Two firms in a local shopping center are losing money. Firm A has high fixed costs and relatively low variable costs. Firm B has low fixed costs and relatively high variable costs. Would you expect firm A to continue operating in the short run, despite losing money? Explain your answer. Would you expect firm B to continue operating in the short run, despite losing money? Explain your answer. Would you expect either firm to continue operating in the long run, despite losing money? Explain why a firm that is losing money would exit the market in the long run, despite continuing to operate in the short run.

Two firms in a local shopping center are losing money. Firm A has high fixed costs and relatively low variable costs. Firm B has low fixed costs and relatively high variable costs. Would you expect firm A to continue operating in the short run, despite losing money? Explain your answer. Would you expect firm B to continue operating in the short run, despite losing money? Explain your answer. Would you expect either firm to continue operating in the long run, despite losing money? Explain why a firm that is losing money would exit the market in the long run, despite continuing to operate in the short run.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter9: Market Structure And Long-run Equilibrium

Section: Chapter Questions

Problem 1MC

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Firms in the market for soccer balls are selling in a purely competitive market. A firm in the soccer ball market has an output of 5,000 balls, which it sells for $10 each. At the output level of 5,000 the average variable cost is $6.00, the average total cost is $7.50, and the marginal cost is $10.00. What would you expect the firm to do in the short run? Why? What would you expect the market to do in the long run? Why?
The market for fertilizer is perfectly competitive. Firms in the market are producing output but are currently making economic losses. Which of the following statements is true about the price of fertilizer? Check all that apply. The price of fertilizer must be less than average total cost. The price of fertilizer must be equal to average variable cost. The price of fertilizer must be less than marginal cost. The following graphs show the cost curves faced by a typical firm, the demand for fertilizer, and possible price and supply curves. Price and Costs a. a MC Firm ATC LAVO II Quantity Ⓒ Price 0 a Demand Market Quantity ?
Suppose the book-printing industry is competitive and begins in a long-run equilibrium. Then Hi-Tech Printing Company invents a new process that sharply reduces the cost of printing books. Suppose Hi-Tech's patent prevents other firms from using the new technology. Which of the following statements are true about what happens in the short run? Check all that apply. Hi-Tech's marginal-cost curve remains the same. Hi-Tech's profits increase. The price of books remains the same. Hi-Tech's average-total-cost curve shifts downward.
Complete the table above. Graph AVC , ATC, and MC on the same graph. Suppose market price is $30. How much will the firm produce in the short run? How much are total revenue? Suppose market price is $50. How much will the firm produce in the short run? What are total profits?
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Perfect competition is an extremely rare type of market in the real world. This is because the conditions necessary for perfect competition are difficult to meet. Write about an example of perfect competition (or at least a market that is very close to perfect competition). Find an example of a market that seems to be perfectly competitive. Explain how your example satisfies the four conditions necessary for perfect competition. Do sellers in the market you’ve described brand themselves to consumers? Does this support the idea that this market is perfectly competitive? Explain. Do different sellers in the market you’ve described charge different prices for their product? Does your answer support the idea that this market is perfectly competitive? Explain. Does it seem as if the example you mentioned is allocatively efficient? In other words, does the market produce enough of this good (or does it produce too much or too little)? Explain.
Firms in the market for soccer balls are selling in a purely competitive market. A firm in the soccer ball market has an output of 5,000 balls, which it sells for $10 each. At the output level of 5,000 the average variable cost is $6.00, the average total cost is $7.50, and the marginal cost is $10.00. What would you expect the firm to do in the short run? The market in the long run?
The marginal cost of supplying another unit of output of an electronic product on the internet is almost zero. If long-run equilibrium has price equals marginal cost, internet firms will all go broke. Can you resolve the puzzle?
You observed that in the long run, a profit-maximizing firm chose to exit a market. What can you infer about the profits of this firm?
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