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University of Southern California - ECON 351 1)Why would a firm that incurs losses choose to produce rather than shut down? Explain why the industry supply curve is not the long-run industry marginal cost curve
University of Southern California - ECON 351
1)Why would a firm that incurs losses choose to produce rather than shut down?
- Explain why the industry supply curve is not the long-run industry marginal cost curve.
3. Why do firms enter an industry when they know that in the long run economic profit will be zero?
- An increase in the demand for video films also increases the salaries of actors and actresses. Is the long-run supply curve for films likely to be horizontal or upward sloping? Explain.
- True or false: A firm should always produce at an output at which long-run average cost is minimized. Explain.
- Can there be constant returns to scale in an industry with an upward-sloping supply curve? Explain.
7. Suppose you are the manager of a watchmaking firm operating in a competitive market. Your cost of production is given by C = 200 +2 q2, where q is the level of output and C is total cost. (The marginal cost of production is 4q. The fixed cost of production is $200.)
- If the price of watches is $100, how many watches should you produce to maximize profit?
- What will the profit level be?
- At what minimum price will the firm produce a positive output?
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8 |
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. Suppose that a competitive firm’s marginal cost of producing output q is given |
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by MC(q) = 3 + 2q. Assume that the market price of the |
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firm’s product is $9. |
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a. |
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What level of output will the firm produce? |
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b. |
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What is the firm’s producer surplus? |
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MC |
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q |
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= 3 + |
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2 |
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q |
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Producer’s |
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Surplus |
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P |
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= |
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$ |
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9.00 |
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Producer |
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Surplus |
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c. |
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Suppose that the average variable cost of the firm is given by AVC(q) = 3 + q. |
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firm |
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be |
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Suppose |
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that |
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the |
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firm’s |
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fixed |
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costs |
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are |
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known |
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to |
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be |
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$3. |
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Will |
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the |
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earning a positive, negative, or zero profit in the short run? |
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Expert Solution
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