Questions and Problems

Check Your Understanding

  1. Question

    FJJPKakekQgarB7sFSC5WHv64FcTIwuklrySZZkzYjZNJAMV21LeHTOa2OYINymw00nLVZez2SfaILDuemL2e4dare6PZAZn84dbVykUdZy75g2TK80VOm5gEuw6tO5Rru96Nw==
    Prob 8 1. Why must price cover average variable costs if the firm is to continue operating?
  2. Question

    XxJaslMwDe950jPblxZWDUlztKJ4gWHzeQIvAzSbFhpKRoUwZ2MIppbtYbrdtMkH1MJC+Ja5T/c2hJ7Ini38nc5PRhmRsdXJMSBCcXXRIQ4HX+0cBx4s8nrSPSljEy4iWgZSEuG5gnyZJZIe5Mr4Y3bxUsgMpGWd2bvjlWU75oKWjo30Vlb8/OrKFzZiWnCoVMnQTZooiRlUHTt/ZDK3b7wiaYAw+2VsRDjsz/nHjZqaCq8R
    Prob 8 2. Why do perfectly competitive firms sell their products only at the market price? Why not try to raise prices to make more profit or lower them to garner more sales?
  3. Question

    Du4+I+2l83BKBnoWeUFwu/zwduzTYSG8Ro7IKIGq5i5tYSJvlYZ5zDEzd9MjoShQgzbcT1ps7Af+QVHFlXe1qqu4B2zWqwlJPaKJIAcGAn0Y/CYQi/E+T+3YZCfmuMQPdgYxDJUnagwyi/Hg
    Prob 8 3. Describe the role that easy entry and exit play in competitive markets over the long run.
  4. Question

    Y5Q9v3/lU0ayxxaKqaCV9I6MOMX6FsivGL5ft+4tvyhk5s8ZGv5ebZPwXSfcPDJ+4KjGQA8KrMSOBGuJVgDWaw6bKzTff54kcrQq2JnRV9J+xiXXM9hhwVNjEKs=
    Prob 8 4. Why are marginal revenue and price equal for the perfectly competitive firm?
  5. Question

    RcLP7/rzrHvOkQgWn0maoVtgQBs1BTOdnwZUTdfGsUxiov4igJ7lM0wUYVt8lx2YHS13LtfDqxARfVDgLH50A2uAwb8qfCI0wXye0dlHocqPsgcpYFi3kalt3Uf1QXnVut6o57hWFdWgPT2WQk4ShFZGl4NfKq3qTIyvWJXTnNm3tH5eXbZP8A==
    Prob 8 5. Why, if competitive firms are earning economic profits in the short run, are they unable to earn them in the long run?
  6. Question

    UpEj5k4iM/BoIs7BUGoyHCM9QKDn60nFAOXo/GFDBj/TvcASlVopRotHbc4vWkwfiD83p70YcWeanwpQOxOa00BVoBi6vHhMsJ2yFrV+STbjBuF5k010qTEFzths1f9/rZ5ZtspsElDbc++AStti9G8iKzwA+pV9qVFrCWD9WwJ14fmLVn4p/vusZ0o=
    Prob 8 6. Describe the reasons why an industry’s costs might increase in the long run. Why might they decrease over the long run?

Apply the Concepts

  1. Question

    aQqQmUZsrkYbQESFHugvZNKPmjlL5VGaMSlgNFpYfxG+cTIg39Xmlv8j6ouUa7Iuc39MSzTY1SL1k3EYNWF+JkSAPGoip4A/Ih3XoctRHFayBhmqX+oTiaj8dBBdJjZG09yGkt5dIPg1W7J9DcWlaeDZFH/lBEvYe3RjGtYeBQYZARELoqx6FtZ+MOx8lvcWfV6BOH8Rqmofu7pL7YhD65B4r+UquVclq4tVLbAMznXMIuD/+xp+N2x07iXTAvwT8wDOdmZi+zp9bxeGTcEiMIobF6MMDHNK/b5Gqa7dxXHObPedZKXknHDjoKmhJzz5FoXfcCHyv96olZsqAvC0/asI/bM9vsxx9wzO2FQ7OTI=
    Prob 8 7. When a sports team consistently struggles, one strategy is to replace the coach. But when this happens, the new coach initially has the same players (its primary input). How can a new coach improve the team’s record when the players are mostly the same?
  2. Question

    R2GJWalmneeh87V6uMgHnsqZP/BXqnmDxz8Zlb0kbqmSgzys+ZgY2IqF8m+lkx1jqDCjvSMXXogVEx1I3ne8wXj9SzTWXgZLiu9CX11UWLtFqUtueWulHg==
    Prob 8 8. How is the short-run supply curve for the competitive firm determined?
  3. Question

