1. (5 points) A constant cost industry is one in which the LRMC for the industry is constant. An increasing cost industry is one in which the LRMC for the industry is increasing. Which is more likely to be a constant cost industry: bagel restaurants or cranberry production? Explain. What does this imply about the slopes of the long-run supply curves in these industries? In this article, the bagel industry closely resembles a constant cost industry. A constant cost industry is a perfectly competitive industry that gives a horizontal long run industry supply curve. The slope for this supply curve is infinity. The expansion of the industry causes no change in the production cost. The entry of new firms, driven by an increase in demand …show more content…
Thus, the long run average cost does not change. As mentioned above, minimum efficient scale will still be the same. The industry can always produce the extra quantity at the same unit of cost. The new equilibrium price is the same as the old equilibrium price, only the quantity has changed. However, in the article, the supply curve shifted a little bit more to the right bringing the price down from .5 cents to .45. Nonetheless, the bagel industry portrayed in the article showed a close resemblance of a constant cost industry primarily driven by the freedom to enter and exit the market without much hurdle cost. 2. (5 points) Upward sloping supply curves imply that some firms would still produce the product if the price were lower. Does this imply that some firms in such an industry must be making economic profits? Explain. (Note: you might want to read pp. 256-259 of the textbook for help in answering this question.) Economic Profit is the difference between the revenue received from the sale of an output and the opportunity cost of the inputs used. In the long run, firms in a perfectly competitive industry will not make economic profit. The graph below illustrates that there are no economic profits. The left graph illustrates the long-run supply decision of George Bailey’s bagel restaurant, a representative firm in the industry. At Price P*0 George Bailey’s bagel restaurant is earning an economic profit. George Bailey was
This graph is specific to an oligopoly and shows the change in quantity demanded in relation to the change in price for both elastic and inelastic goods. Total Revenues will be increased, if the firm decreases their price but increase their quantity. Due to the fact that the costs remain the same, the revenue line on the graph can be seen to be steeper than the costs meaning that the profit is higher. The graph therefore also indicates the point where the firm is able to make the most amount of profit, in relation to the price they set and the quantity they produce.
The difference between economic profit and business profit is that in economic profit, profit or loss is calculated by subtracting opportunity cost of the inputs from the revenue of sales. Business profit is the difference between the total revenue and total costs incurred to earn that
Unlike the price elasticity of demand, the price elasticity of supply plays an important role on how producers respond to the change in price. I argue that all bread sold in Canada has more elasticity than all shoes sold in Canada owning to three main factors, which are the availability of raw materials, length and complexity of production and mobility of factors.
* Since the capacity is being expanded to increase production of Product C, it could be assumed that this increase should be allocated to this product. Production of Product A is to be scaled down, but its level of fixed costs has been assumed to be unchanged.
In a monopolistically competitive industry, the goods sold, while not perfect substitutes, can be viewed as acceptable substitutes by most people. As a result, if Firm A raised the price of its good substantially, consumers would decrease the quantity demanded from Firm A and would move to other firms selling similar products. As a result, Firm A would sell few units at the new higher price. As the quantity a firm sells falls, so does its percentage of sales in the industry, also
In the case of Mendel Paper Company which produces four basic paper products lines at one of its plants: computer paper, napkins, place mats, and poster board. Although the plant superintendent, Marlene Herbert is pleases with increased sales he is also concerned about the costs. The superintendent is concerned with the high fixed cost of production, the increases in fixed overhead and even variable overhead. He feels that the production of place mat should be discontinued. His reason for the discontinuation is that the special printing is driving up the variable overhead to the point where the company may not find it profitable to continue with the line. After reviewing the future predictions of the
Essay Question: In what ways does this movie demonstrate the “Iron Triangle” and its powerful influence in the manner that our government functions?
In the short run the perfect competition equilibrium can be found by graphing the marginal cost (MC), average total cost (ATC) and marginal revenue (MR) curves. In perfect competition the price is equal to the average revenue, which is equal to the marginal revenue and these are all constant, giving an infinitely elastic demand curve for the firm. The demand curve is “perfectly price elastic” due to the homogeneity of the products supplied, where each supplier, as a price taker, must focus on a single price. Given this, the only choice a supplier has in the short run is how much to produce. For profit maximisation to occur marginal costs (supply curve) must equal marginal revenue (demand curve). Profit maximisation is assumed to mean the maximisation of normal economic profit (i.e. revenue that covers the
In 1883 Bernard (Barney) Kroger invested 372 dollars that consisted of his life savings to open the first ‘Kroger’ grocery. That first store, located at 66 Pearl Street in downtown Cincinnati, would soon turn into the giant retail chain that consists of nearly 2,500 stores all over the country and most recently produced sales of over 76 billion dollars. Barney Kroger was revolutionary in the formation of the modern grocery, in that he was the first grocer to have his own bakery, as well as selling meat and other groceries all under one roof. Kroger was also the first to manufacture the products that he in turn sold in his own store. This was the beginning of what is today one of the largest food manufacturing companies in America.
Have you ever tasted school cafeteria food? I don’t think you would want to. In school story books, do you have characters saying that the food tasted good at school cafeterias? Nope. Why is this? Cafeteria food is often cheap, bought in bulk, high in calories, malnutritious, and microwaved. Student polls and opinions prove this. Therefore, this leads to a suggestion: Healthier, tastier foods and a better, advanced lunch system should be implemented.
B) no government regulations exist. C) demand curves are perfectly horizontal. D) suppliers will supply any amount that buyers wish to buy. Answer: A 19) Once an equilibrium is achieved, it can persist indefinitely because A) shocks that shift the demand curve or the supply curve cannot occur. B) shocks to the demand curve are always exactly offset by shocks to the supply curve. C) the government never intervenes in markets at equilibrium. D) in the absence of supply/demand shocks no one applies pressure to change the price. Answer: D 20) If price is initially above the equilibrium level, A) the supply curve will shift rightward. B) the supply curve will shift leftward. C) excess supply exists. D) all firms can sell as much as they want. Answer: C 21) An equilibrium in a market is described by A) a price only. B) a quantity only. C) the excess supply minus the excess demand. D) a price and a quantity. Answer: D 3
3. If hypothetically the economy were producing only1 butter and 10 guns, it could be concludes increasing opportunity cost, because when the graph moves from A to E, it must give up larger amounts of butter to acquire equal amounts of guns. This is shown through the slope of the production possibilities curve, which gets steeper as we move from A to E (McConnell, Brue, Flynn, 2015)
Furthermore, the ACC strategy of offering increased variety requires shorter production runs which inherently increases the cost associated with each product and packaging, as idle time due to process changeover would increase between each product production (4.8% of time com-pared with 2% for DJC). The strategy of increased variety and production runs by the ACC would also affect labor in a number of ways. Direct labor costs would go up due to a larger amount of idle time associated with process changeover and the chance of increased problems associated with the