Homework 3 - Jenny Kow October 9, 2010 Economics 2 Homework...

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Unformatted text preview: Jenny Kow October 9, 2010 Economics 2 Homework #3 Chapter 9 3. Product Price Quantity Demanded Total Revenue Marginal Revenue $2 $0 $2 2 2 2 2 2 1 2 2 2 4 2 3 6 2 4 8 2 5 10 a) This structure of the industry can conclude that it is a purely competitive industry. Therefore, they cannot raise the price for it will affect the output sold and they don’t need to lower the price to receive an increase in sales. You can figure this out because as the quantity demanded increases the product price remains unchanged. b) c) Demand and marginal-revenue curves coincide because demand equals marginal revenue in a purely competitive industry. d) Marginal-revenue is the change in total-revenue associated with additional units of output. This can be explained by the fact that in a purely competitive industry the price is unchanging; therefore it is a constant two. The marginal-revenue is the change in the second total-revenue minus the first total-revenue. So the marginal-revenue throughout the sales is two dollars. 4. Total Product Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost $45 40 35 30 1 $60.00 $45.00 $105.00 2 30.00 42.50 72.50 3 20.00 40.00 60.00 4 15.00 37.50 52.50 5 12.00 37.00 49.00 35 40 45 55 6 10.00 37.50 47.50 7 8.57 38.57 47.14 8 7.50 40.63 48.13 9 6.67 43.33 50.00 10 6.00 46.50 52.50 a) Yes, the product will produce a short run because $56 is more than the average variable cost at the profit-maximizing output. The profit-maximizing output will be 8 units by using the marginal- revenue equal to the marginal-cost rule. The profit per unit would then be $7.87 causing the total profit to be $62.96=7.87 x 8. b) Yes, the product will also produce a short run when the price is $41. It exceeds the average variable cost at the loss-minimizing output. Through the MR=MC Rule; it can produce 6 units. The loss per output is $6.50, making the total loss $39.00=6.50 x6. c) No, $32 is less than the average variable costs. By using the MR=MC Rule the output would be 4 units. In producing those 4 units, the industry would loss $82. If they didn’t produce any units, they would lose the total fixed cost being $60. Price Quantity Supplied, Single Firm Profit (+) or Loss (-) Quantity Supplied 1500 Firms $26-60 32-60 38 5-55 7500 41 6-39 9000 46 7-8 10500 56 8 +63 12000 66 9 +144 13500 d) e) A firm will not produce a product if the price is less than the average variable cost. When the price is greater than the average variable cost, a firm will produce a short run when the quantity where price is equal to the increasing marginal cost. That’s why the marginal cost curve above where price is equal to the increasing marginal cost....
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This note was uploaded on 11/13/2010 for the course ECON 2023 taught by Professor Badry during the Spring '10 term at Edison College.

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Homework 3 - Jenny Kow October 9, 2010 Economics 2 Homework...

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