 | Economics 14/e McConnell | |||||
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| Economics 14/e McConnell | |||||
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23-3 Use the following demand schedule to determine total and marginal revenue for each possible level of sales:
| Product price | Quantity demanded | Total revenue | Marginal revenue |
| $2 | 0 | $____ | $____ |
| 2 | 1 | ____ | ____ |
| 2 | 2 | ____ | ____ |
| 2 | 3 | ____ | ____ |
| 2 | 4 | ____ | ____ |
| 2 | 5 | ____ | ____ |
23-4 Assume the following unit cost data are for a purely competitive producer:
| Total product | Average fixed cost | Average variable cost | Average total cost | Marginal cost |
| 0 | 45 | |||
| 1 | $60.00 | $45.00 | $105.00 | 40 |
| 2 | 30.00 | 42.50 | 72.50 | 35 |
| 3 | 20.00 | 40.00 | 60.00 | 30 |
| 4 | 15.00 | 37.50 | 52.50 | 35 |
| 5 | 12.00 | 37.00 | 49.00 | 40 |
| 6 | 10.00 | 37.50 | 47.50 | 45 |
| 7 | 8.57 | 38.57 | 47.14 | 55 |
| 8 | 7.50 | 40.63 | 48.13 | 65 |
| 9 | 6.67 | 43.33 | 50.00 | 75 |
| 10 | 6.00 | 46.50 | 52.50 |
| 1 | 2 | 3 | 4 |
| Price | Quantity supplied single firm | Profit (+) or less (-) | Quantity supplied 1500 firms |
| $26 | ____ | $___ | ____ |
| 32 | ____ | ____ | ____ |
| 38 | ____ | ____ | ____ |
| 41 | ____ | ____ | ____ |
| 46 | ____ | ____ | ____ |
| 56 | ____ | ____ | ____ |
| 66 | ____ | ____ | ____ |
| Price | Total quantiy demanded |
| $26 | 17 000 |
| 32 | 15 000 |
| 38 | 13 500 |
| 41 | 12 000 |
| 46 | 10 500 |
| 56 | 9 500 |
| 66 | 8 000 |
What will be the equilibrium price? What will be the equilibrium output for the industry? For each firm? What will the profit or loss be per unit? Per firm? Will this industry expand or contract in the long run?
23-6 Using diagrams for both the industry and a representative firm illustrate competitive long-run equilibrium. Assuming constant costs employ these diagrams to show how (a) an increase and (b) a decrease in market demand will upset this long-run equilibrium. Trace graphically and describe verbally the adjustment processes by which long-run equilibrium is restored. Now rework your analysis for increasing- and decreasing-cost industries and compare the three long-run supply curves.
23-7 In long-run equilibrium P= minimum ATC= MC. OF what significance for economic efficiency is the equality of P and minimum ATC? The equality of P and MC? Distinguish between productive efficiency an allocative efficiency in your answer.
Answers:
| 23-3 Total revenue top to bottom: 0; $2; $4; $6; $8; $10. Marginal revenue top to bottom: $2 throughout. (a) The industry is purely competitive -- this firm is a "price taker." The firm is so small relative to the size of the market that it can change its level of output without affecting the market price. (b) See the graph. (c) The firm's demand curve is perfectly elastic; MR is constant and equal to P. (d) Yes. Table: When output (quantity demanded) increases by 1 unit
total revenue
increases by $2. This
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| 23-4 (a) No because $32 is always less than AVC. If it did produce its output would be 4 -- found by expanding output until MR no longer exceeds MC. By producing 4 units it would lose $82 [= 4($32 - $52.50)]. By not producing it would lose only its total fixed cost of $60. (b) Yes $41 exceeds AVC at the loss-minimizing output. Using the MR 5 MC rule it will produce 6 units. Loss per unit of output is $6.50 (5 $41 2 $47.50). Total loss 5 $39 (5 6 3 $6.50) which is less than its total fixed cost of $60. (c) Yes $56 exceeds AVC (and ATC) at the loss-minimizing output. Using the MR = MC rule it will produce 8 units. Profit per unit = $7.87 (5 $56 2 $48.13); total profit = $62.96. (d) Column (2) data top to bottom: 0; 0; 5; 6; 7; 8; 9. Column (3) data top to bottom in dollars: 260; 260; 255; 239; 28; +63; +144. (e) The firm will not produce if P AVC. When P . AVC the firm will produce in the short run at the quantity where P (5 MR) is equal to its increasing MC. Therefore the MC curve above the AVC curve is the firm's short-run supply curve it shows the quantity of output the firm will supply at each price level. See Figure 23-6 for a graphical illustration. (f) Column (4) data top to bottom: 0; 0; 7 500; 9 000; 10 500; 12 000 13 500. (g) Equilibrium price = $46; equilibrium output = 10 500. Each firm will produce 7 units. Loss per unit = $ 1.14 or $8 per firm. The industry will contract in the long run.
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| 23-6 See Figures 23-8 and 23-9 and their legends. See Figure 23-11 for the supply curve for an increasing cost industry. The supply curve for a decreasing cost industry is below.
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| 23-7 The equality of P and minimum ATC means the firm is achieving productive efficiency; it is using the most efficient technology and employing the least costly combination of resources. The equality of P and MC means the firm is achieving allocative efficiency; the industry is producing the right product in the right amount based on society's valuation of that product and other products. |
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