Reference no: EM131150061
1. The demand curve facing a price-taking firm
Vesoro Is one of more than a hundred competitive price-taking firms in Miami that produce small cardboard boxes for moving. The following graph shows the daily market demand and supply curves facing the small box Industry.
On the following graph, use the green line (triangle symbol) to plot the demand curve for Vesoro's small cardboard boxes. (Hint: Remember that price-taking firms must accept the given market price.)
In the following table, fill in the price and the total, marginal, and average revenue Vesoro earns when it produces 0, 1, 2, or 3 boxes each day.
2. Profit maximization using total cost and total revenue curves
Suppose Becky runs a small business that manufactures frying pans. Assume that the market for frying pans is a price-taker market, and the market price Is $10 per frying pan.
The following graph shows Becky's total cost curve.
Use the blue points (circle symbol) to plot total revenue, and the green points (triangle symbol) to plot profit for the first seven frying pans that Becky produces, including zero frying pans.
Calculate Becky's marginal revenue and marginal cost for the first seven frying pans she produces, and plot them on the following graph. Use the blue points (circle symbol) to plot marginal revenue and the orange points (square symbol) to plot marginal cost.
Becky's profit is maximized when she produces ____frying pans. When she does this, the marginal cost of the previous frying pan she produces is ____, which is __ than the price Becky receives for each frying pan she sells. The marginal cost of producing an additional frying pan (that is, one more frying pan than would maximize her profit) is ___, which is 'V than the price Becky receives for each frying pan she sells. Therefore, Becky's profit-maximizing quantity corresponds to the intersection of the ____curves.
Because Becky is a price taker, this last condition can also be written as ____.
3. Profit maximization in the cost-curve diagram
Suppose that the market for polo shirts is a competitive market. The following graph shows the daily cost curves of a firm operating in this market.
In the short run, at a market price of $15 per shirt, this firm will choose to produce ____ shirts per day.
On the previous graph, use the blue rectangle (circle symbols) to shade the area representing the firm's profit or loss if the market price is $15 and the firm chooses to produce the quantity you already selected.
Note: In the following question, you should enter a positive number in the numeric entry field.
The area of this rectangle indicates that the firm's 'V would be per day.
4. Deriving the short-run supply curve
Consider the price-taker market for dress shirts. The following graph shows the marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves for a typical firm in the market.
For each price in the following table, use the graph to determine the number of shirts this firm would produce in order to maximize its profit. Assume that when the price is exactly equal to the average variable cost, the firm is Indifferent between producing zero shirts and the profit-maximizing quantity. Also, indicate whether the firm will produce, shut down, or be Indifferent between the two In the short run. Lastly, determine whether it will make a profit, suffer a loss, or break even at each price.
On the following graph, use the orange points (square symbol) to plot points along the portion of the firm's short-run supply curve that corresponds to prices where there is positive output. (Note: You are given more points to plot than you need.)
Suppose there are 7 firms in this market, each of which has the cost curves previously shown.
On the following graph, use the orange points (square symbol) to plot points along the portion of the market short-run supply curve that corresponds to prices where there is positive output. (Note: You are given more points to plot than you need.) Then, place the black point (plus symbol) on the graph to indicate the short-run equilibrium price and quantity in this market.
6. Short-run supply and long-run equilibrium
Consider the competitive market for copper. Assume that, regardless of how many firms are in the industry, every firm in the industry is identical and faces the marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves shown on the following graph.
The following diagram shows the market demand for copper.
Use the orange points (square symbol) to plot the Initial short-run Industry supply curve when there are 20 firms In the market. (Hint: You can disregard the portion of the supply curve that corresponds to prices where there is no output, since this is the industry supply curve.) Next, use the purple points (diamond symbol) to plot the short-run industry supply curve when there are 30 firms. Finally, use the green points (triangle symbol) to plot the short-run Industry supply curve when there are 40 firms.
If there were 20 firms in this market, the short-run equilibrium price of copper would be ____per pound. At that price, firms in this industry would _____. Therefore, in the long run, firms would _____ the copper market.
Because you know that competitive firms earn ____ economic profit in the long run, you know the long-run equilibrium price must per pound. From the graph, you can see that this means there will be _____ firms operating in the copper industry In long-run equilibrium.