hw07key - BINGHAMTON UNIVERSITY Department of Economics...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
BINGHAMTON UNIVERSITY Department of Economics Principles of Microeconomics (Econ 160B) Homework #7 Answer Key 1. Lentz's, Incorporated sells paper in a perfectly competitive market at a price of $2 per ream. At the optimal level of output, average total cost is $2.50 per ream and average variable cost is $1.95 per ream. Should the firm continue to operate in the short run? Explain. Yes. The price of the firm's product ($2) is greater than its average variable cost ($1.95). This implies that the firm's revenues will be sufficient to cover all of the firm's variable costs and some of its fixed costs. Thus, it will earn a smaller loss if it operates. 2. Figure 12.6 represents a perfectly competitive firm's costs. Illustrate the firm's shut-down price on the graph. Explain. The firm's shut-down price is defined as the price at which the firm is indifferent between operating and shutting down. In Figure 12.6, the shut-down price is $10. At the shut-down price, marginal cost equals price and average variable cost also
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 2

hw07key - BINGHAMTON UNIVERSITY Department of Economics...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online