1. A competitive firm operating in the short run is producing at the output leve
ID: 1202578 • Letter: 1
Question
1. A competitive firm operating in the short run is producing at the output level at which ATC is at a minimum. If ATC = $8 and MR = $9, in order to maximize profits (or minimize losses), this firm should:
a) reduce output.
b) increase output.
c) shut down.
d) do nothing; the firm is already maximizing profits.
Why is the answer b? Wouldn't increasing output increase the atc which will reduce the profits since atc is at the minimum at the current output?
2. (Table: Soybean Cost) Look at the table Soybean Cost. The costs of production of a perfectly competitive soybean farmer are given in the table. What is the shut-down price for this firm?
a) $11
b) $10
c) $12
d) $13
3. (Table: Lilly's Apple Orchard) Look at the table Lilly's Apple Orchard. Lilly is the price-taking owner of an apple orchard; the orchard's variable costs are given in the table. Her orchard has fixed costs of $30. If the price of a bushel of apples is $85, we would expect:
a) total industry output to rise and Lilly's output to fall in the long run.
b) total industry output to fall and Lilly's output to fall in the long run.
c) total industry output to rise and Lilly's output to rise in the long run.
d) total industry output to fall and Lilly's output to rise in the long run.
Can you explain how you got the answers?
Table: Sovbean Cost Quantity of Sovbeans bushels) Total Cost (TC) 12 26 42 54 69 84 104Explanation / Answer
1. b) increase output. (Because MR is > ATC
2. b) $10. (Because price should be above the minimum AVC.
3. a) total industry output to rise and Lilly's output to fall in the long run. (Explanation: Since Lilly is earning positive profit. New firms will enter into the industry so that total industry output will increase, but individual output will decrease.)
Q TC TFC TVC AVC 0 12 12 0 0 1 26 12 14 14 2 33 12 21 10.50 3 42 12 30 10 4 54 12 42 10.50 5 69 12 77 15.4 6 84 12 72 12 7 104 12 92 13.14Related Questions
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