Ch06-HW

1) Read “So-So Sony,” an article from the Wall Street Journal. What do you suppose “commoditization” is, and why do CEOs fear it?

2) Draw a diagram with a firm’s short run marginal cost, average total cost, average variable cost, and profit in which the firm loses money yet remains in business.

3) Draw a diagram with a firm’s short run marginal cost, average total cost, average variable cost, and profit in which the firm loses money and shuts down. (That is, represent these values at a time before the firm decides to stop producing).

4) Firm A is a perfectly competitive firm in a constant cost industry. Firm B is a perfectly competitive firm in an increasing cost industry. Sketch the long run supply curves for each industry. Which firm will earn larger profits in the long run?

5) Suppose a firm is in an increasing cost industry. Derive its short-run and long-run supply curves by illustrating its relationship to short-run marginal and average costs. (i.e., use two sets of axes. In the left axes, graph MC and AC. In the right chart, graph supply). Be careful to describe the steps you use to construct the supply curves.