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Student Workbook Chapter 11 (pdf) - Course Sidekick
Student Workbook Chapter 11
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Home / Economics
Chapter
11
Managerial D
Competitive
Learning Objectives
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After reading Chapter 11 you should be able
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Student Workbook Chapter 11 (pdf) - Course Sidekick
After reading
Chapter 11 you should be able
ATC)
ATC =economic
Profit m
Ø
Economic
Average
profit
profit
Q revenue
Q=P=
− Total
Key Formulas= =Qππ(P= −Total
11.1 Discuss three
characteristics
of perfec
Chapter
11: Managerial Decisions
in Co
217 facin
11.2 Explain why the demand curve
perfectly elastic and serves as the firm
11.3 Find short-run profit-maximizing outpu
curves, and identify the amount of prod
11.4 Explain the characteristics of long-run
derive long-run industry supply curves
producer surplus.
11.5 Find the profit-maximizing level of usag
11.6 Employ empirically estimated or fore
average variable cost, and marginal c
maximizing output and profit.
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Student Workbook Chapter 11 (pdf) - Course Sidekick
Ø Profit is denoted by π ,
where π = TR − TVC − TFC
Ø Producer surplus = TR − TVC
ΔTR MR
Ø Marginal revenue product (MRP): MRP =
=
ΔI
where I is the level of usage of a particular input.
TR PQ
ARP
Ø Average revenue product (ARP):
=
=
=P
L
L
where L is labor.
Matching Definitions of Key Terms
average profit 396
average revenue product (ARP)
424
break-even points 401
constant-cost industry 413
economic rent 421
increasing-cost industry 413
long-run competitive equilibrium
412
1. ___________________ A market structure in
homogenous product or s
and each firm is a price-ta
2. ___________________ The demand facing a price
3. ___________________ A firm produces zero outp
4. ___________________ Price minus average total
5. ___________________ Output levels where P = A
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Student Workbook Chapter 11 (pdf) - Course Sidekick
6. ___________________ Price below which a firm
7. ___________________ All firms produce where
economic profits are zero
8. ___________________ Industry in which input pr
output.
9. ___________________ Industry in which input
industry expand output.
10. ___________________ Payment in excess of a res
11. ___________________ The additional revenue ea
Chapter 11: Managerial Decisions in
218
input.
12. ___________________ The average revenue per w
13. ___________________ Total profit divided by qu
Study Problems
1. The manager of a competitive firm will:
a. Produce rather than shut down if the forec
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Student Workbook Chapter 11 (pdf) - Course Sidekick
________.
2. Answer
figure
below.
the following questions using the cost cu
b. Produce and make an economic profit if the fo
________.
c. Produce at a loss if the forecasted price is less
d. Shut down if the forecasted price is less than _
e. Minimize loss by producing the level of outp
forecasted price is greater than ________ but l
f. Maximize profit by producing the level of
when forecasted price is greater than _______
a. If price is $3 per unit of output, draw the ma
produce _____________ units.
b. Since average total cost is $________ for this
c. The firm makes a profit of $_____________.
Chapter 11: Managerial Decisions in
221
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Student Workbook Chapter 11 (pdf) - Course Sidekick
d. Let price fall to $1, and draw the new margin
produce ________ units.
e. At a price of $1, total revenue is now $_____
The firm makes a loss of $_____________.
f. At a price of $1, total variable cost is $___
apply to fixed cost.
g. If price falls below $_____________, the firm
3. If a firm is making a loss in the short run, it can do
(i) _____________________________________
(ii) _____________________________________
Explain the circumstances under which each of the
4. In long-run competitive equilibrium, consumers
good. Explain why.
5. Consider a competitive, price-taking firm that e
produce a product that sells for $14 per unit. The
fixed costs are $500. Fill in the blanks in each
questions below:
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Student Workbook Chapter 11 (pdf) - Course Sidekick
10
9
(1)
62
64
(2)
______
(3)
Units of
Labor
Output
Chapter 11: Managerial Decisions in
Marginal
Marginal
Revenue222Average
Product
Product
Product
0
0
______
1
8
______
______
______
2
20
______
______
______
3
34
______
______
______
4
45
______
______
______
5
53
______
______
______
6
58
______
______
______
7
61
______
______
______
8
63
______
______
______
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______
(4)
xx
______
(5)
xx
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Student Workbook Chapter 11 (pdf) - Course Sidekick
a. Fill in the blanks in columns 3 and 5. Ma
________ units of labor. Marginal product is n
You will see later in this problem that the p
indeed occur well in the range of diminishing
negative marginal product.]