    /GrLeeuU7UHTpL4ob2vilVb5FgQY9lyAfyYZrjQYEhSIlbliCPHIuhU+oztIugET2s4oyherdL8Ip1xIm87It1Oo1gqJeGkiBFnhMESFiAVki5O8+6D2QXIUKq25Eq/l/fb6Wl6Nph3ZxdWgXOYSUrSFe5Z9q7NmRytv1Sbj9QpUBQSg83NnbV8LesDETOTIM0BnmnerNMmA0a5ZBqfq0kk6w/dRk41WkQ/pqZ/hiJdI1qQHu4JkH6VB6CJvVrmT29oNHIkB8oPDYukvpvB+gxeb1xSHvk00CKB/rkkNh+33pfL3yVdAhbPxXLR5RUKDEcmhmke1wuwiFLCRk9mdAmF39heRMy58FBhcnD38iqr0vHARpKqYd2PPTUPnND+nXZqmelnt27d0YxMz/UTBWYacaI1YRthul0z6VHn53uzi6gWgs9wrWDX65J6ib5XKP7iKECIUG2ZkUC9+26Z9wzFKRsxPPMBjJH524A==
    Prob 8 9. Suppose you master the art of growing herbs in your garden and selling them for profit at the local farmer’s market. Your neighbor sees your profitable business and decides to do the same, however with less experience he faces a much higher marginal cost curve. How is it possible for both you and your neighbor to sell herbs at the same price?
  4. Question

    ThRP0FVpn70W0/OIqp5Brqbs3lbSfHAHauO9gnyn6RCZbc5aReCFg5YABZljuQy2gE3pwugerVnePDgeyvOLwwbWzkw778s7wRClSuwA3TGhsmtelb+JWrx/NBPoQGQEqbq3Muj3GTVgk3viy75yhaR1MEtc5q8tRmQ0AY5S/OXATxZO6BgpLhd1/cVjZ83gvOZd0OCc+towikPAHeYrcr5H9R1X3TmSnlkuG1ypesZmlqYGSbMseb75tR9S2vnndtNcP5jtdSzR22DgtcYQTsqKI/cVnH2NAdwMRkVGbIGHeQe1RmVI4qQkGaTWvSS2toOzjD4dfx6ffoQyPTY5rJmMmA2rqKKbiTEkmyxMh8cjliA5NaNEhLCRmnBjb6f0ZgNbc4J+pbwT6HMotr4nAob4vpU/B42pJEtq7cWDLChBqQrh
    Prob 8 10. Assume a competitive industry is in long-run equilibrium and firms in the industry are earning normal profits. Now assume that production technology improves such that average total cost declines by $5 per unit. Describe the process this industry will go through as it moves to a new long-run equilibrium.
  5. Question

    XDF5Oetk5krZHsiHOxvqzTL0XuOmuULkzoyzLA8UCgu8odnvCPa4w1YhUuDcY6hgA9mrUq/aLieoxX/xsNCU3sf1qASJz3mSS6QXNdwC9DpnT7+NK5lEm+k/COx5uT3B4IsDnyZA5vhjJnYpY3Ya4d0H5HR4w3DH+7Q2Dw==
    Prob 8 11. When a competitive firm is earning economic profits, is it also maximizing profit per unit? Why or why not?
  6. Question

    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
    Prob 8 12. In this chapter we suggested that whenever market price fell below average variable costs, the firm would shut down. At that point revenue is not covering its variable costs and the firm is losing more money than if it just shut down and lost fixed costs. Clearly, shutting the firm is more complicated than that. Under what circumstances might the firm continue to operate even though prices are below average variable costs?

In the News

  1. Question

    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
    Prob 8 13. A January 25, 2012, article in The New York Times describes how more states are attempting to pass legislation to collect sales tax on Internet sales (sometimes dubbed the Amazon Tax) even when the seller does not have a physical presence in that state. Given the intense competition between online retailers and physical (brick-and-mortar) stores, how would such laws affect competition? Would brick-and-mortar stores be better off ? How about customers? Why or why not?
  2. Question

    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
    Prob 8 14. An April 19, 2012, article by Art Carden in Forbes entitled “Let’s Be Blunt: It’s Time to End the Drug War” argues that legalizing marijuana is a key solution to ending the drug war. He argues that turning the industry into a competitive market would force cost-inefficient drug cartels to exit the market. Using what you know about competitive markets and firm entry and exit, explain the economics behind the author’s theory.

