Author Question: Ellen's Painting Services is a perfectly competitive firm that currently paints 10 houses a month ... (Read 36 times)

Arii_bell · **on:** Jun 29, 2018

Ellen's Painting Services is a perfectly competitive firm that currently paints 10 houses a month and charges 100 per house, which is the going market price.

Ellen's marginal cost is positively related with the quantity of service she provides and is currently 120. What should Ellen do to increase her economic profit? Paint more houses? Raise her price? Explain your answer.

Question 2

Economies of scale occur when the percentage increase in output

A) exceeds the percentage increase in all inputs.
B) is less than the percentage increase in all inputs.
C) exceeds the percentage decrease in all inputs.
D) is less than the percentage decrease in all inputs.

Hikerman221 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

Ellen should decrease the number of houses she paints until her marginal cost equals the market price. This way she will maximize her profit. As a perfectly competitive firm, Ellen is a price taker and cannot raise or lower her price without losing profit.

Answer to Question 2

A