blanchard_ch10

When sheetz lowers prices theres not a car in sight

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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 8 6 4 2 0 20 40 (smoothies per hour) 1.90 1,000 2.00 950 2.20 2.91 4.25 5.25 5.50 800 700 550 400 300 Each of the 100 producers of smoothies has the following costs when it uses its least-cost plant: Output Marginal cost (smoothies (dollars per per hour) additional smoothie) Average variable cost Average total cost (dollars per smoothie) 60 80 100 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 schedule. 3 4 5 6 2.50 2.20 1.90 2.00 4.00 3.53 3.24 3.00 7.33 6.03 5.24 4.67 7 The Firm’s Output Decision 12 Quantity demanded (dollars per smoothie) 2.91 2.91 4.34 8 4.25 3.00 4.25 9 8.00 3.33 4.44 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 Uncertain 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 (b) occur? 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 returns? 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 part (a). 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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