Question
In: Economics
When a firm operates in the short run, what must be true for them to choose...
When a firm operates in the short run, what must be true for them
to choose to shut down (produce 0 output)? What must be true for
the firm to produce a non-zero level of output? How do they choose
what level of output to produce?
Solutions
Expert Solution
In competitive market when firms operate in the short run and price is below the minimum of average variable cost, they must choose to shut down.
In short run if price is above the min(AVC), they should continue their production. Case 1: if min(ATC)>p>min(AVC) . The firms should continue their production though there are losses. As in the long run they can overcome the loss when some firms will exit, price will be increased. Therefore they will produce non zero output
Case2: if P>min(ATC), firms making profit so they will surely continue the production. Therefore they will produce non zero output.
Firms will decide their production where profit is maximized. In competitive market profit is maximized at P=MC=min(ATC). Firms will choose to produce at P=MC. If now P>min(ATC) there will be profit and if P<min(ATC) there will be loss. In the long run they will earn normal profit as price will be equal to min(ATC). So firms will choose to produce output where P=MC.
Rahul Sunny answered 8 months agoRelated Solutions
A profit-maximizing firm in a perfectly competitive market operates in the short run with total fixed...
A profit-maximizing firm in a perfectly competitive market
operates in the short run with total fixed costs of D
$2,250 and total variable costs (TVC) as is below. The
firm can only produce integer amounts of output (Q):
Q (Output)
TVC (Total Variable Cost
0
0.00
1
2,500
2
4,000
3
5,000
4
6,200
5
7,600
6
9,360
7
11,500
8
13,860
9
16,450
10
19,200
11
22,310
3a. How much output should the firm
produce if it can sell...
A profit-maximizing firm in a perfectly competitive market operates in the short run with total fixed...
A profit-maximizing firm in a perfectly competitive market
operates in the short run with total fixed costs of
$6,500.00 and total variable costs (TVC) as is below. The
firm can only produce integer amounts of output (Q)
Q
TVC
0
0.00
1
8,000.00
2
15,000.00
3
20,000.00
4
23,000.00
5
25,000.00
6
29,000.00
7
33,500.00
8
39,000.00
9
46,000.00
10
53,500.00
11
61,200.00
12
72,000.00
_______3. (2.5 pts.) How much output should the firm produce if
it can sell all...
Consider a firm that operates in the perfectly competitive salmon farming industry. The short-run total cost...
Consider a firm that operates in the perfectly competitive
salmon farming industry. The short-run total cost curve is
TC(Q)=250+3Q+Q2 , where Q is the number of salmon harvested per
month.
What is the equation for the average variable cost (AVC)?
Solve for the firm's operation condition, MC≥AVC.
Assuming MC≥AVC, what is the firm's short-run supply curve? Find
the supply function, NOT the inverse supply function.
In light of the answer in part 2, What is the minimum price at
which...
Which of the following is true in the short run?
Which of the following is true in the short run? Multiple Choice The average total cost curve is a parabola that opens to the right along the X axis. The average total cost curve is a parabola that opens up along the Y axis. The average variable cost curve is a parabola that opens up along the X axis. The marginal cost curve is a parabola that opens down along the Y axis.
1. A firm should ________ in the short run and ________ in the long run if...
1.
A firm should ________ in the short run and ________ in the long
run if it cannot cover its variable costs.
shut down; leave the industry
shut down; decrease output
decrease output; leave the industry
decrease output; decrease output
2.
Differentiated products may be sold in which of the
following?
Monopolistic competition and oligopoly
Perfect competition and monopolistic competition
Monopoly and oligopoly
Oligopoly and perfect competition
In the short run, when the firm produces zero units of output, which of the following...
In
the short run, when the firm produces zero units of output, which
of the following is always equals to zero?
a. total cost
b. total variable cost
c. economic profit
d. total fixed cost
e. economic loss
What is the difference in the short run and the long run? In the short run,...
What is the difference in the short run and the long run? In
the short run, A. at least one of the firm's inputs is fixed,
while in the long run, at least one of the firm's inputs is
variable. B. at least one of the firm's inputs is fixed, while in
the long run, the firm is either able to vary all its inputs,
adopt new technology, or change the size of its physical plant. C.
at least one...
In the AD/AS model, what must happen for the economy to be in short run equilibrium?...
In the AD/AS model, what must happen for the economy to be in
short run equilibrium? How about long run equilibrium?
The short-run supply curve for a firm in a perfectly competitive industry is: The short-run marginal...
The short-run supply curve for a firm in a perfectly
competitive industry is:
The short-run marginal cost curve that is above minimum average
variable cost (which takes into account the fact that the firm
should shut down if price falls below average variable cost).
The entire average variable cost.
The entire short-run marginal cost curve.
The entire average total cost curve.
Which of the following statements is true regarding short-run
and long-run costs? (Assume all cost curves have typical shapes,...
A.)What price will be charged by this firm (in the short-run) B.)What quantity will be sold...
A.)What price will be charged by this firm (in the short-run)
B.)What quantity will be sold by this firm in the short-run? C.)
What profit will be earned by this firm (in the short-run) at that
price and output?
Given #1 above, what happens in the long-run? Will the final
price be higher or lower than what you found above? Assume that the
costs remain the same and remember that this is a monopolistically
competitive industry.
Given #2 above, what...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- The equivalent synchronous impedance of a 25kVA, 400V three-phase Y-connected synchronous generator is 0.05 + j1.6...
- You have $100,000 to invest in either Stock D, Stock F, or a risk-free asset. You...
- In two or three sentences, explain how you have seen the concept of grit work in...
- You have invested 30 percent of your portfolio in Jacob, Inc., 40 percent is Bella Co.,...
- Parallel Arrays This question is in MindTap Cengage Summary In this lab, you use what you...
- 5. You have invested 30 percent of your portfolio in Jacob, Inc., 40 percent is Bella...
- JAVA Write a test program that prompts the user to enter a series of integers and...
ADVERTISEMENT