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Chapter 23: Q. 5 (page 533)

Consider the information provided in Problem 23-4. Suppose the market price drops to only $5 per pizza. In the short run, should this pizza shop continue to make pizzas, or will it maximize its economic profits (that is, minimize its economic loss) by shutting down?

Short Answer

Expert verified

The pizza should still produce pizzas although the value declines to $5.

Step by step solution

01

introduction 

The market value is that the current price at which an asset or service is bought or sold. The factors of supply side obtain the cost about a commodity or product the value is the estimated about which quantity supply balances quantities required.
The value is employed to calculate consumer and economic surplus.

02

Given Information

The valuation have dropped only to one sandwich. Within the short run, should this store still make pizzas, or will it maximize its economic profits.

03

Explanation

If the market value falls to $5, the pizza parlor should still produce pizza since it's able to cover its a dynamic number. The hourly unit benefit for pepperoni stays consistent. Like a result, the contribution margin for sandwich will be$5. The estimate provides the average overheads of either a sandwich.

Thus, the pizzeria should still produce pizzas although the value declines to $5.

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Most popular questions from this chapter

Consider the diagram nearby, which applies to a perfectly competitive firm, which at present faces a market clearing price of \(20per unit and produces 10,000units of output per week.

a. What is the firm's current average revenue per unit?

b. What are the present economic profits of this firm? Is the firm maximizing economic profits? Explain.

c. If the market clearing price drops to \)12.50per unit, should this firm continue to produce in the short run if it wishes to maximize its economic profits (or minimize its economic losses)? Explain.

d. If the market clearing price drops to $7.50per unit, should this firm continue to produce in the short run if it wishes to maximize its economic profits (or minimize its economic loses)? Explain.

Two years ago, a large number of firms entered a market in which existing firms had been earning positive economic profits. By the end of last year, the typical firm in this industry had begun earning negative economic profits. No other events occurred in this market during the past two years.

a. Explain the adjustment process that occurred last year.

b. Predict what adjustments will take place in this market beginning this year, other things being equal.

If the government were to decide to limit the number of propane distributors to a handful of firms, would the propane-distribution industry still satisfy the characteristics of perfect competition? Explain.

Why do economists seeking to study industry entry and exit measure the number of firms instead of the number of establishments? (Hint: At which level are fundamentally independent economic decisions made by a business; the firm as a whole or an individual sales outlet of the firm?)

Describe what factors induce firms to enter or exit a perfectly competitive industry.
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