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Ans_HW_ch9

# Ans_HW_ch9 - 9.7 Producer surplus equals revenue less all...

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9.7 Producer surplus equals revenue less all non-sunk costs. Thus: Producer surplus = 200 – 160 = 40 The non-sunk costs of 160 include the variable cost of 120 and the non-sunk fixed cost of 40. Profit = Revenue minus all costs = 200 – 120 – 60 – 40 = –20. To decide whether to operate or shut down, the firm should look at producer surplus (rather than profit). Producer surplus (40) shows how much better off he would be operating (with a profit = –20) than shutting down (with a profit = –60). So he should stay in business in the short run; he will lose money, but not as much as if her were to shut down. 9.8 a) In order to maximize profit Ron should operate at the point where P MC = . 20 10 0.20 50 Q Q = + = b) Ron’s profit is given by TR TC π = - . 2 20(50) (40 10(50) 0.10(50) ) 210 = - + + = c) The firm’s profit is equal to the shaded area in the graph below. It is a rectangle whose height is the market price and the average cost of the 50 th unit, and whose width is the 50 units being produced.

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Ans_HW_ch9 - 9.7 Producer surplus equals revenue less all...

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