b. Compute marginal and average revenue produ
6. The sixth unit of labor _________________
(total, marginal) revenue by $__________.
units _______________ (increases, decrea
revenue by $___________.
c. The manager can maximize total revenue
maximum possible value of total revenue is $_
d. The manager hires ________ units of labor in
labor usage, ARP = _____________ which is _
e. Compute marginal cost and fill in the bla
___________ (rises, falls) as marginal produc
(rises, falls) as marginal product falls.
f. The profit-maximizing level of output is ___
output for which _____________ exce
_____________ exceeds _____________ .
g. Compute profit and fill in the blanks in colum
and the optimal level of output both result
$_____________.
6. A textile firm in a competitive industry employs
operations at its production facility. In the textile
salary of $4,500 per month. The textile firm emp
and LMC curves shown in the figure below. In lon
the product is $9.
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Chapter 11: Managerial Decisions in
223
a. A typical textile firm in this competitive indu
of $______. The typical textile firm earns eco
b. The textile firm with the superior plant
$___________ per month, if no rent is paid to
c. The superior plant manager is likely to
$____________ of which is economic rent.
d. If the superior plant manager also owned the
of economic profit. Explain your answer.
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p
p
y
The manager of ABC CocoaAVC
alsoM=estimates
=3.0
$25,000
- 0.0027
its ave
and
Q
7. Consider
in the
competitive
Fixed costsa atprice-taking
ABC will befirm
$1,600
in 2014.
demand and supply functions for raw chocolate ar
a. The price of raw chocolate in 2014 is forecast
Chocolate demand: Q = 10,000 - 10,000 P
b Average
variable
cost reaches
its minimum
Chocolate
supply:
Q = 40,000
+ 10,000Pv
month.
where
is the number
poundvariable
bars percost
mon
c. TheQminimum
valueof
of 10
average
i
chocolate, income is M, and PI is the price of
d.
Should
or shut
manager
of ABC
ABCCocoa
Cocoaproduce
Products
uses down?
time-seri
e.
Theofmarginal
values
M and Pcost
2014: for the firm is
I for function
SMC = _________________
Student Workbook Chapter 11 (pdf) - Course Sidekick
f. The optimal level of production for the firm is
g. The maximum profit (minimum loss) that ABC
Next let forecasted price of raw chocolate fall to $
h. The optimal level of production for ABC is no
i.
The profit (loss) for ABC is forecasted to be $
Chapter 11: Managerial Decisions in
224
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Student Workbook Chapter 11 (pdf) - Course Sidekick
8. The graphs below show cost, revenue, and profit
competitive market that faces a market-determined
belong in blanks a - k.
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Student Workbook Chapter 11 (pdf) - Course Sidekick
Chapter 11: Managerial Decisions in
225
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9. Answer the following questions based on the figur
a. What is average fixed cost at 250 units? At
units? At 650 units? Using these values,
increases in Q.
b. What are the two break-even values of output
to TC at each one of the break-even points. A
line steeper or flatter than TR? In the bottom
SMC at the lower break-even point? Explain
break-even occurs?
c. Why is the slope of the profit function zero at
d. At what level of output is profit margin or av
profit can the firm earn by producing the o
where unit costs are minimized?
e. When the manager is producing 400 units, th
the firm should increase output to 500 uni
$90,000. If you were the manager of this firm,
Multiple Choice / True-False
1. Which of the following statements is not a charact
a. Perfectly competitive firms view each other as
b. Firms are price-takers.
c. All firms produce a homogeneous product.
d. Perfectly competitive markets allow freedom o
2. Since the firm's demand curve is perfectly elastic f
a. P = MR.
b. P = MRP.
c. P = TR.
d. both a and b.
e. both a and c.
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Student Workbook Chapter 11 (pdf) - Course Sidekick
3. In the short run, a firm shuts down when
a. profit is negative.
b. TR < TVC.
c. MRP > ARP at the level of labor usage where
d. both b and c.
e. all of the above.
4. In the short run, a firm continues to produce at a lo
a. TR ≥ TFC.
b. P ≥ AFC.
c. (TR/Q) ≥ (ATC - AFC).
d. both b and c.
e. both a and c.
