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Chapter 23: Q.14 (page 533)

Consider the firm discussed in Problem 23-13. If the firm were to produce the 12th unit and thereby incur hourly total costs of $65, what would be its marginal cost? Based on this answer and your answers to Problem 23-13, would producing 12 units maximize the firm's profits? What would be its hourly economic profits?

Short Answer

Expert verified

The economic profits would be negative.

Step by step solution

01

Introduction

The economic profit of a firm is determined by deducting complete income from all-out costs. The complete costs comprise both certain and express expenses. Unequivocal expense is the customary expenses of the firm like lease, pay rates to the workers and so on.

02

Explanation Part (1)

In the perfect competition, the cost line is the demand curve of the firm and it is equivalent to the typical income and minimal income of the firm. The perfect competition is a simply serious market type selling homogenous items.

03

Explanation Part (2)

The qualities of perfect competition are there are numerous vendors and purchasers in the market, firms got the opportunity of passage and leave importance whenever another firm can go into the market or a current firm can leave the market. Calculating the economic profits,

Economic profit = Total revenue - total cost

60-65=-5

Hence, the economic profits would be negative.

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Most popular questions from this chapter

If the price of a particular rare earth were actually to drop below its original level following entry of new firms even as market demand continued to increase, what type of industry would exist?

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.

In several markets for digital devices that can be viewed as perfectly competitive, steady increases in demand for the required minerals ultimately have generated long-run reductions in the market prices of these devices. Describe in words the types of adjustments that must have occurred in these markets to have brought about this outcome, and evaluate whether such digital-device industries are increasing, constant, or decreasing-cost industries.

Take a look at Figure 23-3. This figure uses the data in the table from Figure 23-2, which indicates that the area of the blue rectangle displaying hourly economic profits is $5 per period. What prevents this firm from continuing to produce the same number of units per hour but raising the price that it charges for each unit in order to enlarge the area of the profit rectangle?

Take a look at Figure 23-5, and suppose that the price per unit corresponding to the position of d2 is at $2.50 per unit and that the quantity at point E2 is exactly 5 units per hour. Calculate total revenues and total variable costs at point E2 and explain why it is called the short-run shutdown point.
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