User Account

All Pages

What is the shutdown price and what is the break-even price

Assignment Help Microeconomics
Reference no: EM131018037

Practice Questions 4

Goal:

- Learn how competitive firms decide what is the profit-maximizing output level and how much is the economic profit.
- Examine how competitive firms decide when to shut down the business or when to enter the market.
- Inspect how the competitive market and individual firms in a competitive market operate in the short run and in the long run.

1.

1689_Curve.jpg

In the above figure, panel (a) shows the equilibrium in a competitive market and panel (b) shows the cost structure of a representative competitive firm A.

Answer the following questions.

a. What is the profit-maximizing output level for firm A?

b. At the output level you got in a., calculate the following numbers:

Total revenue (TR) = __, Total cost (TC) =___ , TVC = ___, TFC = ___, AVC = ____, AFC = ____, total economic profit = ____.

c. What is the shutdown price? What is the break-even price?

d. In the short run, will firm A stay in this market? Show what happens to panel (a) and (b) when other firms enter into the market.

What happens to the total economic profit of firm A and the total number of firms in this market in the long run? Mark the long-run market supply curve.

2. In a perfectly competitive market, the demand and supply function are as follows:

Supply: Demand:

P = 0.03Q
P = 50 - 0.02Q

Look at a representative competitive firm B. The total cost (TC) when firm B produces QB is TC = 5Q2B + 3 and thus the marginal cost (MC) is MC = 10QB (Check it if you've learned Calculus). Answer the following questions.

a. What is the demand function facing firm B?

b. Use the MR and MC approach to determine the profit-maximizing output level for firm B.

c. What is the average total cost (ATC) function? What is the average variable cost (AVC) function? How much is the fixed cost?

d. Compute the profit (or loss) per unit and the total economic profit at the profit- maximizing output level.

e. Should firm B shut down the business in the short run? What is the shut down price?

3. Suppose the market for coffee is perfectly competitive and is presently in long-run equilibrium, as shown in the following figure.

2142_Long-run equilibrium.jpg

Firm C is a typical firm in this market and we assume that presently all firms in this market are identical (i.e. they have the same cost function). Assume this is a constant-cost industry.

Analyze the impact, both in the short run and in the long run, on the market equilibrium as well as firm C's profit-maximizing output level and total economic profit, due to the following respective changes.

a. Demand for coffee increases due to the growth of income.

b. A new technology which can reduce average total cost by $1 per pound is developed by firm C.

c. An (permanent) excise tax of $1 per pound is imposed on every producer of coffee.

d. A (permanent) price ceiling of $9 per pound is established in this market.

e. Demand for coffee decreases because more tea products are introduced.

4. Suppose there are two types of competitive firms in an industry. Both provide standardized products, but firms of type D have shared a technology to save costs and this technology is protected in a way that it is not available for firms of type E in the short run. We assume there are many firms of either type inside and outside the market. The following table is the information of their cost structures.

 

Type D

 

 

 

 

 

Type E

 

QD

TC

ATC

AVC

MC

 

QE

TC

ATC

AVC

MC

0

6

-

-

-

 

0

12

-

-

-

1

12

 

 

 

 

1

30

 

 

 

2

22

 

 

 

 

2

46

 

 

 

3

36

 

 

 

 

3

60

 

 

 

4

56

 

 

 

 

4

84

 

 

 

5

80

 

 

 

 

5

110

 

 

 
6 114         6 144      

a. Finish all the blanks in table. Sketch the ATC, AVC, and MC curves of type D and type E separately.

b. In the short run, when the market price is $24, firms of which type will stay in the market? Compute the profit-maximizing output level and total economic profit of those firms staying in the market.

c. In the short run, when the market price is $14, firms of which type will stay in the market? Compute the profit-maximizing output level and total economic profit of those firms staying in the market.

d. In the short run, when the market price is $10, firms of which type will stay in the market? Compute the profit-maximizing output level and total economic profit of those firms staying in the market.

e. Approximately, what will be the long-run equilibrium price?