Chapter 11: Managerial Decisions in
226
5. In a competitive industry the market price of outp
output at which average total cost is $30, margina
In order to maximize profit (or minimize losses), t
a. increase output.
b. decrease output but keep producing.
c. leave output unchanged.
d. shut down.
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l
ii
ilib i
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Student Workbook Chapter 11 (pdf) - Course Sidekick
6. In long-run
competitive
equilibrium,
Product
Total
Units
Labor
Marginal
Product
0
0 of
xx
a. economic profit is zero.
10
1
_____
b. P = LMC.
c. P = LAC.
30
2
_____
d. P = SMC.
3
_____
e. all of the48above.
64
4
_____
93
6
_____
105
7
_____
115
8
_____
A firm produces good X and sells the good in a compe
5 table, and_____
of X is $2. Fill in79the blanks in the
answer qu
7. The marginal revenue product for the third unit of
a. $18
b. $48
c. $16
d. $9
e. $36
Chapter 11: Managerial Decisions in
227
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Student Workbook Chapter 11 (pdf) - Course Sidekick
8. At a wage rate of $22, the firm will hire
a. 0 units of labor.
b. 1 unit of labor.
c. 3 units of labor.
d. 7 units of labor.
e. 8 units of labor.
9. At a wage rate of $26, the firm will hire
a. 0 units of labor.
b. 1 unit of labor.
c. 3 units of labor.
d. 6 units of labor.
e. 7 units of labor.
10. At a wage rate of $40, the firm will hire
a. 0 units of labor.
b. 1 unit of labor.
c. 3 units of labor.
d. 7 units of labor.
e. 8 units of labor.
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Student Workbook Chapter 11 (pdf) - Course Sidekick
11.
a.the
b.
price
750
1,000
isunits
$70
unitshow
much
does the
firm produce?
UseIf
following
figure
showing
short-run
cost cur
c. questions
900 units 11-15.
answer
d. 600 units
Chapter 11: Managerial Decisions in
228
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Student Workbook Chapter 11 (pdf) - Course Sidekick
12. If price is $70 how much profit (loss) does the firm
a. zero
b. $16,500
c. $20,000
d. $23,000
e. $15,500
13. Let price be $40. How much does the firm produc
a. zero units
b. 500 units
c. 600 units
d. 700 units
e. 800 units
14. If price is $40, how much profit (loss) does the firm
a. it loses its fixed cost
b. $5,000
c. -$7,000
d. -$4,000
e. $3,500
15. Below what price will the firm shut down and prod
a. $48
b. $18
c. $20
d. $30
e. $50
Use the following figure showing long-run cost c
competitive industry, to answer questions 16-19.
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Student Workbook Chapter 11 (pdf) - Course Sidekick
Chapter 11: Managerial Decisions in
229
16. If price is $40, the firm will produce ________ uni
a. 2,000
b. 3,000
c. 4,000
d. 4,500
e. 5,000
17. If price is $40, how much profit (loss) does the firm
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Student Workbook Chapter 11 (pdf) - Course Sidekick
17. If price
is $40, how much profit (loss) does the firm
b.
c.
d.
e.
Price
Firms
b
all
and
of
will
the
c.
willabove.
fall.
exit the market.
a. $75,000
b. this
$60,000
19. If
industry is in long-run competitive equilibri
c.
$50,000
output
and price will be ________.
d.
a. $10,000
1,000; $15
e.
b. zero
2,000; $20
c. 3,000; $20
18. If
is $40
d. price
4,000;
$22and the firm produces the optimal l
to
next
e. occur
4,500;
$30period?
a. Each firm will increase output.
For questions 20-28, use the following data for a co
that operates in this market. Using time-series data, th
estimated to be
Demand:
Qˆ = 550 − 10 P + 0.01M
Supply:
Qˆ = 400 + 10 P − 12.5 P
I
where output is Q, the price of the product is P, incom
The income forecasted for 2015 is $30,000 and the pri
Jartech, Inc. is a firm operating in this market. J
estimated to be
ˆ = 60.0 − 0.08Q +
AVC
ˆ is measured in dollars per unit. Jartech exp
where AVC
2015.
