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Answers to practice questions Ch 10

# Answers to practice questions Ch 10 - c increase the price...

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output MC ATC AVC 2 3 4 4.5 25 50 80 5.5 Answers to practice questions from Ch. 10 (see handout 17 from 10/22/09) : 1. Acme Inc. is operating in a perfectly competitive market. The company can sell their product at the market price P* = \$2/unit. Based on the total output table below and the fact that the wage rate is w = \$8, what is the company’s profit- maximizing level of output? Labor (L) Total Output (Q) 1 50 2 66 3 76 4 83 5 88 a. 50 b. 76 c. 88 d. 90 2. The figure below illustrates a perfectly competitive firm. If the market price is \$30 a unit, to maximize its profit (or minimize its loss) the firm should 1

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3. Based on the figure in the problem above, what will the firm do to maximize profit if the price falls to \$15?
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Unformatted text preview: c. increase the price it is charging for output d. shut down 4. Suppose a perfectly competitive market is in long-run equilibrium and then there is a permanent increase in the demand for that product. Ultimately, the new long-run equilibrium will have a. fewer firms. b. more firms. c. the same number of firms. d. probably have a different number of firms, but it is not possible to determine if there will be more or fewer firms. 5. The above figure shows the short-run cost curves for a perfectly competitive firm. Suppose that the market price is \$3. Then a. economic profit is positive b. if the firm produces, then the firm incurs a loss that can be computed as follows: (\$5.50 - \$3) x 50 c. the firm incurs a loss equal to its fixed costs d. Both b. and c. are correct. 2...
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Answers to practice questions Ch 10 - c increase the price...

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