HW4_answers_forstudents

HW4_answers_forstudents - HW #4 :Answers Economics 304K:...

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HW #4 :Answers Economics 304K: Principles of Microeconomics Prof. Meg Ledyard Due Friday, 10/29/04 (25 Points total) Remember to type the homework except for charts and graphs. Question 1 (3 points): Explain why a firm with zero profits will not exit the industry in the long run. They will not exit because economic profits include opportunity cost, and they are doing as well as they can in any other industry. Question 2 (10 points): Consider a market where minimum ATC is $5 at a quantity of 100, and AVC is $3 at a quantity of 75. a. (2 points) Suppose that the market price is $7. In a cost curve graph, draw the profits for this market. Are these profits positive or negative? Profits are positive. MC 5 100 75 3 Profits ATC 7 AVC
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b. (2 points) Now, suppose that the market price is $4. In a new graph, show the new profits. Are these profits positive or negative? Profits are negative. MC 5 100 75 3 Profits (negative) ATC AVC 4
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c. (2 points) Draw a new graph when the price is $2, showing profits. Are the new profits positive or negative? Profits are negative.
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This note was uploaded on 09/14/2009 for the course ECON 304K taught by Professor Ledyard during the Fall '08 term at University of Texas.

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HW4_answers_forstudents - HW #4 :Answers Economics 304K:...

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