Chapter 11: Managerial Decisions in
230
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20. What is the price forecast for 2015?
a. $15
b. $20
c. $35
d. $40
e. $55
21. At what output level will Jartech's average variable
a. 200 units
b. 300 units
c. 400 units
d. 500 units
e. 600 units
22. What is the minimum average variable cost?
a. $0
b. $55
c. $45
d. $44
e. $20
23. The profit-maximizing (or loss-minimizing) outpu
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p
g(
g)
p
26. What
a.
b.
c.
$15
$20
$35
is
the revised price forecast for 2015?
a.
units.
d. 0
$40
b.
e. 300
$55 units.
c. 400 units.
d. 500 units.
e. 600 units. Chapter 11: Managerial Decisions in
Student Workbook Chapter 11 (pdf) - Course Sidekick
24. What is average variable cost at the profit-maximi
231
a. $0
b. $20
c. $44
d. $45
e. $50
25. How much profit (loss) does Jartech, Inc. expect to
a. -$2,500
b. $2,500
c. $3,000
d. -$3,000
e. $2,000
In questions 26-28, suppose that the 2015 input price f
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Student Workbook Chapter 11 (pdf) - Course Sidekick
27. What is Jartech's profit-maximizing (or loss-minim
a. 0 units
b. 300 units
c. 400 units
d. 500 units
e. 600 units
28. Under the revised forecast how much profit (loss)
a. $0
b. -$2,500
c. $2,500
d. $3,000
e. -$3,000
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29. T
F
A perfectly competitive firm will contin
long as total revenue covers the firm's fixe
30. T
F
When we say "fixed costs don't matter,"
effect on profit.
31. T
F
An increase in demand will not cause pri
industry.
32. T
F
If firms in a competitive industry are mak
and both price and profit will decrease.
33. T
F
If the owner's superior managerial ability
other firms, the firm will earn economic p
34. T
F
If price is greater than marginal cost, the f
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Student Workbook Chapter 11 (pdf) - Course Sidekick
Chapter 11: Managerial Decisions in
232
Answers
MATCHING DEFINITIONS
1.
2.
3.
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perfect competition
perfectly elastic demand
shut down
fi
i
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Student Workbook Chapter 11 (pdf) - Course Sidekick
4.
margin AVC
1. profit
a. ATC
b.
minimum
STUDY
PROBLEMS
5. break-even points
ATC; price
minimum AVC
6. c.
shutdown
minimum
AVC equilibrium
7. d.
long-run
competitive
8. increasing-cost
industry AVC; ATC
e. P; SMC; minimum
9. constant-cost
industry
f. P; SMC; ATC
10. economic rent
2.
4,000revenue
units maximizes
profit
11. a.
marginal
product (MRP)
12. average
b. $2; revenue
$8,000 product (ARP)
13. average
profit
c. profit
= $4,000
d.
2,000 units to maximize profit
e.
TR = $1 × 2,000 = $2,000; TC = $1.50 × 2,000 = $
f.
TVC = $0.50 × 2,000 = $1,000. After paying $1,00
apply toward total fixed costs.
$0.40 (approximately)
g.
3.
4.
i.
If not already at its optimal level, adjust the usag
chosen output.
ii.
Exit the industry.
Option (i) will be undertaken if adjusting capital us
Option (ii) will be undertaken if adjusting capital u
In the long run, P = LMC = minimum LAC. Not only
per unit costs are at the lowest possible level, which
competitive industry output.
Chapter 11: Managerial Decisions in
233
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Student Workbook Chapter 11 (pdf) - Course Sidekick
5.
Columns 1-8 in your table should look like this:
(1)
(2)
(3)
(4)
(5)
Marginal
Revenue
Product
Average
Product
Units of
Labor
Output
Marginal
Product
0
0
xx
xx
xx
1
8
8
112
8
2
20
12
168
10
3
34
14
196
11.33
4
45
11
154
11.25
5
53
8
112
10.6
6
58
5
70
9.67
7
61
3
42
8.71
8
63
2
28
7.87
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Student Workbook Chapter 11 (pdf) - Course Sidekick
9
c.
$6,000
industry
manager
cost
of only
per
is able
month.
earning
$6 ($3
to1earn
less
Since
zero
than
$1,500
economic
thethesuperior
of
typical
economic
profit
manager
firm).
inprofit
long
64
14
7.11
will try to hire this manager. As they compete to h
Page
23- 2
6.2sup
more62
than 15
theof"typical"
salary -of28$4,500. This
able to earn $4,500 + $1,500 = $6,000 per month.
a.
b.
c.
