) If the cost of labor W =$ 6,the cost of capital r is =$ 2, and the price of output is $20/unit. Find the least cost

Econ Concepts Essay

838 words - 4 pages Running head: WEEK 1 ECON CONCEPTS WORKSHEET Week 1 Economic Concepts Worksheet University of Phoenix ECO501 Economic Concepts Worksheet Concept | Application of Concept from Personal Experience | Reference to Concept in Reading | Supply is a schedule or curve that shows the total amount of a product or service that is available for sale or purchaseChanges in Supply: * Change in Resource * Technology * Taxes/subsidies

Econ 545 Essay

1681 words - 7 pages ECON 545 BUSINESS ECONOMICS PAPER PROJECT ONE INTRODUCTION The career choice made by an individual today is basically for the entire journey of life. This paper will be basically based on situation A, where Jenny needs advice in making decision for her career as to be a doctor. The focus of this paper will be demand and supply of physicians in US market and it will elaborate on determinants of demand and supply of physicians with