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Unformatted text preview: hat determines the price of gasoline
and the marginal revenue from gasoline?
20. Describe the elasticity of demand that each of
these gas stations faces.
21. Why does each of these gas stations have so little
control over the price of the gasoline it sells? Cost (cents per page) 22. The figure shows the costs of Quick Copy, one of
many copy shops near campus.
MC ATC 10
2 0 20 40 (smoothies per hour) 1.90 1,000 2.00 950 2.20
300 Each of the 100 producers of smoothies has the
following costs when it uses its least-cost plant:
Output Marginal cost (smoothies
per hour) additional smoothie) Average
variable cost Average
total cost (dollars per smoothie) 60
Quantity (pages per hour) If the market price of copying is 10¢ a page,
calculate Quick Copy’s
a. Profit-maximizing output.
b. Economic profit.
23. The market for smoothies is perfectly competitive.
The following table sets out the market demand
4.67 7 The Firm’s Output Decision 12 Quantity demanded (dollars per smoothie) 2.91 2.91 4.34 8
a. What is the market price of a smoothie?
b. What is the market quantity of smoothies?
c. How many smoothies does each firm sell?
d. What is the economic profit made or economic loss incurred by each firm?
24. Cadillac Plant Shuts Down Temporarily, Future
Delta Truss in Cadillac [Michigan] is shutting
down and temporarily discontinuing truss production. Workers fear this temporary shutdown
will become permanent, but the firm announced
that it anticipates that production will resume
when the spring business begins.
Source: 9&10 News, February 18, 2008
a. Explain how the shutdown decision will affect
Delta Truss’ TFC, TVC, and TC.
b. Under what conditions would this shutdown
decision maximize Delta Truss’ economic
profit (or minimize its loss)?
c. Under what conditions will Delta Truss start
producing again? 000200010270728684_CH10_p195-220.qxd 220 6/23/11 4:13 PM Page 220 CHAPTER 10 Perfect Competition Output, Price, and Profit in the Short Run Competition and Efficiency 25. Big Drops in Prices for Crops Make It Tough
Down on the Farm
Grain prices have fallen roughly 50 percent from
earlier this year. With better-than-expected crop
yields, world grain production this year will rise 5
percent from 2007 to a record high.
Source: USA Today, October 23, 2008
Why did grain prices fall in 2008? Draw a graph
to show that short-run effect on an individual
farmer’s economic profit. 30. In a perfectly competitive market, each firm
maximizes its profit by choosing only the quantity to produce. Regardless of whether the firm
makes an economic profit or incurs an economic
loss, the short-run equilibrium is efficient. Is the
statement true? Explain why or why not. Output, Price, and Profit in the Long Run 26. In Problem 23, do firms enter or exit the market
in the long run? What is the market price and
the equilibrium quantity in the long run?
27. In Problem 24, under what conditions will Delta
Truss exit the market?
28. Exxon Mobil Selling All Its Retail Gas Stations
Exxon Mobil is not alone among Big Oil exiting
the retail gas business, a market where profits
have gotten tougher as crude oil prices have
risen. Gas station owners say they’re struggling to
turn a profit because while wholesale gasoline
prices have risen sharply, they’ve been unable to
raise pump prices fast enough to keep pace.
Source: Houston Chronicle, June 12, 2008
a. Is Exxon Mobil making a shutdown or exit
decision in the retail gasoline market?
b. Under what conditions will this decision maximize Exxon Mobil’s economic profit?
c. How might Exxon Mobil’s decision affect the
economic profit of other gasoline retailers?
Changing Tastes and Advancing Technology 29. Another DVD Format, but It’s Cheaper
New Medium Enterprises claims the quality of
its new system, HD VMD, is equal to Blu-ray’s
but it costs only $199—cheaper than the $300
cost of a Blu-ray player. Chairman of the Blu-ray
Disc Association says New Medium will fail
because it believes that Blu-ray technology will
always be more expensive. But mass production
will cut the cost of a Blu-ray player to $90.
Source: The New York Times, March 10, 2008
a. Explain how technological change in Blu-ray
production might support the prediction of
lower prices in the long run. Illustrate your explanation with a graph.
b. Even if Blu-ray prices do drop to $90 in the
long run, why might the HD VMD still end
up being less expensive at that time? Economics in the News 31. After you have studied Reading Between the Lines
on pp. 214–215 answer the following questions.
a. What are the features of the global market for
corn that make it competitive?
b. If the increase in production during 2009 and
2010 was due entirely to good weather, what
will happen to the price and quantity produced when normal weather returns?
c. What will happen to an individual farmer’s
marginal revenue, marginal cost, average total
cost, and economic profit if the events in part
d. If the increase in production during 2009 and
2010 was due mainly to a revolution in farm
technology, what will happen to the price and
quantity produced when normal weather
32. Cell Phone Sales Hit 1 Billion Mark
More than 1.15 billion mobile phones were sold
worldwide in 2007, a 16 percent increase in a
year. Emerging markets, especially China and
India, provided much of the growth as many
people bought their first phone. Carolina
Milanesi, research director for mobile devices at
Gartner, reported that in mature markets, such as
Japan and Western Europe, consumers’ appetite
for feature-laden phones was met with new models packed with TV tuners, global positioning
satellite functions, touch screens, and cameras.
Source: CNET News, February 27, 2008
a. Explain the effects of the increase in global demand for cell phones on the market for cell
phones and on an individual cell-phone producer in the short run.
b. Draw a graph to illustrate your explanation in
c. Explain the long-run effects of the increase in
global demand for cell phones on the market
for cell phones.
d. What factors will determine whether the price
of cell phones will rise, fall, or stay the same in
the new long-run equilibrium?...
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