Question

In: Economics

1. Manny’s Mowers operates in the perfectly competitive lawn mowing industry with a market price of...

1.

Manny’s Mowers operates in the perfectly competitive lawn mowing industry with a market price of $40 and MC = 4q. What is Manny’s profit maximizing output?

Question 17 options:

a)

10

b)

20

c)

40

d)

it depends on how many mowers Manny owns.

e)

it depends on how many employees Manny has.

2.

In the short run, any firm will operate at a loss as long as

Question 6 options:

a)

the profit maximizing price is higher than the average total cost of producing the profit maximizing output.

b)

the profit maximizing price is higher than the average variable cost of producing the profit maximizing output.

c)

the profit maximizing output is higher than minimum efficient (or optimal) scale.

d)

the profit maximizing output is higher than the average variable cost of producing at the profit maximizing price.

e)

none of the answers presented are correct.

3.

Zayta is one of many widget saleswomen in the city of Metrosprawl and is able to sell as much as she likes at the market price of $150. Zatya’s total and marginal cost functions are given by TC = 5,000 + q2 and MC = 2q. How much profit will Zatya earn by producing the profit maximizing output?

Question 11 options:

a)

none since the market is perfectly competitive

b)

$125

c)

$625

d)

$747.50

e)

none of the answers presented are correct.

Solutions

Expert Solution

1.

a)10

Explanation :

Firm maximises it's profit where MR equals MC. In perfect competition price is equals to MR.

So, MR =MC

40=4Q

40/4=Q

10=Q

2.

B. the profit maximizing price is higher than the average variable cost of producing the profit maximizing output.

Explanation :

Firm will shutdown when price is below average variable cost. So when price is below average total cost but above average variable cost, firm will operate to minimise losses. Because if firm will shutdown, loss will be equal to fixed cost and if it will operate, loss will be some portion of fixed cost as some portion is covered by total revenue.

3.

B.$625

Explanation :

Firm maximises it's profit where MR equals MC and in perfect competition price is equals to MR.

MR =MC

150=2q

150/2=q

75=q.

Now profit =total revenue - total cost

=11250-10625

=625.

Total revenue =Price *quantity

=150*75

=11250.

Total cost =5000+q^2

=5000+(75)²

=5000+5625

=10,625


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