UK Number USA Number USA VIP Number Support Email

Give an example not mentioned in the book or lesson of an industry from which firms exited because profits were low.

by

  1. Give an example not mentioned in the book or lesson of an industry from which firms exited because profits were low.

  2. Give an example not mentioned in the book or lesson of an industry into which firms entered because profits were low.

  3. Create a pair of graphs to show an perfectly competitive industry and firm in long-run equilibrium. Put the graphs side by side and use the same vertical scale for both graphs.

    1. The left-hand side should show the supply and demand for the product. The equilibrium price is $25 and the equilibrium quantity is 20 billion units per week.

    2. The right-hand side should show the average total cost, marginal cost, and demand curves facing the individual firm. The profit maximizing quantity is 500 units per week.

  4. How many firms are in the market given the graphs you constructed? Assume that all firms have identical cost curves.



    Number of firms = _________

  5. When economic profit equals zero in a perfectly competitive market, in the long run the number of firms

    1. Increases

    2. Decreases

    3. Remains constant

Explain why your answer is correct.

 

Part II

 

Q ATC AVC MC
4 42.25 12.25 5
5 35.2 11.2 7
6 30.83333333 10.83333333 9
7 28 10.85714286 11
8 26.125 11.125 13
9 24.88888889 11.55555556 15
10 24.1 12.1 17
11 23.63636364 12.72727273 19
12 23.41666667 13.41666667 21
13 23.38461538 14.15384615 23
14 23.5 14.92857143 25
15 23.86666667 15.86666667 29
16 24.4375 16.9375 33
17 25.17647059 18.11764706 37
18 26.05555556 19.38888889 41

 

Use the cost data in L16b-IA, Costs. It contains average total cost, average variable cost, and marginal cost for a perfect competitor are output increases from 4 to 18.

 

  1. Plot the average variable cost, average total cost, and marginal cost curves.


  2. Use the graph to identify the quantity that maximizes profit when the market price is $25.


  3. Shade the area on the graph that equals profit when the market price is $25.


  4. When is the maximum profit greater than $0?

    The maximum profit is greater than $0 when the market price is above $_____


  5. Pick a price that is greater than a, your answer to 4, and less than $41.  The price must be an even number.



    Price = b = $____


  6. Use the table to identify the quantity that maximizes profit when price = b.



    Q = ___


  7. Use the table to calculate the maximum profit when price = b. Profit = $____


  8. Is the industry in long-run equilibrium when price = b?

    1. Yes

    2. No

Explain why or why not. If the industry is not in long-run equilibrium, describe what changes would occur in the long run and why.


  1. When will the firm produce output in the short run AND suffer economic loss? Profit will be negative and the firm will not shut down when price is between c = $___ and d = $___.


  2. Pick a price between c and d. The price must be an even number.



    Price = e = ____


  3. Use the table to identify the quantity that maximizes profit when price = e.



    Q = ___


  4. Use the table to calculate the minimum loss when price = e. Loss = $____


  5. Is the industry in long-run equilibrium when price = e?

    1. Yes

    2. No

Explain why or why not. If the industry is not in long-run equilibrium, describe what changes would occur in the long run and why.


 

  1. Why doesn’t the firm shut down when price = e? Explain your answer carefully.


  2. When will the firm shut down in the short run? The firm will shut down when price



    is below $___.


  3. What loss does the firm suffer when it shuts down? Loss = ____