PLEASE ANSWER ALL QUESTIONS. 7) A perfectly competitive firm will operate and in
ID: 1219725 • Letter: P
Question
PLEASE ANSWER ALL QUESTIONS.
7) A perfectly competitive firm will operate and incur an economic loss in the short run if A) the loss is smaller than its total fixed costs. B it knows it can recoup the loss in the long run. C) shareholders do not know about the loss. D) the loss can offset future profits The table below shows output and costs of Evan's Subs, a typical perfectly competitive firm in a local market for sandwiches. Evan's fixed cost is $9 per hour. The current market price of a sandwich is S8. Answer questions 8 through 11 based on the numbers in the table. Output (sandwiches per hour) per sandwich) 17.00 2 10.00 5 18.80 6 10.00 8) What is Evan's marginal revenue from the 2nd sandwich sold? 90 If Evan s sells the 5th sandwich, the marginal cost is the marginal revenue, so the firm's profit A) greater than: decreases B) greater than; increases C) less than: increases D) less than, decreases 0) What quantity of sandwiches produced will maximize Evan's economic profit in the short run? A 2 sandwiches per hour B) 3 sandwiches per hour C 4 sandwiches per hour D) 5 sandwiches per hour 11) If the market price does not change, Evan's will A) continue to operate in the short run, but will exit the industry in the long run. B) continue to operate in the short run and in the long run. C) shut down. D) increase its production in the long run.Explanation / Answer
7) A perfectly competitive firm will operate at negative profit or loss at short run if the loss amount is less than total fixed cost that means if it is incurring atleast the variable cost the it will operate in the short run.
8) Since this is a perfectly competitive firm and market price is fixed for all the units marginal revenue will be $8
9) At 5th unit marginal cost is (5 X8.8-4 X 8.0) =12 and marginal revenue is 8 so marginal revenue is less and profit of the firm will decrease.
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10) At 4unit production per hour marginal cost is (4 X 8.0 -3 X 8.0) = 8. So in 4unit production marginal cost is equal with marginal revenue and this is the profit max condition.
11) Since minimum of average cost is 8.0 and marginal revenue of the firm is also the same he will continue his operation in short run and long run also.
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