(a) (4 points) GLS Ch8 P6. Heloise and Abelard produce letters in a perfectly competitive industry....

Question

(a) (4 points) GLS Ch8 P6. Heloise and Abelard produce letters in a perfectly competitive industry. Heloise is much better at it than Abelard: On average, she can produce letters for half the cost of Abelard. True or False: If Heloise and Abelard are both maximizing profit, the last letter that Heloise produces will cost half as much as the last letter written by Abelard. Explain your answer. (b) (4 points) The production function in Kate’s detective firm has a constant marginal product of labor everywhere, while the production function in Rick’s detective firm has a diminishing marginal product of labor everywhere. Both firms have the same shut-down price and begin to supply services at Q = 0, and wage is the same and constant. True or false: Kate’s short run supply curve is more elastic that Rick’s short run supply curve at all positive quantities. 3 (c) (4 points) Prianca and Cleo are both trying to determine whether or not to operate in the short run. They have the same marginal cost and average variable cost curves, and they are trying to sell churros in the same perfectly competitive market. Prianca has a very high fixed cost and correctly decides not to operate. True or false: If Cleo’s fixed costs are low enough, it is possible that it is optimal for him to choose to operate

David · Accepted Answer

A) The given statement is false. Each maximizes profit by producing until MR = P = MC. Since 
the price is the same for both, the MC of the last unit produced will also be the same for both. 
Each of the two producers faces different marginal cost curves, but both produce until the 
marginal cost is equal to the market price, and then stop. 
B) The given statement is true. The production function in Kate’s detective firm has a constant 
marginal product of labor everywhere,

(a) (4 points) GLS Ch8 P6. Heloise and Abelard produce letters in a perfectly competitive industry. Heloise is much better at it than Abelard: On average, she can produce letters for half the cost of...

Solution

Answer To This Question Is Available To Download

Related Questions & Answers

Submit New Assignment