3 units of labor; 10
increases; total;
$70; decreases;
total;Decisions
$196
Chapter
11: Managerial
in
9 units of labor maximizes total revenue
234(but not p
Q = 14 × 64. As long as MRP is positive for an e
will increase total revenue.
8 units of labor maximizes profit. This is the last
greater
10
d.
6.
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th
e.
f.
g.
falls; rises
63; MR (or P); SMC; MRP; w
$190
a.
$9; $0 In long-run competitive equilibrium, pri
"typical" firm in the industry. In this problem,
typical firm has a minimum LAC of $9 and earns z
b.
$1,500 [= ($9- $6) × 500]. If price is $9, the tex
point where its LMC equals $9. This occurs at
superior textile producer is $6 per unit (at 500 un
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Student Workbook Chapter 11 (pdf) - Course Sidekick
7.
d.
As owner of the firm, she would earn zero econom
per month salary since that is what she could mak
some other firm in the industry). She does, howe
of $1,500.
a.
b.
Q d = 60,000 − 10,000P ; Q s = 10,000P
Solve for P2014 = $3
Qˆ = −b 2c = −( −0.0027) 0.0000018 = 1,500 uni
c.
ˆ
AVC
3 − 0.0027(1,500) + 0.0000009(1,500)2 =
min =
d.
P = $3 > $0.975 = AVCmin ⇒ produce
e.
SMC = 3 − 0.0054 − 0.0000027Q
f.
Set P = SMC and solve for Q *:
min
2
2
3 = 3 − 0.0054Q + 0.0000027Q * = 0
Q(- 0.0054 + 0.0000027Q) = 0
g.
Either Q = 0 or Q = 2,000. Since the firm should p
Q* = 2,000
TR = P × Q = $3 × 2,000 = $6,000
TVC = $2,400 = AVC × Q = ⎡⎣ 3 − 0.0027(2,000) + 0
$6,000 − $2,400 − $1,600 = $2,000
h.
Set P = SMC again and solve for Q* :
3 − 0.0054Q *
+ 0.0000027 Q* = 1.5
2
2
−( −0.0054) + ( −0.0054) − 4(1.5)(0
Q = 1,667 =
2(0.0000027)
*
i.
TR = P × Q = $1.50 × 1,667 = $2,500
TVC = $1,667 = AVC × Q = ⎡⎣ 3 − 0.0027(1,667) + 0.000
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Student Workbook Chapter 11 (pdf) - Course Sidekick
Profit = $2,500 − $1,667 − $1,600 = −$767
8.
a.
400; $900 × Q - 170,000 = $190,000 ⇒ Q = 400.
b.
$900. The slope of TC at the profit-maximizing po
is P .
c.
$900. The slope of TRis P (= $900).
d.
$360,000; TR= P × Q = $900 × 400 = $360,000.
e.
$562,500; TC = ATC × Q = $900 × 625 = $562,500
f.
$142,500; At 250 units, the profit margin (or aver
$570 × 250.
g.
-$50,000. At Q = 0, profit = - TFC. At 250 units, A
$130) × 250.
Chapter 11: Managerial Decisions in
235
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th
h.
$570; The 250 unit adds $900 to total revenue an
by $570 (= $900 - $330). Thus, the slope of the pr
i.
$425; ATC = TC/Q ⇒ ATC = $170,000/400 ⇒ A
i.
60. Since P = ATC at j, it is a break-even point. In
units.
k.
$820; Since TFC = $50,000 (see part g), it follow
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$
;
$ ,
(
p g),
th
At
(i.e.,
is
400
MR
and
units,
= SMC).
the
profit
tangent
reaches
line
thehas
its
400
zero
maximum
unit
slope
adds
atvalue
the
$900
peb
forzero
AVC
AVC
=Since
$820.
⇒
Profit margin
(or average profit) is maximized whe
in
increasing
output
fromand
250att
At this
250 problem.
units, AFCBy
is $200
(= $330
- $130),
$47,500
(= $190,000
units, TFC
is $50,000- $142,500).
