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Economics 2301 Assignment 7

Economics 2301 Assignment 7. Tony Lima. Chapter 9, Q. 2. Chapter 9, Q. 2 answer. The company will produce where P = MC as long as P > minimum AVC. Minimum AVC is 39.17 at Q = 6. At P = 0, 11, 23, 31 the firm will produce no output and profits will be equal to -50 (minus fixed cost).

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Economics 2301 Assignment 7

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  1. Economics 2301Assignment 7 Tony Lima

  2. Chapter 9, Q. 2

  3. Chapter 9, Q. 2 answer • The company will produce where P = MC as long asP > minimum AVC. • Minimum AVC is 39.17 at Q = 6. • At P = 0, 11, 23, 31 the firm will produce no output and profits will be equal to -50 (minus fixed cost).

  4. Chapter 9, Q. 2 answer • At P = 42 the firm will produce 7 units of output because P = 42 > 40 = MC. Profit = -31 • At P = 52 the firm will produce 8 units of output because P = 52 > 50 = MC. Profit = 41 • At P = 63 the firm will produce 9 units of output because P = 63 > 60 = MC. Profit = 132 • At P = 73 the firm will produce 10 units of output because P = 73 > 70 = MC. Profit = 225

  5. Chapter 9, Q. 2 answer

  6. Chapter 9, Q. 3

  7. Chapter 9, Q. 3

  8. Chapter 9, Q. 3 answer • The company will produce where P = MC as long asP > minimum AVC. • Minimum AVC is 38.67 at Q = 6. • At P = 0, 16, 25 the firm will produce no output and profits will be equal to -50 (minus fixed cost).

  9. Chapter 9, Q. 3 answer • At P = 40 the firm will produce 6 units of output because P = 40 > 36 = MC. Profit = -42 • At P = 51 the firm will produce 7 units of output because P = 51 > 48 = MC. Profit = 27 • At P = 62 the firm will produce 8 units of output because P = 62 > 60 = MC. Profit = 106 • At P = 75 the firm will produce 9 units of output because P = 75 > 72 = MC. Profit = 213 • At P = 86 the firm will produce 10 units of output because P = 86 > 84 = MC. Profit = 314

  10. Chapter 9, Q. 3 answer

  11. Chapter 9 Q. 3 answer

  12. Chapter 9, Q. 8 answer • I apologize for assigning this question. • If you had trouble with it, don’t worry about it. • If you spent a lot of time on it, I apologize again.

  13. Chapter 9 Q. 13

  14. Chapter 9 Q. 13 answer • A. TR = $1,500 TC = $1,500 TFC = $500 • TR = $1,500 > $1,000 = TVC. • TVC = TC – FC = $1,500 - $500 = $1,000. • This means the firm should keep operating. • TR = TC so the firm’s economic profit is zero. The firm is earning a normal rate of return on investment, so it will continue operating as it is currently unless some factor changes.

  15. Chapter 9 Q. 13 answer • B. TR = $2,000 TC = $1,500 TFC = $500 • TR = $2,000 > $1,000 = TVC. • TVC = TC – FC = $1,500 - $500 = $1,000. • This means the firm should keep operating. • TR > TC so the firm’s economic profit is positive ($500). The firm is earning positive economic profit, so it will expand the scale of its operations.

  16. Chapter 9 Q. 13 answer • C. TR = $2,000 TC = $2,500 TFC = $200 • TR = $2,000 < $2,300 = TVC. • TVC = TC – FC = $2,500 - $200 = $2,300. • This means the firm should temporarily shut down. • TR < TC so the firm’s economic profit is negative (-$500). The firm is earning negative economic profit, so it will contract the scale of its operations and may exit the business in the long run.

  17. Chapter 9 Q. 13 answer • D. TR = $5,000 TC = $6,000 TFC = $1,500 • TR = $5,000 > $4,500 = TVC. • TVC = TC – FC = $6,000 - $1,500 = $4,500. • This means the firm should keep operating in the short run. • TR < TC so the firm’s economic profit is negative (-$1,000). The firm is earning negative economic profit, so it will contract the scale of its operations and may exit the business in the long run.

  18. Chapter 9 Q. 13 answer • E. TR = $5,000 TC = $7,000 TFC = $1,500 • TR = $5,000 < $5,500 = TVC. • TVC = TC – FC = $7,000 - $1,500 = $5,500. • This means the firm should shut down in the short run. • TR < TC so the firm’s economic profit is negative (-$2,000). The firm is earning negative economic profit, so it will contract the scale of its operations and may exit the business in the long run.

  19. Chapter 9 Q. 13 answer • F. TR = $5,000 TC = $4,000 TFC = $1,500 • TR = $5,000 > $2,500 = TVC. • TVC = TC – FC = $4,000 - $1,500 = $2,500. • This means the firm should keep operating in the short run. • TR > TC so the firm’s economic profit is positive($1,000). The firm is earning positive economic profit, so it will expand the scale of its operations.

  20. Chapter 9 Q. 14

  21. Chapter 9 Q. 14 answer • At Q = 5, P = $18 > $17 = MC. • TR = $90 TC = $95 Profit = -$5 • TR = $90 > $73 = TVC. • This means the firm should keep operating in the short run. • TR < TC so the firm’s economic profit is negative(-$5). The firm is earning negative economic profit, so it will contract the scale of its operations and possibly exit the industry.

  22. Ch. 9 Q. 17

  23. Ch. 9 Q. 17 answer • The trick is to realize that demand will increase first. That will raise the market price in the short run, creating positive economic profits. • But, since the industry is constant cost, the long-run price must remain at $6. Therefore, the supply curve will shift out just enough to return the price to $6.

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