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The Green Company produces chemicals in a perfectly competitive market. The current market price is $40. The firm's total cost is given by so that marginal cost is

A. Determine the firm's profit-maximizing output and profit. Show your calculations. (1+1+5 points)

B. What is the individual firm's supply curve? Show your calculations. (1+3 points)

C. Suppose that 100 firms currently serve this market. What is the equation for the market supply curve? Show your calculations. (1+2 points)

8. The CEO of a major automaker overheard one of its division managers make the following statement regarding the firm's production plans: To maximize profits, we must operate at the minimum point of our average total cost curve.If you were the CEO of the automaker, would you praise or chastise the manager? Explain.

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Chika Ilonah
Chika IlonahLv10
28 Sep 2019

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Related questions

A competitive firm's cost of production is C(Q) = 16Q - Q^2 + 4Q^3.

(a) Calculate and draw the firm's average and marginal cost functions. The firm's problem is to choose the quantity that maximizes profit, given an exogenous market price P.

(b) Does this problem satisfy the global second order condition?

For parts (c) and (d), assume that the market price is P=26.

(c) Calculate the quantities that satisfy the firm's first-order condition. Which of these quantities

satisfies the local SOC?

(d) Calculate the firm's profit-maximizing quantity. Justify your answer carefully. Calculate the

firm's highest attainable profit.

(e) Carefully draw the firm's supply curve. What is the lowest price at which the firm is willing to

produce? You should show the exact coordinates of the supply curve at that price and the exact

coordinates of the supply curve at the points where P=10 and P=26.

(f) In what circumstances should the firm choose Q=1/10?

(g) Calculate the firm's inverse supply function, for the range of quantities where the firm has

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.

1-7 True or False

1) In the short run, a perfectly competitive firm can earn positive, zero, or negative profit depending on the market price of the firm's output.

2)In the model of the perfectly competitive firm, the firm's fixed costs are equal to its implicit costs of production.

3)Assume the market price is greater than average total cost at the perfectly competitive firm's profit-maximizing level of output. In this case, the firm is earning positive economic profits, which act as an incentive for new firms to enter the market.

4)Assume that at the current level of output, price equals marginal revenue, but is less than average total cost. So long as price is greater than average variable cost, the firm should continue to operate in the short run to minimize its losses.

5)The fact that a firm is a price-setter does not ensure it will make a positive economic profit in the short run and over time.

6)Barriers to entry serve to limit the number of firms that operate in a particular market and, as 11) such, reduce the amount of total profit earned in the market.

7)In the prisoner's dilemma game, each player's dominant strategy is also the Nash equilibrium.

14-17 Multiple Choice

14) Marginal revenue is equal to:
A) the change in P x Q due to a one unit change in output. B) the change in quantity divided by the change in price.

C) the change in price divided by the change in output. D) price, but only if the firm is a price searcher.

15) In order to maximize its profits, a price-taking firm should produce the level of output at which:

A) marginal revenue = marginal cost. B) total revenue = total cost.

C) variable revenue = variable cost. D) average revenue = average cost.

16) Assume that there is an improvement in the technology used by firms in a perfectly competitive industry that is initially in long-run equilibrium. In the short run this would cause:

A) cannot be determined with the information given. B) no change in the firm's economic profit.
C) a decrease in the firm's economic profit. D) an increase in the firm's economic profit.

17) Assume at the firm's profit-maximizing level of output P = AVC. In this case, the firm will be:

A) incurring an economic loss. B) earning a positive economic profit.

C) earning economic profit = 0. D) breaking even.

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