Question

In: Economics

The plastic bottle has only 10 producers, and the industry has to paid a fixed cost...

The plastic bottle has only 10 producers, and the industry has to paid a fixed cost of $25 per each producers. So, it is suggested that the short run industry supply will decreases when the fixes cost increased to $30.

Do you agree with this statement? Why?

Solutions

Expert Solution

No, I do not agree with the statement.

Any change in fixed cost has no effect on the short-run supply of the firm and thus industry at large. In case the Fixed Cost of the industry increases, it would cause the Average Fixed Cost (AFC) and the Average Total Cost (ATC) to rise and leave the Average Variable Cost (AVC) and thus the Marginal Cost(MC) unchanged.

The Equilibrium Condition being MR=MC (also MC curve being the supply curve of the firm in short run), there will be no change in the short run equilibrium of the firm. Given this the total production of the industry will also remain the same in short run.

Only in the long run, such a rise in Fixed cost can effect the firm/s if it/they are operating in long run equilibrium(i.e. earning just normal profits). In such case such firm/s will now not cover its higher Total Average Cost (TAC) and will go out of business in long run.In such case, Long Run Market Supply Curve of the Industry will slope upward to the left and at new equilibrium output will be lower and price higher. Also, there will be lesser number of firms in the market.

All in all we can conclude that the increase of Fixed cost on industry from $25 to $30 will have no effect on the individual firm's and thus industry's supply in the short run. Its only in Long run that such an impact can arise.

Rahul Sunny answered 2 years ago
Next > < Previous

Related Solutions

The market for plastic bottle is in long run equilibrium with tgrre producers, two high cost...
The market for plastic bottle is in long run equilibrium with tgrre producers, two high cost and one low cost. The market price is equal to the minimum ATC of the two identical high cost producers. Suppose the variable cost curve for the low cost producer shifts down, when shipping costs fail from the nearby port. Based on the above situation, it is suggested that the price of plastic bottle decreases in the long run. Do you agree with this...
Genie in a Bottle Company (GBC) manufactures plastic two-liter bottles for the beverage industry. The cost...
Genie in a Bottle Company (GBC) manufactures plastic two-liter bottles for the beverage industry. The cost standards per 100 two-liter bottles are as follows: Cost Category Standard Cost per 100 Two-Liter Bottles Direct labor $1.48 Direct materials 4.92 Factory overhead 0.28 Total $6.68 At the beginning of July, GBC management planned to produce 590,000 bottles. The actual number of bottles produced for July was 637,200 bottles. The actual costs for July of the current year were as follows: Cost Category...
Genie in a Bottle Company (GBC) manufactures plastic two-liter bottles for the beverage industry. The cost...
Genie in a Bottle Company (GBC) manufactures plastic two-liter bottles for the beverage industry. The cost standards per 100 two-liter bottles are as follows: Cost Category Standard Cost per 100 Two-Liter Bottles Direct labor $1.32 Direct materials 6.26 Factory overhead 0.32 Total $7.9 At the beginning of July, GBC management planned to produce 430,000 bottles. The actual number of bottles produced for July was 464,400 bottles. The actual costs for July of the current year were as follows: Cost Category...
Genie in a Bottle Company (GBC) manufactures plastic two-liter bottles for the beverage industry. The cost...
Genie in a Bottle Company (GBC) manufactures plastic two-liter bottles for the beverage industry. The cost standards per 100 two-liter bottles are as follows: Cost Category Standard Cost per 100 Two-Liter Bottles Direct labor $1.52 Direct materials 6.18 Factory overhead 0.34 Total $8.04 At the beginning of July, GBC management planned to produce 670,000 bottles. The actual number of bottles produced for July was 723,600 bottles. The actual costs for July of the current year were as follows: Cost Category...
Salisbury Bottle Company manufactures plastic two-liter bottles for the beverage industry. The cost standards per 100...
Salisbury Bottle Company manufactures plastic two-liter bottles for the beverage industry. The cost standards per 100 two-liter bottles are as follows: Cost Category Standard Cost per 100 Two-Liter Bottles Direct labor $1.20 Direct materials 6.50 Factory overhead 1.80 Total $9.50 At the beginning of March, Salisbury’s management planned to produce 500,000 bottles. The actual number of bottles produced for March was 525,000 bottles. The actual costs for March of the current year were as follows: Cost Category Actual Cost for...
Wellsley Containers currently uses a recycled plastic to make bottles for the food industry. Current bottle...
Wellsley Containers currently uses a recycled plastic to make bottles for the food industry. Current bottle production? information: The cost and time standards per batch of 10,000 bottles are as ?follows: Plastic 360 kilograms at $11.00 per kg Direct labor 6.0 hours at $20.00 per hour The variable manufacturing overhead rate is based on total estimated variable manufacturing overhead of $500,000 and estiamted total DLH of 10,000. Wellsley allocates its variable manufacturing overhead based on direct labor hours (DLH). Proposed...
CHAP 22 Genie in a Bottle Company (GBC) manufactures plastic two-liter bottles for the beverage industry....
CHAP 22 Genie in a Bottle Company (GBC) manufactures plastic two-liter bottles for the beverage industry. The cost standards per 100 two-liter bottles are as follows: Cost Category Standard Cost per 100 Two-Liter Bottles Direct labor $4.00 Direct materials 9.10 Factory overhead 0.55 Total $13.65 At the beginning of July, GBC management planned to produce 380,000 bottles. The actual number of bottles produced for July was 385,000 bottles. The actual costs for July of the current year were as follows:...
A refundable charge of 5 cents or 10 cents on a plastic bottle or aluminum can acts similarly to a...
A refundable charge of 5 cents or 10 cents on a plastic bottle or aluminum can acts similarly to a pollution tax.  True  False
Consider an industry with 21 producers that has the following market share:
  Consider an industry with 21 producers that has the following market share: one producer: 18% two producers: 12% each six producers: 5% each eight producers: 3% each four producers: 1% each The second and third largest producers are wanting to merge. Calculate the four-firm concentration ratio and the Herfindahl-Hirshman Index for this industry, both before and after the proposed merger.
A 10-yr project has an initial cost of $400,000 for fixed assets. The fixed assets will...
A 10-yr project has an initial cost of $400,000 for fixed assets. The fixed assets will be depreciated to a $0 book value using a 20-yr straight line depreciation method. Each year, annual revenue is $60,000 and cost is $10,000. After 10 years, you will terminate the project. You expect to sell the the fixed assets for $250,000. The project is financed by 40% equity and 60% debt. The required rate of return on equity is 7% and the borrowing...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT