H if you can sell your rod for 5 then your fixed cost

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h. If you can sell your rod for $5, then your fixed cost that is sunk is $10. Thus by selling the rod and stopping fishing, you can reduce the loss to $10 (from $14 as in g). Chapter 14, Problem 6 Strong prices are interpreted to mean high prices due to an increase in demand. This means existing firms enjoy positive economic profits, causing new firms to enter the industry, shifting the supply curve to the right, which brings down the equilibrium price again. Entry will continue until the price has fallen back to where P = ATC, so that all firms make zero economic profit. In the figures below, the initial equilibrium is where D 1 = S 1 . The equilibrium price is P 1 and each existing firm produces q 1 and has zero economic profit. Now demand shifts to D 2 and, as a result, price rises to P 2 (strong prices). Each existing firm increases output to q 2 and makes positive economic profits since price > ATC. This causes new firms to enter, shifting supply curve to S 3 . Entry will stop when enough new firms have entered so that the new equilibrium price is back at P 1 , at which all firms make zero economic profit. Chapter 14, Problem 8 a. The figures below illustrate the situation in the Australian textile industry. With no international trade, the market is in long-run equilibrium. Supply intersects demand at quantity Q 1 and price $30, with a typical firm producing output q 1 . All domestic firms make zero economic profit since P = ATC.
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