A monopolistically competitive firm is producing 50 units of output in the short run where marginal cost is $3.00, average total costs are $5.00, price is $4.50, average variable cost is $4.00, and marginal revenue is $3.00. How much profit is the firm
making? What output recommendation would you make for the firm?
What will be an ideal response?
The firm should not change the level of output because it is maximizing profits at the output level of 50 where the marginal cost of $3.00 is equal to the marginal revenue of $3.00. At that output, however, the firm is incurring $0.50 economic losses per unit ($4.50 price minus $5.00 average total cost) for a total economic loss of $25 ($0.50 times 50 units). The firm cannot operate under these conditions in the long run and will go bankrupt.
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Calling long distance is often more expensive on weekdays between 8 am and 5 pm than in the evening hours. Why is this the case?
A) Telephone companies hope to discourage customers from calling long distance during the day to keep their labor costs down. B) Businesses who must call suppliers or customers during business hours have few alternatives and therefore have an inelastic demand during the workday compared to after-work hours. C) The cost of making long-distance connections is higher during the day than in the evenings. D) Increasingly, businesses who must call suppliers or customers during business hours resort to the internet, thereby reducing demand for long-distance calls. To make up for this fall in demand, telephone companies charge higher rates.
The part of corporate profits that is paid to the shareholders of a corporation is
A) retained earnings. B) shareholders. C) dividends. D) business revenue.
Management's power in collective bargaining sessions rests on
A. The firm's market power in pricing its product. B. The ability to lock out workers by closing stores or factories. C. The ability to fire nonunionized workers. D. The company's stock valuation.
When the government taxes and spends, each activity affects GDP in the same proportion.
Answer the following statement true (T) or false (F)