Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
CHAPTER 9
1.1 (a) Disagree. A firm earning positive profits in the short run will have an incentive to
1.2 The enterprise, Megatron, is suffering a $50,000 economic loss. TR = $600,000, (P × q =
1.3 The key is to calculate TVC = TC –TFC in each case. Whenever TR >TVC (as in cases B,
1.4 The firm will produce 6 units of output. Above 6 units, MC rises above P = MR = $15.
q TF
C
TV
C
M
C
0 25 0 ---
Units of output, q
Dollars
0
P*1
MC
AVC
ATC
P*1 = d = MR
P*2 = d = MR
P*3 = d = MR
P*2
P*3
Shutdown point
A
B
C
1.5 The marginal revenue curve for p*1 intersects the marginal cost curve at a point above the ATC
curve (point A on the graph) for a firm which is maximizing profits.
2.1 (a) Disagree. Constant returns to scale means that the long-run average cost curve is flat over
2.2 Increasing returns is a reduction in average costs in the long run, when all inputs can be optimally
2.3 Hamilton’s statement implies that the cloud computing industry is subject to increasing returns to
2.4 (a) Disagree. A firm will never sell its output for less than the marginal cost of producing it, but
2.5 To look for economies of scale, you need to calculate average total cost. For the three farms, ATC
Economies of scale Diseconomies of scale
Constant returns to scale
Cost per unit ($)
Units of output
0
LRAC
2.6 (a) Disagree. If a firm is experiencing increasing returns to scale, increasing production leads to
2.7 (a) Savings based on technology, mechanization, and labor specialization would be a benefit of
2.8 When a firm experiences economies of scale, its long-run average cost declines as output
Cost per unit ($)
Units of output
0
LRAC
SRAC
SRAC
SRAC
SRMC
SRMC
SRMC
Scale 1
Scale 2
Scale 3
10,000 20,000 30,000
2.9 The firm producing an output of 10,000 units (Scale 1) will likely increase its scale of production
3.1 Answers will vary based on actual current data, but following is some general information.
3.2 Answers will vary.
3.3 The privately owned café’s description in this question should lead you to think that competition
3.4 (a)
Output TFC TVC TC AVC ATC MC
0 $150 $ 0 $150 – – –
1 150 60 210 $60.00 $210.00 $60
(b)
Price
Quantity
Supplied Profit
$ 40 0 (Shut Down) −$150
70 2 −110
(c)
Price
Market
Quantity
Supplied
Market
Quantity
Demanded
$ 40 0 1,700
70 200 1,500
(d) Fill in the blanks: From the market supply and demand schedules given, the equilibrium
(e) The equilibrium in this market is not a long-run equilibrium. Because firms are making
(c) In the short run, demand shifts from D to D', and price rises to P1. Firms are making profits,
3.6 (a) The firm is making a profit of ($25 − $15) x 600 = $6,000, which is represented by the
(c) The firm is making a profit of ($11 − $21) x 300 = −$3,000 (a loss of $3,000) which is
3.7 When p* = 25, the representative firm is maximizing profits by continuing to produce. In the long
3.8 Firms in this industry are experiencing a loss, since average total cost (9) is greater than the
