Q. 6 Yesterday, a perfectly competiti... [FREE SOLUTION]

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Chapter 23: Q. 6 (page 533)

Yesterday, a perfectly competitive producer of construction bricks manufactured and sold $10, 000$ bricks per week at a market price that was just equal to the minimum average variable cost of producing each brick. Today, all the firm's costs are the same. but the market price of bricks has declined.
a. Assuming that this firm has positive fixed costs, did the firm earn economic profits, economic losses, or zero economic profits yesterday?
b. To maximize economic profits today, how many bricks should this firm produce today?

Short Answer

Expert verified

(a) Manufacturer wasn't able to earn profit at that time of your time.

(b) To maximizes economic profit (or minimize economic losses), quantity to be produced must be a degree

Step by step solution

Introduction

Thevalue is that the current price at which an asset or serviceare often bought or sold. Thevalue of an asset or serviceis decided by the forces of supply and demand.the worth at which quantity supplied equals quantity demandedis that the market value. Thevalue is employed to calculate consumer and economic surplus.

Given Information (a)

The firm has positive fixed costs, did the firm earn economic profits, economic losses, or zero economic profits yesterday.

Explanation (a)

a) Yesterday when the manufacturer sold 10,000 bricks at a value that was just up to the minimum average variable cost of manufacturing each brick; it implies that the manufacturer wasn't ready to recover the charge.

Also if thevalue of saleis simply adequate the minimum average variable costof manufacturing each brick, manufacturerwasn't able to earn profit atthat time of your time.

Given Information (b)

The firm's costs are the identical. but the value of bricks has declined.

Explanation (b)

b) Today, all the firm's costs are the identical but the value of bricks has declined, it implies that besides fixed charge, variable costis additionally not being recovered.
Thus, so as to maximizes economic profit (or minimize economic losses), quantity to be produced must be a degree where $P = M C$ that's price is adequate to cost of production and also the $M C$ is rising thereafter.