Comm220 Ch8 Quick Quiz

Comm220 Ch8 Quick Quiz - AC q q dq dC MC b P< $14 c The...

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CHAPTER 8 – A&SWERS TO THE QUICK QUIZ QUESTIO&S Q1 Price taking & product homogeneity no firm has any market power and each firm faces a horizontal demand curve firms produce where P = MC, which defines their supply curves. Free entry and exit positive (negative) economic profits encourage firms to enter (exit) the industry entry pushes price downward until P = MC = min AC (i.e., firms earn zero economic profit). Q2 In the short run, if C > R > VC, produce loss < FC, shutdown loss = FC, better off produce than shutdown. Q3 a. . 30 8 5 30 8 30 16 3 2 2 2 + = = + + = = + = = q q q VC AVC q q q q C
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Unformatted text preview: AC q q dq dC MC b. P < $14. c. The firm’s supply curve is the portion of MC that lies above point S where MC = AVC. d. P = 42. Q4 a. P* = $5 and Q* = 6000, Firm’s output = 500, profit = $528, and producer surplus = $1250. b. Firm will sell for any positive price, because at any positive price MC = q/100 > AVC = q/200. Profit is negative if P < min AC = $3.80, profit = 0 if P = $3.80, and profit is positive if P > $3.80. Average and Marginal Costs 4 8 12 16 20 24 28 32 36 40 44 48 52 1 2 3 4 5 6 7 Quantity Cost MC AC AVC S Short-run supply curve...
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