Homework answers / question archive / 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

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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?

2. 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?

4. 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.
5. True or false:  A firm should always produce at an output at which long-run average cost is minimized.  Explain.
6. 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.)

1. If the price of watches is $100, how many watches should you produce to maximize profit?
2. What will the profit level be?
3. At what minimum price will the firm produce a positive output?

 

8

.  Suppose that a competitive firm’s marginal cost of producing output q is given

by MC(q) = 3 + 2q.  Assume that  the market price of the

firm’s product is $9.

a.

What level of output will the firm produce?

,

b.

What is the firm’s producer surplus?

-

Price

1

2

3

4

5

6

7

8

9

10

1

2

3

4

MC

(

q

)

= 3 +

2

q

Producer’s

Surplus

P

=

$

9.00

Producer

Surplus

c.

Suppose that the average variable cost of the firm is given by AVC(q) = 3 + q.

firm

be

Suppose

that

the

firm’s

fixed

costs

are

known

to

be

$3.

Will

the

earning a positive, negative, or zero profit in the short run?

.