(= $200 × 250), and at 65
Student Workbook Chapter 11 (pdf) - Course Sidekick
9.
c.
d.
a.
e.
b.
increases,
AFC declines
continuously
while TFC
is
Your
response:
"Yes, increasing
production
to 500
Unfortunately,
total occur
costs will
byunits
moreofth
Break-even points
at 60increase
and 625
(i.e.,
of these
100bottom
extra units.
flatterMR)
thanfor
TR.allThus,
in the
panel ofThus
the
decrease
profit."
value of the slope of the line tangent to TC at 60 un
TR and equals P). At 650 units, the line tangent
MULTIPLE
CHOICE
/ TRUE-FALSE
(which
is the value
of the slope of the line tangent
1.
a
2.
3.
a
d
4.
5.
c
d
6.
7.
e
e
8. d
9. d
10. a
Perfectly competitive firms do not view each othe
relative to the total market that no one firm's incre
as much as it wishes to at the going market price.
When demand is horizontal, P = MR, and demand
TR < TVC ⇒ P < AVC ⇒ shut down and MRP >
Choice c is really P > AVC in disguise since TR/Q
Since ATC = 30 and AFC = 5, AVC must be 25. Y
producing at the minimum point on AVC. Since P
In long-run competitive equilibrium, P = LMC = LA
MRPL=3 = MPL=3 × P = 18 × $2 = $36
11. b
MRPL=7 = $24 > $22 > MRPL=8 = $20
MRPL=6 = $28 > $26 > MRPL=7 = $24
At the level of labor usage for which MRP = $40
shut down
P = SMC = $70 at Q = 1,000
12. c
$20,000 = ( P − ATC )Q = (70 − 50)1,000
13. d
SMC = P = $40 at Q = 700
Chapter 11: Managerial Decisions in
236
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Student Workbook Chapter 11 (pdf) - Course Sidekick
14. c
−$7,000 = ( P − ATC )Q = (40 − 50)700
15. d
16. e
17. a
Minimum AVC = $30
P = SMC = $40 at Q = 5,000
$75,000 = ( P − LAC )Q = (40 − 25)5,000
18. b
19. c
20. e
Price falls because new firms enter and increase su
Minimum LAC equals $20; 3,000
850 − 10 P = −250 + 10 P ⇒ P = $55
21. c
Qˆ min = −bˆ 2cˆ = 400 = −(0.08) 0.0002
22. d
2
ˆ
AVC
min = $44 = 60 − 0.08(400) + 0.0001(400)
23. d
SMC = 60 − 0.16Q + 0.0003Q = $55 ⇒ Q = 500
24. d
2
ˆ
AVC
Q =500 = $45 = 60 − 0.08(500) + 0.0001(500)
25. b
Profit = ($55 × 500) − ($45 × 500) − $2,500 = $2,5
26. c
850 − 10 P = 150 + 10 P ⇒ P = $35
ˆ
P < AVC
= $45 ⇒ shut down
27. a
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2
*
min
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Student Workbook Chapter 11 (pdf) - Course Sidekick
28. b
29. F
30. F
32. T
Profit = - TFC = -$2,500
It is variable costs that must be covered in order to
Increasing fixed cost does decrease profit. The le
decision. If P < AVC, the firm shuts down no matt
the firm produces the level of output where MR= S
A constant-cost industry has a horizontal long-ru
Chapterwill
11: not
Managerial
increase in demand
lead to Decisions
an increasein i
industry supply curve is upward sloping,
237 even fo
demand will cause price to rise in the short run.]
Entry takes place when economic profits are positi
33. F
34. F
The owner will earn a normal profit plus rent.
Produce more if P > SMC
31. T
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Student Workbook Chapter 11 (pdf) - Course Sidekick
Homework Exercises
1. Consider the cost curves for a price-taking firm in
a. When price is $12 per unit of output, the firm
__________ units.
b. Since average total cost = $___________ for t
c. The firm makes an economic profit (loss) of $
d. Price falls to $8. The firm now maximizes pro
e. At this output level, total revenue = $____
Therefore the firm earns a profit (loss) of $___
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Student Workbook Chapter 11 (pdf) - Course Sidekick
f.
Price falls to $6. The firm now maximizes pro
g. At this output level, average total cost is $___
Total revenue = $____________ and the firm
h. Even though the firm makes a loss, it does n
$____________, which leaves $_________ of
i.
