Week 9.1
A. The formula is E=MR=MC=P, this is the point where they meet and that point where I can tell on the x-axis is 55 DVDs per day. The y-axis is $1.75 per DVD. To maximize profit 55 DVDs need to be sold to rent per day to maximize profit.
B. What is the economic profit for this firm operating where economic profit is maximized?
The point on which profit has been maximized as stated in part A is 55 DVDs and cost per DVD at this point is $1.75 so profit will be …..
55 X $1.75 = $96.25
C. Will this firm likely continue operating in the long run? Briefly explain your answer.
Yes, this firm will likely continue operating in the long run in similar fashion. Considering the above graph, it seems that as AVC is increasing which makes it seem that in the long run the firm could not operate in profit but this is untrue. It is a well known fact that AVC renders into FC (fixed costs) so this firm can carry on with profit.
D. Explain the impact on this firm of other firms leaving the market. Would this action alter your decision made in part C?
Total cost (TC) is the sum of all the different costs they incur when producing and selling their product.
Average cost (AC) is the total cost divided by the quantity of goods:
AC = TC/q
Marginal cost (MC) is the extra cost incurred in producing one more of the product. This can be found by measuring the slope of the TC curve:
MC = (change in TC)/(change in q)
If we can combine a firm's costs and revenues, we can calculate the firm's profits. Using the variables we have been working with, we can represent profit as:
Profit = TR - TC
TR - TC = q(AR - AC) = q(P - AC)
Profit = q(P - AC)
Firms will try and maximize their profits, since it is through increasing profits that firms increase their utility. To maximize profits, firms will choose to sell the quantity at which the marginal cost is equal to the marginal revenue. Why is this true? If MC were greater than MR, then the firm would be losing
B. What is the economic profit for this firm operating where economic profit is maximized?
The point on which profit has been maximized as stated in part A is 55 DVDs and cost per DVD at this point is $1.75 so profit will be …..
55 X $1.75 = $96.25
C. Will this firm likely continue operating in the long run? Briefly explain your answer.
Yes, this firm will likely continue operating in the long run in similar fashion. Considering the above graph, it seems that as AVC is increasing which makes it seem that in the long run the firm could not operate in profit but this is untrue. It is a well known fact that AVC renders into FC (fixed costs) so this firm can carry on with profit.
D. Explain the impact on this firm of other firms leaving the market. Would this action alter your decision made in part C?
Total cost (TC) is the sum of all the different costs they incur when producing and selling their product.
Average cost (AC) is the total cost divided by the quantity of goods:
AC = TC/q
Marginal cost (MC) is the extra cost incurred in producing one more of the product. This can be found by measuring the slope of the TC curve:
MC = (change in TC)/(change in q)
If we can combine a firm's costs and revenues, we can calculate the firm's profits. Using the variables we have been working with, we can represent profit as:
Profit = TR - TC
TR - TC = q(AR - AC) = q(P - AC)
Profit = q(P - AC)
Firms will try and maximize their profits, since it is through increasing profits that firms increase their utility. To maximize profits, firms will choose to sell the quantity at which the marginal cost is equal to the marginal revenue. Why is this true? If MC were greater than MR, then the firm would be losing