Output price and profit in the short run study plan

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Unformatted text preview: emand schedule becomes Price Quantity demanded (dollars per box) (thousands of boxes per week) 2.95 4.13 5.30 6.48 7.65 8.83 10.00 11.18 500 450 400 350 300 250 200 150 000200010270728684_CH10_p195-220.qxd 218 6/23/11 4:13 PM Page 218 CHAPTER 10 Perfect Competition If each firm producing paper has the costs set out in Problem 7, what is the market price and the economic profit or loss of each firm in the short run? 9. Fuel Prices Could Squeeze Cheap Flights Airlines are having difficulty keeping prices low, especially as fuel prices keep rising. Airlines have raised fares to make up for the fuel costs. American Airlines increased its fuel surcharge by $20 a roundtrip, which Delta, United Airlines, and Continental matched. Source: CNN, June 12, 2008 a. Explain how an increase in fuel prices might cause an airline to change its output (number of flights) in the short run. b. Draw a graph to show the increase in fuel prices on an airline’s output in the short run. c. Explain why an airline might incur an economic loss in the short run as fuel prices rise. Output, Price, and Profit in the Long Run (Study Plan 10.4) 10. The pizza market is perfectly competitive, and all pizza producers have the same costs as Pat’s Pizza Kitchen in Problem 4. a. At what price will some firms exit the pizza market in the long run? b. At what price will firms enter the pizza market in the long run? 11. In Problem 7, in the long run, a. Do firms have an incentive to enter or exit the paper market? b. If firms do enter or exit the market, explain how the economic profit or loss of the remaining paper producers will change. c. What is the long-run equilibrium market price and the quantity of paper produced? What is the number of firms in the market? Changing Tastes and Advancing Technology (Study Plan 10.5) 12. If in the long run, the market demand for paper remains the same as in Problem 8, a. What is the long-run equilibrium price of paper, the market output, and the economic profit or loss of each firm? b. Does this market experience external economies, external diseconomies, or constant cost? Illustrate by drawing the long-run supply curve. Use the following news clip to work Problems 13 and 14. Coors Brewing Expanding Plant Coors Brewing Co. of Golden will expand its Virginia packaging plant at a cost of $24 million. The addition will accommodate a new production line, which will bottle beer faster. Coors Brewing employs 470 people at its Virginia plant. The expanded packaging line will add another eight jobs. Source: Denver Business Journal, January 6, 2006 13. a. How will Coors’ expansion change its marginal cost curve and short-run supply curve? b. What does this expansion decision imply about the point on Coors’ LRAC curve at which the firm was before the expansion? 14. a. If other breweries follow the lead of Coors, what will happen to the market price of beer? b. How will the adjustment that you have described in part (a) influence the economic profit of Coors and other beer producers? 15. Explain and illustrate graphically how the growing world population is influencing the world market for wheat and a representative individual wheat farmer. 16. Explain and illustrate graphically how the diaper service market has been affected by the decrease in the North American birth rate and the development of disposable diapers. Competition and Efficiency (Study Plan 10.6) 17. In a perfectly competitive market in long-run equilibrium, can consumer surplus be increased? Can producer surplus be increased? Can a consumer become better off by making a substitution away from this market? 18. Never Pay Retail Again Not only has scouring the Web for the best possible price become standard protocol before buying a big-ticket item, but more consumers are employing creative strategies for scoring hot deals. Comparison shopping, haggling and swapping discount codes are all becoming mainstream marks of savvy shoppers. Online shoppers can check a comparison service like Price Grabber before making a purchase. Source: CNN, May 30, 2008 a. Explain the effect of the Internet on the degree of competition in the market. b. Explain how the Internet influences market efficiency. 000200010270728684_CH10_p195-220.qxd 6/23/11 4:13 PM Page 219 A dditional Problems and Applications 219 ADDITIONAL PROBLEMS AND APPLICATIONS You can work these problems in MyEconLab if assigned by your instructor. What Is Perfect Competition? Price Use the following news clip to work Problems 19 to 21. Money in the Tank Two gas stations stand on opposite sides of the road: Rutter’s Farm Store and Sheetz gas station. Rutter’s doesn’t even have to look across the highway to know when Sheetz changes its price for a gallon of gas. When Sheetz raises the price, Rutter’s pumps are busy. When Sheetz lowers prices, there’s not a car in sight. Both gas stations survive but each has no control over the price. Source: The Mining Journal, May 24, 2008 19. In what type of market do these gas stations operate? W...
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This note was uploaded on 01/10/2013 for the course ECON 251 taught by Professor Blanchard during the Spring '08 term at Purdue University-West Lafayette.

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