Apply Market Theory

Apply Market Theory

Please answer each question. Remember to copy and paste this entire assignment to Word and use that as a template, then put your answers below each question.
1. Write a few sentences (or more) differentiating between economic and accounting cost.
2. The graph in Figure 8.1 represents the relationship between total cost, total revenue (on the vertical axis), and quantity of the goods or service (on the horizontal axis). What is the economic profit of the firm represented in Figure 8.1 (assume the firm is maximizing its economic profit)? Please explain your answer.
Figure 8.1

3. Please answer the following questions when the firm represented in Figure 8.2 maximizes its economic profit.
a. What is the profit-maximizing output level and price?
b. What is total revenue?
c. What is total economic cost?
d. What is total economic profit?
e. What is the total fixed cost?

Figure 8.2

4. Please answer the following questions when the firm represented in Figure 8.3 maximizes its economic profit.
a. What is the profit-maximizing output level and price?
b. What is total revenue?
c. What is total economic cost?
d. What is total economic profit?
e. What is the total fixed cost?
Figure 8.3

5. In Figure 8.3 (above) why is MR (marginal revenue) of this firm constant? Why is MC (marginal cost) upward sloping?
6. Capital-intensive firms, such as in utilities or the airlines, generally have average total costs (ATC) that decline over a long range of output. Please answer the following questions:
a. Why does this occur (hint: it has something to do with fixed costs)? Please explain and show all work.
b. When average total costs (ATC) are declining, what is the behavior of marginal costs (are marginal costs increasing, decreasing, or constant)? Please explain and show all work.
c. Airlines tend to operate in an environment where ATC and MC are always declining. This implies that the airlines’ marginal revenue (MR) will necessarily be greater than its marginal cost (MC). If you were an airline company manager, would you recommend for a continued contraction or expansion of the firm/operation (Yes or no and why—with detailed explanation)?
d. True or False and why:
Because capital intensive firms (higher capital to labor ratios) tend to exhibit declining average total and marginal costs, over the long-run they tend to become monopolistic or operate in non-competitive environments.
Length: 5-7 pages
The completed assignment should demonstrate thoughtful consideration of the ideas and concepts presented in the course by providing new thoughts and insights relating directly to this topic.
The content should reflect scholarly writing and current APA standards.
All assignments should adhere to Northcentral University’s Academic Integrity Policy.
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Course Learning Outcomes
• CLO-1: Apply microeconomic concepts to consumer and market characteristics.
• CLO-2: Understand the underlying factors of market supply and demand.
• CLO-3: Differentiate consumer decision-making and behaviors.
• CLO-4: Discuss how market structures impact a firm’s economic decisions.
• CLO-5: Describe the theory of intensely competitive markets.