Reference no: EM131018037

Questions Cloud

Turnball associates owned the following securities : Show the balance sheet presentation of the investments at December 31, 2015. At this date, Turnball Associates has common stock $1,509,700 and retained earnings $1,008,600.
Create a second-level item for the order menu : The rectangle below is used to create a second-level item for the Order menu. The rectangle on the right is used to create a new first-level menu item.
Explain the field of evolutionary psychology : Please explain the field of evolutionary psychology, focusing on the importance of the concept of natural selection. How does this research from evolutionary psychology apply to our daily lives?
Emitter bias current split between the two transistors : In a particular BJT differential amplifier, a production error results in one of the transistors having an emitter- base junction area that is twice that of the other. With the inputs grounded, how will the emitter bias current split between the t..
What is the shutdown price and what is the break-even price : Analyze the impact, both in the short run and in the long run, on the market equilibrium as well as firm C's profit-maximizing output level and total economic profit, due to the following respective changes.
Source of common-mode gain : If the only source of common-mode gain when the output is taken differentially is the mismatch in collector resistances, what must this mismatch be (in percent)?
Common-mode resistance : If the current source is realized by a simple mirror, what must the minimum value of VA be? The BJTs available have β ≥ 100. What is the value of the input common-mode resistance when the bias source has the lowest acceptable output resistance?
Discuss the pharmacodynamics of sinequan doxepin : Discuss the pharmacodynamics of SINEQUAN (generic) DOXEPIN. Include any specific impact of SINEQUAN (generic) DOXEPIN at both the Cellular and the Systemic Levels of the CNS.
Amplitude of the signal voltage : Thus determine the required value of I. For this design, what differential gain is achieved? What is the amplitude of the signal voltage obtained between the two collectors? Assume α ?1.

Reviews

Write a Review

Microeconomics Questions & Answers

  What is berthas expected rate of return

What is Bertha's expected rate of return in each scenario and what is the relationship between businesses and households in the circular flow model?

  Distinguish the two forms of defamation

Is First Amendment free speech protection only afforded to the spoken word? Explain. 2. The 2007 PwC Report suggested three things companies could do to minimize accounting fraud. Discuss these suggestions. 3. Describe the three types of negligence c..

  Executives are making output and pricing decisions

4. For many corporations such as utility companies, a major portion of the cost of production is fixed in the short run. Should these very large fixed costs be ignored when the executives are making output and pricing decisions? Why?

  Are monopolies really that bad for society

Do you think consumers are really better off as a result of monopoly break-ups and are monopolies really that bad for society?

  What is the equilibrium relative price of apples

Graph the relative demand curve along with the relative supply curve. What is the equilibrium relative price of apples? How many apples and how many bananas will each country produce at the equilibrium?

  What percentage of the tax do producers end up paying

The market for good X is initially in equilibrium at $5. The government then places a per-unit tax on good X, as shown by the shift of S1 to S2. Approximately what percentage of the tax do producers end up paying?

  Ethical perspective speaks directly to values of workers

His ethical perspective speaks directly to values of workers and values of organizations.

  Estimate arguments of the two partners describe and show

two partners own together a small landscaping business in north carolina called summer lawn care. they have been

  The goals of actors and producers different

Actors typically get contracts that specify that they get a percentage of "the gross," the total revenues that the movie brings in. Why might actors want contracts structured that way? Why might producers be willing to agree to that, and how d..

  Determine water pricing structure that is used in hometown

Suppose instead that officials set the price of water to reflect the true marginal social costs of production. Show that such an approach promotes water conservation by determining the equilibrium quantity, and find the price that must be set to..

  Draw a cash flow diagram for each option

You will not be making any payments on the interest (from the loan) generated from the principle while you are attending school, so no payments for four years - For each option you need to have hand calculations that determine the total amount owe..

  Utilitarian approach and rawlian approach

How would you allocate your resources between individual R and S if you want to satisfy the following approaches?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd