Consider Bobs Blu-ray company described in Problem 3. Assume that Blu-ray production is a perfectly competitive industry.
Question:
Consider Bob’s Blu-ray company described in Problem 3. Assume that Blu-ray production is a perfectly competitive industry. For each of the following questions, explain your answers.
a. What is Bob’s break-even price? What is his shut-down price?
b. Suppose the price of a Blu-ray is $2. What should Bob do in the short run?
c. Suppose the price of a Blu-ray is $7. What is the profit-maximizing quantity of Blu-rays that Bob should produce? What will his total profit be? Will he produce or shut down in the short run? Will he stay in the industry or exit in the long run?
d. Suppose instead that the price of Blu-rays is $20. Now what is the profit-maximizing quantity of Blu-rays that Bob should produce? What will his total profit be now? Will he produce or shut down in the short run? Will he stay in the industry or exit in the long run?
Step by Step Answer:
a Bobs breakeven price is the price at which total revenue equals total cost resulting in zero profi...View the full answer
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