Question

Bob produces Blu-ray movies for sale, which requires a building and a machine that copies the original movie onto a Blu-ray. Bob rents a building for $30,000 per month and rents a machine for $20,000 a month. Those are his fixed costs. His variable cost per month is given in the accompanying table.b)There is free entry into the industry, and anyone who enters will face the same costs as Bob. Suppose that currently the price of a Blu-ray is $25. What will Bob's profit be? Is this a long-run equilibrium? If not, what will the price of Blu-ray movies be in the long run?

Answer 1

calculate Bob's profit:

Quantity (Q) Variable Cost (VC) Total Cost (TC) Total Revenue (TR) Profit (π)

0 - $50,000 $0 -$50,000

1,000 $10,000 $60,000 $25,000 -$35,000

2,000 $15,000 $65,000 $50,000 -$15,000

3,000 $20,000 $70,000 $75,000 $5,000

4,000 $25,000 $75,000 $100,000 $25,000

5,000 $30,000 $80,000 $125,000 $45,000

Bob's profit at the current price of $25 is $45,000 when he produces and sells 5,000 Blu-ray movies per month. This is not a long-run equilibrium because there is still profit to be made in the industry, so new firms will enter and increase the supply of Blu-ray movies, causing the price to decrease. In the long run, the price of Blu-ray movies will decrease to the point where the profit of each firm is zero (i.e., at the point where the price equals the minimum average total cost of production).

Step-by-step explanation:

ABOVE