Consider a small firm that provides tours to visitors in a large city. The market for tours is perfectly competitive in

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Consider A Small Firm That Provides Tours To Visitors In A Large City The Market For Tours Is Perfectly Competitive In 1 (110.19 KiB) Viewed 22 times

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Consider a small firm that provides tours to visitors in a large city. The market for tours is perfectly competitive in the city. The firm has no fixed costs, so if it does not provide any tours in a day, it has a cost of zero. The daily cost of providing tours is listed in the table below. Total Tours Cost of Providing Tours 1 $27 2 $51 3 $72 4 $90 5 $105 6 $117 7 $126 8 $138 9 $153 10 $171 11 $192 12 $216 Cost of providing tours
Suppose the market price of a tour is $12 per tour. The owner of the tour company took some economics classes but did not always pay attention. Nevertheless, the owner of the firm remembers that, in a competitive market, a profit-maximizing firm would produce a quantity where price equals marginal cost. The lowest number of tours that the firm could provide in order for the marginal cost to equal the price is tours. The highest number of tours that the firm could provide in order for the marginal cost to equal the price is tours. Part 2 (1 point) The owner of the tour company also remembered from the economics classes that the firm should produce on the upward-sloping part of the marginal cost curve. The owner takes these two pieces of information into account and makes a decision about how many tours tours per day. You may assume that the tour provider will provide a tour to provide daily. Accordingly, the firm provides even if it breaks even for that particular (marginal) tour.
Which of the following two statements is correct? Choose one: O A. The tour company owner should not be happy, as the firm would have been better off not providing tours at all. At the chosen level of tours, profits are actually negative. OB. The tour company owner should be happy, as the company is indeed maximizing profits with the chosen number of tours.