Question

In: Economics

Suppose that the market for air fresheners is a competitive market.

 4. Profit maximization in the cost-curve diagram

 Suppose that the market for air fresheners is a competitive market. The following graph shows the daily cost curves of a firm operating in this market. Hint: After placing the rectangle on the graph, you can select an endpoint to see the coordinates of that point.

image.png

 In the short run, at a market price of $20 per air freshener, this firm will choose to produce _______  air fresheners per day.


 On the preceding graph, use the blue rectangle (circle symbols) to shade the area representing the firm's profit or loss if the market price is $20 and the firm chooses to produce the quantity you already selected.


 Note: In the following question, enter a positive number, even if it represents a loss.


 The area of this rectangle indicates that the firm's _______  would be _______  thousand per day in the short run.


Solutions

Expert Solution

Answer :

At $20 price level in short run the firm will produce 9 thousand air fresheners per day.

In the above picture's diagram the shaded area is the firm's profit area.

Per unit profit = Price - ATC = 20 - 16 = $4

Per day profit = Per unit profit * Quantity = 4 * 9 thousands = 36 thousands.

Therefore, here the rectangle area is the firm's profit of  $36 thousand per day in short-run.


Related Solutions

Problem 5: Suppose that a market could be either a monopoly or a competitive market. Suppose...
Problem 5: Suppose that a market could be either a monopoly or a competitive market. Suppose that in either case the demand curve can be written as ?d = 100 − 2?. Suppose further that the marginal cost of production is the same in either case. This means that the supply curve in the competitive market is the same as the marginal cost curve for the monopoly. So the supply curve is ?s = −20 + ? and, rearranging the...
Suppose there is a perfectly competitive market for curry puffs. The perfectly competitive equilibrium price in...
Suppose there is a perfectly competitive market for curry puffs. The perfectly competitive equilibrium price in this market is RM5 per puff. The perfectly competitive equilibrium quantity is 5,000 curry puffs. (a) Using a diagram, illustrate the perfectly competitive equilibrium in the market for curry puffs. Clearly label the areas of consumer surplus, producer surplus, and social surplus at this equilibrium. [3 marks] (b) Suppose that the government introduces a price floor for curry puffs at RM7 each. Note: Use...
Suppose the market for fresh pork is a competitive market. Initially, it is operating at its...
Suppose the market for fresh pork is a competitive market. Initially, it is operating at its long-run competitive equilibrium at a market price of $50. Owing to the spread of COVID-19, many people turn to buying frozen meat once a week rather than fresh pork every day. As a result, the market price of fresh pork reduces to $30. a. With the aid of a pair of market-and-firm diagrams, illustrate how this would affect the equilibrium price and quantity in...
Suppose the market for fresh pork is a competitive market. Initially, it is operating at its...
Suppose the market for fresh pork is a competitive market. Initially, it is operating at its long-run competitive equilibrium at a market price of $50. Owing to the spread of COVID-19, many people turn to buying frozen meat once a week rather than fresh pork every day. As a result, the market price of fresh pork reduces to $30. a. With the aid of a pair of market-and-firm diagrams, illustrate how this would affect the equilibrium price and quantity in...
Suppose the market for fresh pork is a competitive market. Initially, it is operating at its...
Suppose the market for fresh pork is a competitive market. Initially, it is operating at its long-run competitive equilibrium at a market price of $50. Owing to the spread of COVID-19, many people turn to buying frozen meat once a week rather than fresh pork every day. As a result, the market price of fresh pork reduces to $30. a. With the aid of a pair of market-and-firm diagrams, illustrate how this would affect the equilibrium price and quantity in...
1. Suppose the market for fresh pork is a competitive market. Initially, it is operating at...
1. Suppose the market for fresh pork is a competitive market. Initially, it is operating at its long-run competitive equilibrium at a market price of $50. Owing to the spread of COVID-19, many people turn to buying frozen meat once a week rather than fresh pork every day. As a result, the market price of fresh pork reduces to $30. a. With the aid of a pair of market-and-firm diagrams, illustrate how this would affect the equilibrium price and quantity...
Suppose the market for fresh pork is a competitive market. Initially, it is operating at its...
Suppose the market for fresh pork is a competitive market. Initially, it is operating at its long-run competitive equilibrium at a market price of $50. Owing to the spread of COVID-19, many people turn to buying frozen meat once a week rather than fresh pork every day. As a result, the market price of fresh pork reduces to $30. a. With the aid of a pair of market-and-firm diagrams, illustrate how this would affect the equilibrium price and quantity in...
Consider the market for avocados, which is very competitive. Suppose that initially the market is in...
Consider the market for avocados, which is very competitive. Suppose that initially the market is in long-run equilibrium, but that then someone comes up with the idea of making avocado toast, which spreads rapidly and becomes wildly popular. a) Show the situation in the market for avocados and the situation of a typical avocado producer before avocado toast becomes popular. What are the profits of the typical firm? b) How would the popularity of avocado toast affect the price and...
​​​​ Suppose that dry cleaning market is perfectly competitive. In a market for dry cleaning, the...
​​​​ Suppose that dry cleaning market is perfectly competitive. In a market for dry cleaning, the inverse market demand function is given by P = 300 -3 Q and the (private) marginal cost of production for the aggregation of all dry-cleaning firms is given by MC = 15 + 2Q Finally, the pollution generated by the dry-cleaning process creates external damages given by the marginal external cost curve MEC = Q. Without regulation, what are the profit-maximizing price and quantity?...
Suppose we are studying the market for beer; the market for candy is perfectly competitive. There...
Suppose we are studying the market for beer; the market for candy is perfectly competitive. There are two types of firms that produce beer, Type A firms and Type B firms. The cost curve of type A firm is represented by CA(y) = y^2 + 5, and the cost curve of a type B firm is represented by CB(y) = ((y^2) / 2 ) + 10. In the short-run, there are 10 Type A firms in the market, and 15...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT