Econ Final Exam Word Problems

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1. False. In order for a firm to maximize profits, marginal revenue must equal marginal cost. The statement is true if it were specifically being applied to long-run equilibrium under perfect competition. If it is not being applied to that specific instance then the statement is false as profit maximization takes place when marginal revenue equals marginal cost. 2. The Miami plant should continue to operate because it only loses $60,000 per month compared to possibility of losing $68,000 (its fixed costs) per month. By continuing to operate, the company is saving themselves $8,000 per month. However, due to the continued loses in the short-run, the company should make plans in the future to address the long-term situation of the Miami plant. 3. Because the market was monopolistically competitive, Keds should have differentiated their product to include different styles, colors, etc. Along with the product differentiation, Keds should have begun advertising the new differences to consumers in order differentiate their product from the competitions. This is a must as monopolistically competitive firms must usually take part in comparative advertising campaigns against each other. 4. It depends. If the quota were to be enforced, your supply would decrease which would lead to an increase in price. If the Japanese market realizes the differences in your product and are willing to pay for the limited quantity of the imported fish, your company wouldn’t suffer that much. This is due to the increase in price of the rare, imported fish and the Japanese’s willingness to pay more for the product. However, if the Japanese market will not accept the increase in price, your profits will suffer greatly because of it. If this were to happen, it would be a good idea to contact the trade representative because of your loss of profits. 5. These strategies do not result in cutthroat Bertrand competition and zero economic profit. Because most home improvement companies...
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