1. At a recent board meeting, the president and
the CEO got into a heated argument about whether to shut down the firm’s
plant in Miami. The Miami plant currently loses $60 000 monthly. The
president of the firm argued that the Miami plant should continue to
operate, at least until a buyer is found for the production facility.
The president’s argument was based on the fact that the Miami plant’s
fixed costs are $68 000 per month. The CEO exploded over this point,
castigating the president for considering fixed cost in making the
shut-down decision. According to the CEO, “Everyone knows fixed costs
don’t matter!”
a. Should the Miami plant be closed or continue to operate at a loss in the short-run?
b. How would you explain to the incorrect party that he or she is wrong?
2. Assume that an apple grower is operating in a perfectly competitive
market. The current market price for a crate of apples is $30.
The firm is faced with the following Total Cost (TC) function:
TC = 30Q -0.12Q^2 +0.0004Q^3 +1000
and the following Marginal Cost (SMC) function:
SMC = 30-0.24Q + 0.0012Q^2
a) Find the Profit Maximizing output.
b) What is the Total Cost of producing that output?
c) What is the Total Revenue of producing that output?
d) What is the economic profit earned by the firm? How would you
interpret this number in the context of recourse allocation and resource
usage?
3. Suppose you are the manager of the firm facing the cost structure
illustrated via the graph below. Is the firm earning an economic profit
or incurring an economic loss? Explain. How can you tell? Should the
firm continue to operate in the short-run or should it shut down?
Explain your answer.
4. In the long-run, is it possible for a perfectly competitive firm to
earn an economic profit? Why or why not? Explain what happens in an
industry in the long-run if economic profits are made.
Get Answer
----Better Deal--------- GET ANSWER from here-------
