Question

In: Economics

A. In the short-run if the price of the firm’s product is $75 this firm will produce ______ units and (make a normal profit only; make an economic profit of $______; make an economic loss of $______).

Quantity

      TC

0

78

1

156

2

219

3

274

4

320

5

410

6

520

7

660


A. In the short-run if the price of the firm’s product is $75 this firm will produce ______ units and (make a normal profit only; make an economic profit of $______; make an economic loss of $______).


      Suppose this firm is typical of other firms in this industry. In the long-run (firms in other industries will enter this industry; firms in this industry will begin to leave) so market supply will (increase, decrease), and the price of the product will (rise; fall) until price equals (total cost; minimum ATC;marginal cost; marginal revenue) and the firms in the industry will make (an economic profit; aneconomic loss; a normal profit only)

      In the long-run, the price of this product will be $_______.


B. Now suppose that in the short-run the price of the firm’s product is $90. This firm will produce ­­­­_______ units and (make a normal profit only; make an economic profit of $______; make an economic loss of $______).


      Suppose this firm is typical of other firms in this industry. In the long-run (firms in other industries will enter this industry; firms in this industry will begin to leave), market supply will (increase,decrease), and the price of the product will (rise; fall) until price equals (total cost; minimum ATC; marginal cost;marginal revenue) and the firms in the industry will make (an economic profit; an economic loss; anormal profit only)


Solutions

Expert Solution

Quantity       TC MC
0 78 ---
1 156 78
2 219 63
3 274 55
4 320 46
5 410 90
6 520 110
7 660 140

A.

When price is $75,

Then firm will produce 4 units

make an economic loss of $ 20.

(Economic profit = 4*75 - 320 = -$20)

In the long run,

firms in this industry will begin to leave

So, market supply is going to decrease

Price of the product will rise ( because supply curve will shift to the left)

Till price equals minimum ATC

Now, firm will make a normal profit only (it is zero economic profit)

In the long run, price of the product = $80

========

B.

When price is $90,

then units produced = 5 unit

make an economic profit of $40

Economic profit = 5*90 - 410 = $40

In the long run, (firms in other industries will enter this industry)

Market supply is going to increase as more firms join the industry,

Price of the product decreases or falls

Until price equal minimum ATC.

and the firms in the industry will make only normal profit (it is zero economic profit)


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