Chap_8_Solutions_Odd

# Chap_8_Solutions_Odd - Chapter 8 Answers to Questions and...

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Chapter 8: Answers to Questions and Problems 1. a. 7 units. b. \$28. c. \$224, since \$32 x 7 = \$224. d. \$98, since \$14 x 7 = \$98. e. \$126 (the difference between total cost and variable cost). f. It is earning a loss of \$28, since (\$28 -\$32) x 7 = - \$28. g. - \$126, since its loss will equal its fixed costs. h. Shut down. 2. 3. a. 7 units. b. \$130. c. \$140, since (\$130 – 110) x 7 = \$140. d. Demand will decrease over time as new firms enter the market. In the long- run, economic profits will shrink to zero. 4. 5. a. A perfectly competitive firm’s supply curve is its marginal cost curve above the minimum of its AVC curve. Here, 2 50 8 3 i i i MC q q = - + and 2 3 2 50 4 50 4 i i i i i i i q q q AVC q q q - + = = - + . Since MC and AVC are equal at the minimum point of AVC, set MC i = AVC i to get 2 2 50 8 3 50 4 i i i i q q q q - + = - + , or 2 i q = . Thus, AVC is minimized at an output of 2 units, and the corresponding AVC is ( 29 ( 29 2 50 4 2 2 46 i AVC = - + = . Thus the firm’s supply curve is described

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Chap_8_Solutions_Odd - Chapter 8 Answers to Questions and...

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