Expert answer:Benjamin Franklin Community Profit Maximizing & Sh

  

Solved by verified expert:1. the questions need only short answers or short paragraphs.2. do not copy from the websites. and no need to use the websites. you will find all the answers in the short videos link in each lecture.3. using the text book also to find everything, i will upload it too.4. do not copy from anywhere that have the answer. (Taking F if copied from others).5. they are 3 lecture questions (each one has some questions need to answer).6. use red color for the answers and keep all the questions.7. put all references that u used from the lectures.8. no other references will be accepted except the links in each lecture and the textbook.Lecture number 15, 17 and 18 need to answer.
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Outline for Lecture 15
Long-Run Production Costs
The Long-Run Cost Curve (specific case: five plant sizes)
Suppose that a firm can operate in five alternative plants in the short run, Plants 1 through 5, with
respective short-run average total cost curves (ATC1 through ATC5) illustrated in Figure 9.7.
In the illustration, vertical white lines identify the levels of output at which the firm should
change its plant size to achieve the lowest average total cost.
To see why, suppose that the firm produces an output of less than 20 units, say, 15 units. In this
case, the lowest average total cost is achieved in Plant 1 because ATC1 lies below all other ATC
curves for 15 units. Provided that plant is a variable resource in the long run, the firm chooses
Plant 1, indicating that the blue section of ATC1 is part of the firm’s long-run average total cost
curve for output levels below 20 units.
Suppose now that the firm raises production to somewhere between 20 and 30 units, say, 25
units. In this case, the lowest average total cost is achieved in Plant ____ because ____ lies
below all other ATC curves for 25 units. Provided that plant is a variable resource in the long
run, the firm chooses Plant ____, indicating that the blue section of ____ is part of the long-run
average total cost curve for output levels between 20 and 30 units.
Similarly, the blue section of ____ is part of the long-run average total cost curve for output
levels between 30 and 50 units, the blue section of ____ is part of the long-run average total cost
curve for output levels between 50 and 60 units, and the blue section of ____ is part of the longrun average total cost curve for output levels above 60 units.
Given these five cases illustrated by Figure 9.7, how do we obtain the long-run average total cost
curve in the specific case? Is it smooth or bumpy? Explain.
The Long-Run Cost Curve (general case: unlimited plant sizes)
The blue long-run average total cost curve in Figure 9.7 is drawn under the assumption that the
firm can operate in five alternative plants in the short run. However, in modern manufacturing
industries (such as automobiles, pharmaceuticals, etc.) the number of possible plant sizes is
virtually unlimited.
In line with this reasoning, each red average total cost curve in Figure 9.8 represents a possible
plant size in the long run.
Given all the red curves illustrated by Figure 9.8, how do we obtain the long-run average total
cost curve in the general case? Is it smooth or bumpy? Explain.
Economies and Diseconomies of Scale
The shape of the long-run average total cost curve is explained by economies and diseconomies
of scale.
Economies of Scale
In the upper panel of Figure 9.9, economies of scale correspond to the downsloping part of the
curve; in the output range between zero and q1, average total cost ____ as production rises in the
long run.
Explain economies of scale: why is the average total cost decreasing with rising output?
Diseconomies of Scale
In the upper panel of Figure 9.9, diseconomies of scale correspond to the upward sloping part of
the curve; in the output range above q2, average total cost ____ as production rises in the long
run.
Explain diseconomies of scale: why is the average total cost increasing with rising output?
Materials for Lecture 15
Start with the textbook to get familiar with the content and progression of the lecture. Then, go to
videos and supplemental articles, if provided, for further clarification and additional examples.
Textbook
Read carefully pages 192 through 195 from the textbook.
Video
Long-run average total cost curve, economies of scale, and diseconomies of scale