Solving Problems

  1. Use the following figure for a firm in a perfectly competitive market.
    1. Question

      FqyB/DOCER/oZjQ0hMbZev44mo+cDohC28fkjwz3nzKIXl2x3KhNGTsvSWg1dRuTG+NjDzAxTJ/Z+pXC9UaYUJmJVWSzw+kn
      Prob 8 15a. What is the output that maximizes the firm’s profit?
    2. Question

      4gXtoaqlgxC0dWtrKdfDEoZrI+nX4vE26CcoqlWGwUEniWRqXXt8wjGOU/6GHsbv4cATy2d7ddCbTCTGoOUi1vX3aHrUJbX4g7r4/pGIHnNRuQGpZrK1QQ==
      Prob 8 15b. At the profit-maximizing output, calculate total revenue and total cost.
    3. Question

      by1/0Mk7gNhyBM6DK6uJcBJWUJaQT3zAKSWrTmCHxL49X9kyB2eNnSTyndg7CaO8bTu+4sS8FZvNEIcqYZB3f6AvtiQ7i9bMJn4siQ==
      Prob 8 15c. If the firm maximizes profit, how much profit does it earn?
    4. Question

      Q5h8uPPh02/tt3Ntv2+DMnTzu7+ZLlkL7jOGH8L8JI5hRjeS+MQHTKqEVVxJR2SIDFIp4WBOXLUxM/N+2pe9FpQEShI5GpukT85mNbrKlHwiBKjlL4lRj6msQ98=
      Prob 8 15d. What will likely happen to market demand or market supply in the long run?
    5. Question

      6iINzECfzu6eMYDbhIlW8bE1w6UD+SBjT6Hs1END1yEoWoPSThX/NjWJmnHk3WLgvmn50YNhTkM4UIpOQ7a+PGxsJ+jDULYNSY6IDg==
      Prob 8 15e. What will likely happen to the market price in the long run?
  2. Use the figure below to answer the following true/false questions:
    1. Question

      wiiyXQ49tmHdjFF+pNBix6jwA8VSWVfR3XBYMA+rd7WHpOHkoGxZctf0X8TwBvd/LKmi3Fq7HSE3GfTCzF+0KbBAUeWwzZWM
      Prob 8 16a. If market price is $25, the firm earns economic profits.
    2. Question

      8Ws1VLwu/ADSpXyI4ymAb+rjR+GymNpZgGw5BPIugaytZTRzuPpCKr0Hau6mU1ilTN1bZ3TE08X0HQmlVfSETRkf1EdnpXfazzubbAVLZ0gYKJIkbaNajllufQ1RyJsJ
      Prob 8 16b. If market price is $20, the firm earns economic profit equal to roughly $100.
    3. Question

      +TL4rL7cQYNhr65ad3rNfN/+JjcCoPiheuJ7SyTay6fHDbCO3LmgqpFXTHucCAoXIlAMhX56eQsoW/puDOnceaYNr9PYPM6DL7w9nw==
      Prob 8 16c. If market price is $9, the firm produces roughly 55 units.
    4. Question

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      Prob 8 16d. If market price is $12.50, the firm produces roughly 70 units and makes an economic loss equal to roughly $210.
    5. Question

      E8aFoJYylvehWV9UWFG4l64NCuQvZlULLX5B7N8W8unCHC2cZ/Ikew8ePKWcKXWqJh+ZXk0s4WlZJcji5WdVBCdolVg=
      Prob 8 16e. Total fixed costs for this firm are roughly $100.
    6. Question

      7KRPla51+aacX1P0ZIWbeS7ZU8TMxWTh7T+0CVm73HP/LUKyzr5UHW8rIPSEnP5RDvYcA13TcBpOour81xIaIh35br87r2pZ+G3e4AvjlKsoG3cPgpny5vYNSGs=
      Prob 8 16f. If market price is $15, the firm sells 80 units and makes a normal profit.

  1. Question

    lGN9ir4y3mlSHmOQQz1dGyhB82EO4gEBnKuhbTb2izN0FN5utrUX1mCtAqk3KThqgNx/2J0iKgSL5l5fiubtNCMOV6quW/BdoPwlkUFHYJOFAkChlFYc3GmJrjpo8Ptx/YbUanOR1qDdt4jl6Lx0sr3DlKd0W/l/BKTdZZ6meB4iedentmE4pHry7a/EWn51eY06bwADrt+FoXHyw0MPXc7h3h6iq/nMNcrm8ExIh5+CzVJoU7x80x8yLRk5+yhmHOLErGvlq9Vb14bkP4HuPbFKBjUAprkSuxZTSPdpfuXsZ2XH+hCDaywzBK6LxszSqPOnKn8Q25yZUrZ1N97WM1AdsMk=
    Prob 8 17. According to By the Numbers, which two regions employ the highest number of people in the farm and farm-related industries? Approximately how many total persons are employed in the farm and farm-related industries in these two regions combined?
  2. Question

    my0jjNUxZIirPXDxYH/Ab+mk855KaVhavtI0aK4P6SaPBZouuip7ZxVmGCkRlDZBSjX8OfR5N/q1+PF2HSnFxn840kFp53zXn71RaL9ARa+l7XMv0WrtX8GCdMGoY/0nC5GcNrfTgY/5yZNBL3DyfKnG5pp7FSBMKFdaeZd8Q6+LP0GfLGcxDwf+SU9BWaGHEAAq3maOrCg11TJJeEEvvvBabXq5zKdC
    Prob 8 18. According to By the Numbers, in which year (since 1986) did the following crops reach their highest and lowest prices per bushel: corn, wheat, soybeans?