The equilibrium price of a guidebook is $35 in the perfectly competitive guidebook industry. Our firm...

The equilibrium price of a guidebook is $35 in the perfectly competitive guidebook industry. Our firm produces 10,000 guidebooks for an average total cost of $38, marginal cost of $30, and average variable cost of $30. Our firm should:

a. raise the price of guidebooks, because the firm is losing money

b. keep output the same, because the firm is producing at minimum average variable cost

c. produce more guidebooks, because MR is still greater than MC

d. shut down, because the firm is losing money

Expert Solution

C. Produce more guidebooks, because MR is still greater than MC.

Reason- For firms under perfect competition , profit maximizing point is where P=MC and MR=P

At the present output level of 10000, MR>MC $35>$30. So if the firm will produce more profits will increase. Firm should not shut down because P>AVC. Firm is suffering loss because P<ATC at 10000 output level.

Rahul Sunny answered 2 years ago

Consider a profit-maximizing firm operating in a perfectly competitive industry. If the equilibrium market price of...

Consider a profit-maximizing firm operating in a perfectly competitive industry. If the equilibrium market price of the good falls below the minimum of the firm's average total cost curve but is greater than the minimum of its average variable cost curve, the firm: Group of answer choices should increase the price of its product in order to increase profits should increase the price of its product in order to sell more units of output should shut down and suffer a...

Equilibrium price is $10 in a perfectly competitive market. For a perfectly competitive firm, MR=MC at...

Equilibrium price is $10 in a perfectly competitive market. For a perfectly competitive firm, MR=MC at 1200 units of output. At 1200 units, atc is $23 and avc is $18. The best policy for this firm is to ___ in the short run. Also, this firm earns ___ of ___ if it produces and sells 1200 units. a.shut down, losses, 15,600 b.shut down, losses, 9,600 c.continue to produce, losses, $15,600 d.continue to produce, profits, $15,600 Ultimately, market supply curves are...

Suppose that a perfectly competitive industry is in long-run equilibrium. Then the price of a complementary...

Suppose that a perfectly competitive industry is in long-run equilibrium. Then the price of a complementary good decreases. Use two graphs, one for the firm, and one for the industry (and words) to explain what will happen in the short run, and then the long run, to: a. The market demand curve? b. The market supply curve? c. Market price? d. Market output? e. Representative firm output? f. Representative firm profit?

At long-run equilibrium in a perfectly competitive industry the typical firm is breaking even in an...

At long-run equilibrium in a perfectly competitive industry the typical firm is breaking even in an opportunity cost sense. T/F Perfectly competitive markets include firms that have significant market power, with one typically being the price leader. T/F In perfectly competitive markets, the individual firm’s demand curve is flat, while the market demand curve is typically sloping downward to the right. T/F When a firm maximizes profits, its price is derived from where marginal revenue crosses marginal cost (extend 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...

In a perfectly competitive industry, the market price is $25. A firm is currently producing 10,000...

In a perfectly competitive industry, the market price is $25. A firm is currently producing 10,000 units of output, its average total cost is $28, its marginal cost is $20, and its average variable cost is $20. Given these facts, explain whether the following statements are true or false: a. The firm is currently producing at the minimum average variable cost b. The firm should produce more output to maximize its profit c. Average total cost will be less than...

In a perfectly competitive industry the market price is $25. A firm is currently producing 10,000...

In a perfectly competitive industry the market price is $25. A firm is currently producing 10,000 units of output; average total cost is $28, marginal cost is $20, and average variable cost is $20. The firm should Select one: a. raise price because the firm is losing money. b. keep output the same because the firm is producing at minimum average variable cost. c. produce more because the next unit of output increases profit by $5. d. produce less because...

Draw graphs showing a perfectly competitive firm and industry in the long-run equilibrium. a. How do...

Draw graphs showing a perfectly competitive firm and industry in the long-run equilibrium. a. How do you know that the industry is in long-run equilibrium? Long-run when quantity demanded=quantity supplied, no entry and not exit as firms are breaking even. (Which holds true when the P=ATC) b. Suppose that there is an increase in demand for this product. Show and explain the short-run adjustment process for both the firm and the industry. Market demand curve shifts to the right. Equilibrium...

[2b] If Bob, in a perfectly competitive industry sees a price rise from equilibrium, resulting from...

[2b] If Bob, in a perfectly competitive industry sees a price rise from equilibrium, resulting from an increase in market demand, what will happen in the short run in his firm? Graph and explain both conditions.

In a perfectly competitive industry, the market price is GH¢25. A firm is currently producing 10,000...

In a perfectly competitive industry, the market price is GH¢25. A firm is currently producing 10,000 units of output, its average total cost is GH¢28, its marginal cost is GH¢20, and its average variable cost is GH¢20. Given these facts, indicate whether the following statements are true or false and explain: a. The firm is currently producing at the minimum average variable cost. b. The firm should produce more output to maximize its profit. c. Average total cost will be...

Question