If price falls below $_____________, the firm
Chapter 11: Managerial Decisions in
238
2. Ajax Corporation is a price-taking firm in a co
variable input, labor, to produce a product that se
unit of labor and total fixed costs are $1,000. Fill i
instructed by the questions below:
(1)
(2)
(3)
(4)
(
Marginal
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Student Workbook Chapter 11 (pdf) - Course Sidekick
5 of
6
Units
7
Labor
8
0
1a.
2
1,373
1,370
1,369
Output
1,364
0
______
Marginal
______
Product
______
xx
Marginal
______
Revenue
______
Product
______
xx
___
Ave
___
Pro
___
x
Fill in 400
the blanks______
in columns______
3 and 5. Ma
___
________
labor. Marginal
product ___
is n
950 units of______
______
b. Compute marginal and average revenue produ
3
4
1,250
______
______
___
1,350
______
______
___
6. The sixth unit of labor ________________
$__________. Decreasing labor usage from
(increases, decreases) total revenue by $_____
c. The manager can maximize total revenue
maximum possible value of total revenue is $_
d. The manager hires ________ units of labor an
order to maximize profit. At this level of lab
______________ (greater, less) than MRP.
e. Compute marginal cost and fill in the bla
___________ (rises, falls) as marginal produc
(rises, falls) as marginal product falls.
f.
The profit-maximizing level of output is ___
output
for
which
_____________
exce
_____________ exceeds _____________ .
g. Compute profit and fill in the blanks in colum
and the optimal level of output both result
$_____________.
Chapter 11: Managerial Decisions in
239
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Student Workbook Chapter 11 (pdf) - Course Sidekick
h. Now suppose total fixed cost increases to $5,0
usage (and output) and fill in the blanks in
$5,000, the optimal level of labor usage is __
of output is ________ units. How high must
optimal for this firm to shut down? Explain br
https://www.coursesidekick.com/economics/56886
(1)
(2)
Units of
Labor
Output
0
0
_
1
400
_
2
950
_
3
1,250
_
4
1,350
_
5
1 370
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Student Workbook Chapter 11 (pdf) - Course Sidekick
5be $__________
1,370 per _w
e. Sunnyvale's
profit asper
apples
a negative
week
profit
in will
2015.
value.]
f. If the price of apples falls
per crate, S_
6 to $101,373
week, and its profit will
w
7 be $_________per
1,369
_
profit as a negative value.]
8
1,364
_
Chapter 11: Managerial Decisions in
3. Sunnyvale Orchards
is one of many small, perfect
240 in 20
U.S. market. The forecasted price of apples
Sunnyvale Orchards estimates its short-run averag
AVC = 20 − 0
where Q is the number of crates of apples produce
Orchards is $1,200 per week.
a. Average variable cost reaches its minimum
week.
b. The minimum value of average variable cost i
c. Sunnyvale faces the marginal cost function SM
d. Sunnyvale will maximize profit (or minimize
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Student Workbook Chapter 11 (pdf) - Course Sidekick
4. The figure below shows a long-run industry sup
facing the competitive industry. The firms in thi
and productivity.
a. The long-run marginal cost of producing the 2
b. If the firms in this industry produce a total i
produces at the minimum long-run averag
$________ of economic profit.
c. In long-run competitive equilibrium, the ind
good and sell these units at the market-clearin
d. The long-run marginal cost at the equilibrium
run average cost at the equilibrium output is $
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run average cost at the equilibrium output is $
2/5/24, 11:16 PM
Student Workbook Chapter 11 (pdf) - Course Sidekick
e. "The firms employing the superior inputs hav
cannot earn any profit." True or false? Expla
f.
Total producer surplus in long-run compet
industry.
g. Who gets the producer surplus that you calcul
Chapter 11: Managerial Decisions in
241
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Week 1 Discussion 2 Post (CH-ECO204)
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Student Workbook Chapter 11 (pdf) - Course Sidekick
Week 3 Discussion 1 Post (CH-ECO204)
Week 5 Discussion 1 Post (CH-ECO204)
Chapter 7 - Analyzing Common Stocks Notes
Reading Response 4
HW #1 Math Econ.
Technical Problems Ch. 5 Part 1
ACT555Module1Discussion7
MKTG 342 EXAM2
FP100W3D
Budgeting Assignment (1)
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Student Workbook Chapter 11 (pdf) - Course Sidekick
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