Outline for Lecture 17
Demand as Seen by a Purely Competitive Seller
Perfectly Elastic Demand
Figure 10.1 and the accompanying table present price, quantity, and revenue data for a purely
competitive firm.
We see that the price charged by the competitive firm remains fixed at the market price of ____
as quantity demanded rises from 0 to 10 units, indicating that the firm is a price taker.
As a result, the competitive firm’s demand curve is illustrated by ____ drawn at the level of
market price.
Average, Total, and Marginal Revenue
Total Revenue
How do we define total revenue?
According to the data table in Figure 10.1, what is total revenue from selling one unit of output?
How about two units? Report total revenue for all remaining output levels.
Based on these data, how do we graphically illustrate total revenue?
Average Revenue
How do we define average revenue?
What is average revenue from selling one unit of output? How about two units? Report average
revenue for all remaining output levels.
How do we graphically illustrate average revenue? Does the average revenue curve coincide
with the demand curve?
Marginal Revenue
How do we define marginal revenue?
What is marginal revenue of the first unit of output? How about the second unit? Report
marginal revenue for all remaining output levels.
How do we graphically illustrate marginal revenue? Does the marginal revenue curve coincide
with the demand and average revenue curves?
Profit Maximization in the Short Run: Marginal Revenue-Marginal Cost Approach
Profit maximization by a competitive firm depends on marginal revenue and marginal cost. There
are two cases to consider.
Case 1
Assuming that producing is preferable to shutting down in the short run, the competitive firm
should produce any unit of output whose ____ exceeds ____. Explain why.
Case 2
Assuming that producing is preferable to shutting down in the short run, the competitive firm
should not produce an output level if ____ exceeds ____. Explain why.
Rule
Combining these two cases, we obtain the following rule.
As long as producing is preferable to shutting down, the competitive firm maximizes profits (or
minimizes losses) in the short run by producing the level of output at which marginal revenue
____ marginal cost.
Materials for Lecture 17
Start with the textbook to get familiar with the content and progression of the lecture. Then, go to
videos and supplemental articles, if provided, for further clarification and additional examples.
Textbook
Read carefully pages 204 through 208 from the textbook.
Video
Competitive markets and price determination in first five minutes

Profit maximization with graphical analysis

Comprehensive video on competitive markets

Outline for Lecture 18
Depending on the market price (determined by market demand and supply), the competitive firm
may face three scenarios in the short run: profit maximization, loss minimization, and shutdown.
Profit-Maximizing Case
The first five columns of the table accompanying Figure 10.3 present cost data for a competitive
firm. In the 6th column, we have the market price of ____, which equals marginal revenue.
Applying the MR = MC rule, how many units of output will the competitive firm produce to
maximize profits in the short run? Explain.
Total profit equals per-unit profit multiplied by quantity sold. What is per-unit profit in this case?
What is quantity sold? Given these two figures, what is total profit?
Figure 10.3 illustrates the profit-maximizing case: average variable cost (AVC) curve and
average total cost (ATC) curve are U-shaped; marginal cost (MC) curve is also U-shaped and it
intersects AVC and ATC at their minimums; MR = P line is drawn at the market price of ____.
In applying the MR = MC rule, we look for the intersection of ____ with ____, which yields an
output of ____ units. At this output level, market price (P) of ____ exceeds average total cost (A)
of ____, thereby producing a per-unit profit of ____. Per-unit profit is multiplied by output to
yield a total profit of ____, which is illustrated by the area of ____.
Loss-Minimizing Case
If the market price falls, the competitive firm may face loss minimization.
The first five columns of the table accompanying Figure 10.4 present the same cost data. In the
6th column, we have the new, lower market price of ____, which equals marginal revenue.
Applying the MR = MC rule, how many units of output will the competitive firm produce to
minimize losses in the short run? Explain.
Total loss equals per-unit loss multiplied by quantity sold. What is per-unit loss in this case?
What is quantity sold? Given these two figures, what is total loss?
Figure 10.4 illustrates the loss-minimizing case. It is identical to Figure 10.3, except MR = P line
is drawn at the new, lower market price of ____.
In applying the MR = MC rule, we look for the intersection of ____ with ____, which yields an
output of ____ units. At this output level, average total cost (A) of ____ exceeds market price (P)
of ____, thereby producing a per-unit loss of ____. Per-unit loss is multiplied by output to yield a
total loss of ____, which is illustrated by the area of ____.
Shutdown Case
If the market price falls further, the competitive firm may have to shut down in the short run.
The first five columns of the table accompanying Figure 10.4 present the same cost data. In the
8th column, we have the new, lowest market price of ____, which equals marginal revenue.
The 9th column reports the losses that would occur at each output level. What is total loss at an
output of zero? How about an output of one? Report total loss for all remaining output levels.
Based on these figures, what is the best short-run decision for the competitive firm: keep
producing or shut down? Explain.
Materials for Lecture 18
Start with the textbook to get familiar with the content and progression of the lecture. Then, go to
videos and supplemental articles, if provided, for further clarification and additional examples.
Textbook
Read carefully pages 208 through 211 from the textbook.
Video
Profit-maximizing case after three-minute mark

How falling market price may lead to loss-minimizing and shutdown cases

Article
Article on price and production dynamics in competitive oil markets (sign up for free to read)
http://www.economist.com/news/briefing/21688919-plunging-prices-have-neither-halted-oilproduction-nor-stimulated-surge-global-growth

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