Suppose firms are producing in a perfectly competitive market of clock. The market demand drops such...

 

Transcribed Image Text:

Suppose firms are producing in a perfectly competitive market of clock. The market demand drops such that the marginal revenue shifts down from MR' to MR. The following graph represents the short-run situation of a typical firm of this industry: Price and cost (dollars per clock) $16 MC $12 $1 ATC MR' AVC MR $9 $6 Quantity (clocks per months) 75 90 100 120 a. How much output should the firm produce to maximize her profit in the short run after the marginal revenue drops to MR? (2 points) b. How much economic profit will the firm earn when she produces at the output level given in answer (a)? (2 points) c. What would be the loss of the firm, if she decides to shut down? Explain. (6 points) d. Suppose the firm has a minimum long-run average cost when the output is Q=100. What is the long-run marginal cost at Q = 100? (2 points) e. Suppose this is a constant-cost industry. Discuss what would happen to the long-run competitive equilibrium (with free entry and exit). What would be the long-run equilibrium market price and output produced from a typical firm? Explain your answer with aid of diagram. (8 points) Suppose firms are producing in a perfectly competitive market of clock. The market demand drops such that the marginal revenue shifts down from MR' to MR. The following graph represents the short-run situation of a typical firm of this industry: Price and cost (dollars per clock) $16 MC $12 $1 ATC MR' AVC MR $9 $6 Quantity (clocks per months) 75 90 100 120 a. How much output should the firm produce to maximize her profit in the short run after the marginal revenue drops to MR? (2 points) b. How much economic profit will the firm earn when she produces at the output level given in answer (a)? (2 points) c. What would be the loss of the firm, if she decides to shut down? Explain. (6 points) d. Suppose the firm has a minimum long-run average cost when the output is Q=100. What is the long-run marginal cost at Q = 100? (2 points) e. Suppose this is a constant-cost industry. Discuss what would happen to the long-run competitive equilibrium (with free entry and exit). What would be the long-run equilibrium market price and output produced from a typical firm? Explain your answer with aid of diagram. (8 points)

Answer rating: 100% (QA)

e The Lng run suly urve f ... View the full answer