Output decisions in the long run are less constrained than in the short run: Firms can choose their scale of plant and change any or all of its inputs. Firms are free to enter and leave the industry. Managers simultaneously make short-run and long-run decisions, making the best of the current constraints while planning for the future. We begin our discussion of the long run by looking at rms in three short-run circumstances: Firms that suffer economic losses but continue to operate to reduce or minimize those losses. Firms that decide to shut down and bear losses just equal to xed costs. Breaking even the situation in which a rm is earning exactly a normal rate of return. Total revenue (p = : normal return to investors. A pro t-maximizing perfectly competitive rm will produce up to the point where p*=mc. Pro t is the difference between total revenue and total cost.

Related Questions

1- All of the following statements apply to a purely competitive market in the long run, except:

A- In the long run, all inputs are variable in quantity.

B- Firms can expand their plant capacities in the long run.

C- Total fixed costs remain constant even when output expands in the long run.

D- Firms may enter or leave the industry in the long run.

2- Which of the following is true of normal profits?

A- They are necessary to keep a firm in the industry in the long run

B- They are zero under pure competition in the long run

C- They are excluded from a firm's costs of production

D- They are what attract other firms to enter an industry

3- -The long-run supply curve would be perfectly elastic when:

A- An increase in demand does not cause a change in product price

B- An increase in demand causes an increase in product price

C- A decrease in demand causes an increase in short-run supply

D- A decrease in demand causes an increase in product price

4- What happens in a decreasing-cost industry when some firms leave and the industry's output contracts?

A- The average cost will increase

B- The average cost will decrease

D- The total cost will decrease

C- The product price will decrease

5- Which of the following statements about a competitive firm is correct?

A-To maximize profits a competitive firm should produce at that output at which total revenue is greatest

B- In long-run equilibrium a competitive firm will produce at the point of minimum average costs

C- A competitive firm will produce in the short run so long as total receipts are sufficient to cover total fixed costs

D-A competitive firm will close down in the short run whenever price is less than the minimum attainable average total cost

6- When there is allocative efficiency in a purely competitive market for a product, the minimum price producers are willing to accept is:

A- Less than marginal benefit

B- Greater than marginal cost

C- Equal to the amount of efficiency or deadweight losses

D- Equal to the maximum price consumers are willing to pay

7- A patent is the legal right granted to a firm that allows it to:

A- Make copies of other firm's products

B- Be the sole buyer of a particular product or resource

C- Sell its new product exclusively for a set number of years

D- Be the exclusive distributor of a particular imported product

coffeeyellowjacket176

20) When price is less than average variable cost at the profit-maximizing level of output, a firm should: A) continue to produce the level of output at which marginal revenue equals marginal cost if it is operating in the long run. B) shutdown, because it cannot even cover all of its variable costs let alone its fixed costs if it stays in business. C) shutdown, because it will lose nothing in that case. D) continue to produce the level of output at which marginal revenue equals marginal cost if it is operating in the short run. 21) When price is greater than average variable cost but less than average total cost at the profit-maximizing level of output, a firm should: A) continue to produce the level of output at which marginal revenue equals marginal cost. B) shutdown to minimize its losses. C) reduce output to the level at which price equals average variable cost to minimize its losses. D) increase output to minimize its losses. 22) Assume that at the current market price, a perfectly competitive firm's profit-maximizing level of output yields total revenues that are just equal to total costs. Which of the following statements applies to this firm? A) The firm should increase its explicit costs to reduce its tax burden. B) The firm should shut down right now. C) The firm should continue to operate in the short run to minimize losses, but shut down if things don't improve over the long run. D) The firm is earning zero economic profit and should continue to operate. 23) The perfectly competitive firm's supply curve: A) coincides with its perfectly elastic demand curve. B) is the firm's average total cost curve above the shutdown point. C) is perfectly inelastic at the market price. D) is the firm's marginal cost curve above the minimum point on the AVC curve. 24) Assume there is a decrease in the market demand for a good sold by price-taking firms that are initially producing the profit-maximizing level of output. How will the market adjust over time? A) Firms will exit the market, causing price to rise until losses are eliminated. B) Firms will exit the market, causing price to fall until positive profits are eliminated. C) Firms will enter the market, causing price to fall until positive profits are eliminated. D) Firms will enter the market, causing price to rise until losses are eliminated. 25) What is the "most efficient capacity" for the perfectly competitive firm? A) The plant size for which Price = AR. B) The plant size at which LRAC is at its minimum. C) The plant size at which MR = MC. D) The plant size at which any of the SRATC curves are tangent to the LRAC curve.

greenrat247

Given the following short-run cost table (all numbers are in dollars) for Joe's widget business, which is in a perfectly competitive market; answer all questions.

Q Quantity of Output	TC Total Cost	TVC Total Variable Cost	ATC Average Total Cost	MC Marginal Cost
0	$30,000		no answer	no answer
1				$1,000
2		$3,000
3			$12,000
4	$41,000
5			$9,800
6				$12,000

a) Fill in all of the missing numbers above (fill in the blanks â note there are no numbers for ATC and MC when Q=0 (also round to the nearest cent).

b) State the total fixed cost for this business.

c) At what unit of output does Joe's widget business start to experience diminishing returns? And state your reason for your answer.

d) If the market price is currently $5,000 per unit, what output would Joe produce in the short-run in order to maximize its profits (or to minimize its losses). Clearly explain your answer.

e) Please explain clearly what Joe will do in the long-run?

periwinkledolphin922

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