stuiachs price of a helmet is Each uctury nas the same cost structure: Output AV
ID: 1151387 • Letter: S
Question
stuiachs price of a helmet is Each uctury nas the same cost structure: Output AVC ATC Total Revenue Total Cost Marginal Revenue Marginal Cost 100 15 45 200 17 32 300 18 28 400 21 28.5 500 25 31 a. How many helmets should the firm produce? b. What will the typical firm's profits be? c. Will this typical firm continue to produce helmets in the short rur? d. What will happen in the industry as it adjusts toward the long run - would you expect the price go up or down? will he number of firms remain the same? e. Graph MR, MC, ATC, mark Q" and the firm's profitloss. f. How will the firms' profit maximizing decision change if the market price rises to s30? Find the firm's profit or los at this priceExplanation / Answer
A.
Firm should produce 300 helmets, because at this level, marginal revenue is above the marginal cost. afterwards, the MC becomes higher than the marginal revenue and losses increase.
B.
Net profit = total revenue – total cost = 300*25 – 300*28 = -$900
So, there will be a loss of $900.
C.
Yes, the firm will continue to operate in the short run, because the price of the helmet is higher than the AVC. It means that it is operating above the shutdown point. So, firm is recovering well above the variable cost. Therefore firm will continue to operate in the short run.
D.
Since price is above the AVC, but lower than the ATC level, then firms will exit the industry and there will be upward pressure upon the price in the long run. It will cause the price to increase and losses will be eliminated so that firm will achieve the zero economic profit in the long run. At this level, long run equilibrium will be achieved. Here, number of firms will decrease.
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Output AVC ATC Total Revenue Total cost Marginal Revenue Marginal cost 0 --- --- 0 0 100 15 45 2500 4500 25 45 200 17 32 5000 6400 25 19 300 18 28 7500 8400 25 20 400 21 28.5 10000 11400 25 30 500 25 31 12500 15500 25 41Related Questions
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