Chapter 23: Q. 1CT (page 528)
Why would a number of plastic-recycling firms continue to operate even though the market clearing price of recycled plastic is lower than their break-even price?
It obtain packing recovery enabling effective producer responsibility laws.
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Two years ago, a large number of firms entered a market in which existing firms had been earning positive economic profits. By the end of last year, the typical firm in this industry had begun earning negative economic profits. No other events occurred in this market during the past two years.
a. Explain the adjustment process that occurred last year.
b. Predict what adjustments will take place in this market beginning this year, other things being equal.
The table nearby represents the hourly output and cost structure for a local pizza shop. The market is perfectly competitive, and the market price of a pizza in the area is . Total costs include all opportunity costs. Fixed costs equal zero.
a. Calculate the total revenue and total economic profit for this pizza shop at each rate of output.
b. Assuming that the pizza shop always produces and sells at least one pizza per hour, does this appear to be a situation of short-run or long-run equilibrium?
c. Calculate the pizza shop's marginal cost and marginal revenue at each rate of output. Based on marginal analysis, what is the profit maximizing rate of output for the pizza shop?
d. Draw a diagram depicting the short-run marginal revenue and marginal cost curves for this pizza shop, and illustrate the determination of its profit-maximizing output rate.
Suppose that the firm with the costs and revenues tabulated in Figure 23-2 is contemplating whether to produce 12 units of output. If it were to produce this many units, what (if anything) would happen to the market price? What would be the firm's marginal revenue for the 12th unit produced? What would be the firm's total revenues per hour?
Take a look at Figure 23-5, and suppose that the price per unit corresponding to the position of d2 is at $2.50 per unit and that the quantity at point E2 is exactly 5 units per hour. Calculate total revenues and total variable costs at point E2 and explain why it is called the short-run shutdown point.
Consider the diagram nearby, which applies to a perfectly competitive firm, which at present faces a market clearing price of per unit and produces units of output per week.
a. What is the firm's current average revenue per unit?
b. What are the present economic profits of this firm? Is the firm maximizing economic profits? Explain.
c. If the market clearing price drops to per unit, should this firm continue to produce in the short run if it wishes to maximize its economic profits (or minimize its economic losses)? Explain.
d. If the market clearing price drops to per unit, should this firm continue to produce in the short run if it wishes to maximize its economic profits (or minimize its economic loses)? Explain.
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