Question
In: Economics
1. Suppose all of a firm's costs are fixed costs. Draw average and marginal costs for...
1. Suppose all of a firm's costs are fixed costs.
- Draw average and marginal costs for such a firm. Remember to label your axes.
- Why is it unlikely that this industry would be purely competitive?
- Assume that the firm is a monopolist. Will there still be any dead-weight (welfare) loss? Graphically illustrate the profit maximizing output, price, profits and welfare loss for this firm.
2. Graphically illustrate the results of long-run equilibrium in pure competition and monopolistic competition. How are the results similar? Different? Compare and contrast the outcomes with regards to efficiency and consumer welfare.
Solutions
Expert Solution
Similarity: As long as there is positive profit, entry of new firms goes on till the point where profit = 0. In both the cases profit equals in the longrun,
Difference: Pricing is based on MR in case of monopolistic competiton, but in case of perfect competition, it is determined by market forcaes when demand = supply. The competitive equilibrium provides the maximum welfare. The output in case of monopolistic competition is less, i.e., it operates with excess capacity. Hence, there is opportunity cost in terms of social welfare.
The basic similarities and dissimilarities still apply, e.g., identical products for competititive market, where as products are differentiated in monopolistic set up etc.
Rahul Sunny answered 7 months agoRelated Solutions
SUMMARIZE YOUR CALCULATIONS AND USE MICROSOFT EXCEL. DRAW ONE GRAPH SHOWING AVERAGE FIXED COSTS, AVERAGE VARIABLE COSTS, AVERAGE TOTAL COSTS, MARGINAL REVENUE AND MARGINAL COSTS.
OUTPUT
AVERAGE FIXED COST
AVERAGE VARIABLE COST
AVERAGE TOTAL COST
0
1
$180.00
$135.00
$315.00
2
$90.00
$127.50
$217.50
3
$60.00
$120.00
$180.00
4
$45.00
$112.50
$157.50
5
$36.00
$111.00
$147.00
6
$30.00
$112.50
$142.50
7
$25.71
$115.70
$141.41
8
$22.50
$121.90
$144.40
9
$20.00
$130.00
$150.00
10
$18.00
$139.50
$157.50
OUTPUT
MARGINAL COST
PRICE
TOTAL REVENUE
TOTAL REVENUE
0
$345.00
1
$300.00
2
$249.00
3
$213.00
4
$189.00
5
$165.00
6
$144.00
7
$126.00
8
$111.00
9
$99.00
10...
Quantity Total Revenue Marginal Revenue Total Cost Marginal Cost Fixed Costs ATC Average Fixed Costs Average...
Quantity
Total Revenue
Marginal Revenue
Total Cost
Marginal Cost
Fixed Costs
ATC
Average Fixed Costs
Average Variable Costs
0
0
-
10
-
10
-
-
-
1
8
24
14
24
2
16
34
10
17
3
24
42
8
14
4
32
49
7
12.25
5
40
57
8
11.4
6
48
67
10
11.17
7
56
81
14
11.57
8
64
99
18
12.38
9
72
123
24
13.67
1b. At a price of $14, what is...
a) Find ABC’s average fixed costs, average variable costs, average total costs and marginal costs.
Quantity
Total Fixed Cost
Total Variable Cost
0
100
0
1
100
50
2
100
70
3
100
90
4
100
140
5
100
200
6
100
360
a) Find ABC’s average fixed costs, average variable costs,
average total costs and marginal costs.
b) Since ABC is charging the customers at the price of $50, it
seems that the company cannot make a profit. The owner decides to
shut down operations. What are ABC’s profits/losses? Should the
owner shut down...
Jim runs a nursery. Identify the following costs he faces as fixed costs, average fixed costs, variable costs, average variable costs, total costs, average total costs, or marginal costs:
Jim runs a nursery. Identify the following costs he faces as
fixed costs, average fixed costs, variable costs, average variable
costs, total costs, average total costs, or marginal costs:a) The rent he pays on his greenhouse in the short runb) The rent he pays on his greenhouse in the long runc) the cost of soil, water, and seeds in the short rund) the per-unit cost of producing a nursery plant in the short
rune) the opportunity cost of shutting the...
Suppose marginal costs are below average total costs at 500 units of output for a manufacturer....
Suppose marginal costs are below average total costs at 500
units of output for a manufacturer. If the manufacturer produces an
additional unit, will its average total costs rise, fall, or stay
the same? Explain.
Suppose the market price is $10 (this is also the firm's marginal cost), a firm's quantity...
Suppose the market price is $10 (this is also the firm's
marginal cost), a firm's quantity sold is 11, and the average total
cost for the firm at that price is $7. What is the firm's
profit?
$330
$0
$110
$33
The firm would not produce at this quantity because it does not
maximize the firm's profit.
On a graph, draw all the following a. The average fixed cost curve (AFC) b. The...
On a graph, draw all the following
a. The average fixed cost curve (AFC)
b. The average total cost curve (ATC)
c. The average Variable cost curve (AVC)
d. The marginal cost curve (MC)
EXPLAIN THE REASONING BEHIND THE SHAPE AND LOCATION OF
EACH CURVE
Suppose you own a sandwich shop with fixed costs of $1,000/month and marginal costs of $2.00/sandwich....
Suppose you own a sandwich shop with fixed costs of $1,000/month
and marginal costs of $2.00/sandwich. If the price is $6/sandwich,
500 sandwiches are sold. If the price is $4.50/sandwich, 800
sandwiches are sold.
A) Use these figures to calculate the price
elasticity.
B) Calculate the profits and profit margins (profit/total cost)
associated with the price at $6/sandwich and at $4.50/sandwich.
Given these calculations, what price should you charge for
sandwiches?
Suppose a firm's marginal product of capital and marginal product of labor schedules are as shown...
Suppose a firm's marginal product of capital and marginal
product of labor schedules are as shown in the table below. The
firm hires both capital and labor competitively for $5 and $8,
respectively. This assignment will be graded out of 6 points with 2
points possible for each question.
Capital
MP of Capital
Labor
MP of Labor
0
0
1
10
1
28
2
9
2
30
3
8
3
24
4
7
4
20
5
6
5
16
6...
Suppose a firm's marginal product of capital and marginal product of labor schedules are as shown...
Suppose a firm's marginal product of capital and marginal
product of labor schedules are as shown in the table below. The
firm hires both capital and labor competitively for $4 and $8,
respectively. Its output is sold in a competitive market for $.50
per unit.
Capital
MP of Capital
Labor
MP of Labor
0
0
1
10
1
28
2
9
2
30
3
8
3
24
4
7
4
20
5
6
5
16
6
5
6
12
7...
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