Question

A perfectly competitive firm in the puzzle market has fixed costs that are sunk in the...

A perfectly competitive firm in the puzzle market has fixed costs that are sunk in the short run. The current situation facing that perfectly competitive firm is described by

: (i) MC intersects ATC at $20 / puzzle.

(ii) MC inteects AVC at $10 / puzzle.

(iii) The market price of puzzles is $15 / puzzle.

Which of the following statements is (are) true?

I. This firm makes negative economic profit in the short run.

II. This firm’s profits will increase if it shuts down.

III. Firms will exit this puzzle market in the long run.

( a) I, II, and III

(b ) I and III only

(c ) II and III only

(d ) I only

Homework Answers

Answer #1

Ans. b) I and III only

Since P < ATC ( i. e. $15/ puzzle <$20/ puzzle), therefore, this firm makes negative economic profit in the short - run.

In the long run, firm will produce where P = min ATC where this firm will recover the fixed cost and variable cost and will exit the puzzle market because it has negative economic profit in the short run.

If P = minAVC that is a shut down point becaue if price will fall below the min AVC then firm will not able to recover the variable cost from the revenue and it will immediatelyidiately shut down the production.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
1) A perfectly competitive firm that sells fish has a marginal cost function given by MC...
1) A perfectly competitive firm that sells fish has a marginal cost function given by MC = 3q. The market has determined a price of P = 60. How many fish will this firm produce? 2)See the previous question about the perfectly competitive fish firm. Suppose that at this level of output, the firm has average costs of production of ATC = 42. How much total economic profit will the firm earn? 3) A perfectly competitive firm will shut down...
When a perfectly competitive firm is earning profits in the short run, at the quantity produced,...
When a perfectly competitive firm is earning profits in the short run, at the quantity produced, price > average cost the firm's demand curve slopes downward minimum AVC > price existing firms will exit the market in the long run
Assume that the market for fertilizer is perfectly competitive. Firms in the market are producing output...
Assume that the market for fertilizer is perfectly competitive. Firms in the market are producing output but they are experiencing economic losses. Explain how ATC, AVC and MC are related (Note: the relationship of these cost curves is same whether there is loss or profit). Explain how the price of fertilizer compares to the ATC, AVC and MC of producing fertilizer Draw two graphs side by side illustrating the present situation for the single firm and the entire market. Cleary...
A firm sells its product in a perfectly competitive market where other firms charge a price...
A firm sells its product in a perfectly competitive market where other firms charge a price of $100 per unit. The firm’s total costs are C(Q) = 50 + 12Q + 2Q2. a. How much output should the firm produce in the short run? _____ units b. What price should the firm charge in the short run? $ _____ c. What are the firm’s short-run profits? $______   d. What adjustments should be anticipated in the long run? a. No firms...
A firm sells its product in a perfectly competitive market where firms charge a price of...
A firm sells its product in a perfectly competitive market where firms charge a price of $80 per unit. The firm’s cost are: Total Costs: C(Q) = 40 – 8Q + 2Qsquare Marginal Costs: MC(Q) = – 8 + 4Q a) How much should the firm produce in the short run (to maximize profits)? b) What are the firm’s short run profits or losses? (Profits = Revenue – Total Costs) c) What changes can be anticipated in this industry in...
If firms in a perfectly competitive industry are making zero economic profit, then a some of...
If firms in a perfectly competitive industry are making zero economic profit, then a some of those firms will leave the industry because firms cannot persistently go without making economic profit. b new firms will enter the industry, because the new entrants would be ensured of doing as well as in their best foregone alternative. c there is no incentive for either entry or exit. d some of the firms will temporarily shut down. e The supply curve shifts to...
QUESTION 9 In a perfectly competitive market, the current price is $8 per unit. The typical...
QUESTION 9 In a perfectly competitive market, the current price is $8 per unit. The typical firm in the market has ATC = $6.00 and AVC = $5.50. a. The firms will earn zero economic profits both in the short and long-run. b. New firms will enter this market in the long-run and the situation will eventually break even. c. There will be shut down in the short-run and exiting in the long-run. d. The firms will continue to operate...
The table below shows output, fixed, variable, and total costs for a firm in a perfectly...
The table below shows output, fixed, variable, and total costs for a firm in a perfectly competitive market. Output Fixed Cost (FC) Variable Cost (VC) Total Cost (TC) Avg. Fixed Cost (AFC) Avg. Variable Cost (AVC) Avg. Total Cost (ATC) Marginal Cost (MC) 0 5 0 1 7 2 10 3 9 4 19 5 25 1. Fill in the blank spaces in the fixed, variable, and total cost columns. Also complete the AFC, AVC, ATC, and MC columns (round...
A perfectly competitive firm will shut down in the short run when a. ATC > P...
A perfectly competitive firm will shut down in the short run when a. ATC > P > AVC. b. AVC > P > ATC. c. AVC > P. d. ATC > P.
Illustrate the model of a perfectly competitive firm that is in long-run equilibrium. Your graph should...
Illustrate the model of a perfectly competitive firm that is in long-run equilibrium. Your graph should have the demand curve facing the firm, price, MR, MC, and ATC. Identify the optimal level of output. What is the firm’s profit in the long-run?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT
Active Questions
  • Given a relational database that consists of the following relations: Performer (pid: integer, pname: string, years_of_experience:...
    asked 1 minute ago
  • Using Python: Write a program which includes functions to calculate the area, perimeter and diameter of...
    asked 8 minutes ago
  • CISP 400 C++ Programming    Please note, you are required to include the following when you...
    asked 19 minutes ago
  • During lunch hour, customers arrive at a fast food drive-through window, on average, every 2.9 minutes....
    asked 19 minutes ago
  • Support the storing of additional user information: street address (string), city( string), state (string), and 10-digit...
    asked 19 minutes ago
  • The United States Census Bureau uses demographic information to set a poverty threshold that is used...
    asked 34 minutes ago
  • 1. Give a well-reasoned explanation, with sufficient data, for your choice of method for each of...
    asked 45 minutes ago
  • Explain following terms .. a. Recursive function b. Base case of recursion      IN C LANGUAGE
    asked 51 minutes ago
  • You may need to use the appropriate appendix table or technology to answer this question. A...
    asked 54 minutes ago
  • Suppose this reaction proceeds as expected to give a mixture of diastereomers. How will that affect...
    asked 55 minutes ago
  • For each of the following, write a single statement that performs the indicated task. Assume that...
    asked 57 minutes ago
  • Write a Python program that computes the income tax for an individual. The program should ask...
    asked 1 hour ago