Chapter 14 Questions and answers

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Answer:b. If the price is €3 per golf ball, what is Barry's optimal level ofproduction? What criteria did you use to determine the optimal level ofproduction?Answer:Optimal production is either two or three golf balls per hour. This level of productionmaximizes profit (at €2) and it is the level of output where MC = MR (at €3).c. Is €3 per golf ball a long-run equilibrium price in the market for golfballs? Explain. What adjustment will take place in the market for golfballs and what will happen to the price in the long run?Answer:No, because Barry is earning positive economic profits of €2. These profits will attract newfirms to enter the market for golf balls, the market supply will increase, and the price will falluntil economic profits are zero.d. Suppose the price of baseballs falls to €2. Fill out the remaining threecolumns of the table above. What is the profit-maximizing level ofoutput when the price is €2 per baseball? How much profit does Barry'sBaseball Manufacturing earn when the price of baseballs is €2?Answer:Optimal production is either one or two golf balls per hour. Zero economic profit is earned byBarry.Practice Questions to accompany Mankiw & Taylor: Economics: Special Edition
e. Is €2 per golf ball a long-run equilibrium price in the market for golfballs? Explain. Why would Barry continue to produce at this level ofprofit?Answer:Yes. Economic profits are zero and firms neither enter nor exit the industry. Zero economicprofits means that Barry doesn’t earn anything beyond his opportunity costs of production buthis revenues do cover the cost of his inputs and the value of his time and money.f. Describe the slope of the short-run supply curve for the market for golfballs. Describe the slope of the long-run supply curve in the market forgolf balls.Answer:The slope of the short-run supply curve is positive because when P = €2, quantity supplied isone or two units per firm and when P = €3, quantity supplied is two or three units per firm. Inthe long run, supply is horizontal (perfectly elastic) at P = €2 because any price above €2causes firms to enter and drives the price back to €2.3. a. In Exhibit 1, show the cost curves of a representative firm in long-runequilibrium along side the corresponding market equilibrium.Exhibit 1Answer:See Exhibit 5.Exhibit 5Practice Questions to accompany Mankiw & Taylor: Economics: Special Edition
Page 1: Chapter 141. Are the following mark
Page 5: Answer:See Exhibit 7.Exhibit 7d. Af

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