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# Economics 2301 Assignment 7 - PowerPoint PPT Presentation

Economics 2301 Assignment 7. Tony Lima. Chapter 9, Q. 2. Chapter 9, Q. 2 answer. The company will produce where P = MC as long as P > minimum AVC. Minimum AVC is 39.17 at Q = 6. At P = 0, 11, 23, 31 the firm will produce no output and profits will be equal to -50 (minus fixed cost).

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### Economics 2301Assignment 7

Tony Lima

• The company will produce where P = MC as long asP > minimum AVC.

• Minimum AVC is 39.17 at Q = 6.

• At P = 0, 11, 23, 31 the firm will produce no output and profits will be equal to -50 (minus fixed cost).

• At P = 42 the firm will produce 7 units of output because P = 42 > 40 = MC. Profit = -31

• At P = 52 the firm will produce 8 units of output because P = 52 > 50 = MC. Profit = 41

• At P = 63 the firm will produce 9 units of output because P = 63 > 60 = MC. Profit = 132

• At P = 73 the firm will produce 10 units of output because P = 73 > 70 = MC. Profit = 225

• The company will produce where P = MC as long asP > minimum AVC.

• Minimum AVC is 38.67 at Q = 6.

• At P = 0, 16, 25 the firm will produce no output and profits will be equal to -50 (minus fixed cost).

• At P = 40 the firm will produce 6 units of output because P = 40 > 36 = MC. Profit = -42

• At P = 51 the firm will produce 7 units of output because P = 51 > 48 = MC. Profit = 27

• At P = 62 the firm will produce 8 units of output because P = 62 > 60 = MC. Profit = 106

• At P = 75 the firm will produce 9 units of output because P = 75 > 72 = MC. Profit = 213

• At P = 86 the firm will produce 10 units of output because P = 86 > 84 = MC. Profit = 314

• I apologize for assigning this question.

• If you spent a lot of time on it, I apologize again.

• A. TR = \$1,500 TC = \$1,500 TFC = \$500

• TR = \$1,500 > \$1,000 = TVC.

• TVC = TC – FC = \$1,500 - \$500 = \$1,000.

• This means the firm should keep operating.

• TR = TC so the firm’s economic profit is zero. The firm is earning a normal rate of return on investment, so it will continue operating as it is currently unless some factor changes.

• B. TR = \$2,000 TC = \$1,500 TFC = \$500

• TR = \$2,000 > \$1,000 = TVC.

• TVC = TC – FC = \$1,500 - \$500 = \$1,000.

• This means the firm should keep operating.

• TR > TC so the firm’s economic profit is positive (\$500). The firm is earning positive economic profit, so it will expand the scale of its operations.

• C. TR = \$2,000 TC = \$2,500 TFC = \$200

• TR = \$2,000 < \$2,300 = TVC.

• TVC = TC – FC = \$2,500 - \$200 = \$2,300.

• This means the firm should temporarily shut down.

• TR < TC so the firm’s economic profit is negative (-\$500). The firm is earning negative economic profit, so it will contract the scale of its operations and may exit the business in the long run.

• D. TR = \$5,000 TC = \$6,000 TFC = \$1,500

• TR = \$5,000 > \$4,500 = TVC.

• TVC = TC – FC = \$6,000 - \$1,500 = \$4,500.

• This means the firm should keep operating in the short run.

• TR < TC so the firm’s economic profit is negative (-\$1,000). The firm is earning negative economic profit, so it will contract the scale of its operations and may exit the business in the long run.

• E. TR = \$5,000 TC = \$7,000 TFC = \$1,500

• TR = \$5,000 < \$5,500 = TVC.

• TVC = TC – FC = \$7,000 - \$1,500 = \$5,500.

• This means the firm should shut down in the short run.

• TR < TC so the firm’s economic profit is negative (-\$2,000). The firm is earning negative economic profit, so it will contract the scale of its operations and may exit the business in the long run.

• F. TR = \$5,000 TC = \$4,000 TFC = \$1,500

• TR = \$5,000 > \$2,500 = TVC.

• TVC = TC – FC = \$4,000 - \$1,500 = \$2,500.

• This means the firm should keep operating in the short run.

• TR > TC so the firm’s economic profit is positive(\$1,000). The firm is earning positive economic profit, so it will expand the scale of its operations.

• At Q = 5, P = \$18 > \$17 = MC.

• TR = \$90 TC = \$95 Profit = -\$5

• TR = \$90 > \$73 = TVC.

• This means the firm should keep operating in the short run.

• TR < TC so the firm’s economic profit is negative(-\$5). The firm is earning negative economic profit, so it will contract the scale of its operations and possibly exit the industry.

• The trick is to realize that demand will increase first. That will raise the market price in the short run, creating positive economic profits.

• But, since the industry is constant cost, the long-run price must remain at \$6. Therefore, the supply curve will shift out just enough to return the price to \$6.