We are in a perfectly competitive market, in which all firms are identical. Market demand is downward sloping. а. Draw the market supply, demand, and equilibrium. b. At present, our firm is producing new widgets for £1.15 and the market price is £2. Is the firm maximising profits? Is the firm in profit or loss?
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- 4. When we say firms are price takers in competitive market we mean that firms will always choose not to produce in equilibrium. marginal revenue for firms is declining. the demand curve for an individual firm is perfectly elastic. marginal costs of production are increasing for firms.4. At the current price of $63, firms in this (perfectly competitive) market are each producing 8.4 million widgets each year. (The quantities on the horizontal axis are measured in millions.) What will be the price and the typical firm's level of output in the long run? PIsoprofit curves 90 80 70 60 50 40 30 20 10 1 2 3 4 5 6 7 8 9 Q P AC1. Assume you have a perfectly competitive market with two types of firms. The only difference between the two types of firms is that the minimum average cost at which firms of type A can produce is lower than the minimum average cost at which firms of type B can produce. a. Give a graphical example of what the individual long run supply functions of a type A firm and a type B firm may look like. Explain the shape in detail. b. Based on your example, what will the aggregate supply curve of a market with 2 firms, one type A and one type B, look like? Explain the shape in detail. C. Assume now that all potential firms are identical. Evaluate the impact of a demand shock on the long run equilibrium market price and firm numbers. You must use graphical analysis and explain in detail.
- 19. Refer to the following diagrams which pertain to a purely competitive firm producing output q and the industry in which it operates. MC ATC AVC -MRP In the long run we should expect: A. firms to enter the industry, market supply to rise, and product price to fall. B. firms to leave the industry, market supply to rise, and product price to fall. C. firms to leave the industry, market supply to fall, and product price to rise. D. no change in the number of firms in this industry.17. A market is in long-run equilibrium and firms in this market have identical cost structures. Suppose demand in this market decreases. a. Describe what happens to the profit-maximizing output quantity for individual firms as the market leaves and then returns to long-run equilibrium. b. Describe what happens to the market quantity as the market leaves and then returns to long-run equilibrium.Consider a competitive firm that is operating in the short run. The firm is maximizing profits and just breaking even. Assume it has to pay a monthly license fee of $100 and that the fee must be paid for as long as the firm operates. What should the firm do to maximize profits in the short run if the price of the license fee increases from $100 to $150? a. increase price Ob. increase output c. reduce output O d. not change output e. both a and c
- M/c question - Micro 29) What is a characteristic of a perfectly competitive market? A. Goods offered for sale are largely the same B. There are not many sellers in the market C. Firms have difficulty entering the market D. Firms are price setters 28) Refer to Table 14-2. At which quantity of output is marginal revenue equal to marginal cost? A. 8 B. 4 C. 6 D. 2Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: 13+ 12 11+ 10 M PO ↑ Price 9- 8 7 16 4.5 5 4 3 2 1 2 3 4 5 MC 6 7 8 ATC AVC 9 10 1 Quantity Refer to Figure 14-1. If the market price is $4.00, the firm will earn a. negative economic profits in the short run but remain in business. b. zero economic profits in the short run. c. positive economic profits in the short run. d. negative economic profits and shut down.1. The accompanying graph for a firm that operates in a perfectly competitive market. $48 46 TFTGL 10 d. What is the firm's total variable cost at this level of output? e. What is the firm's fixed cost at this level of output? f. What is the firm's profit if it produces this level of output? g. What is the firm's profit if it shuts down? h. In the long run, should this firm continue to operate or shut down? 44 42 40 38 36 34 32 30 28 26 24 22 20 18 16 14 12 10 8 6 summarizes the demand and costs 4 MC ? 2 0 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 6 6.5 7 7.5 8 8.5 9 9.5 10 ATC D¹ = MR AVC AFC Quantity
- 7. Short-run supply and long-run equilibrium Consider the competitive market for ruthenium, Assume that no matter how many firms operate in the industry, every firm is identical and faces the same marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves plotted in the following graph COSTS (Duas per pound) 100 00 00 to 10 MC-D 16 ATC AVC 20 20 ME 00 79 NO QUANTITY (Thousands of pounds) 100 The following graph plots the market demand curve for ruthenium, (?) Use the orange points (square symbol) to plot the initial short-run industry supply curve when there are 10 firms in the market. (Hint: You can disregard the portion of the supply curve that corresponds to prices where there is no output since this is the industry supply curve.) Next, use the purple points (diamond symbol) to plot the short-run industry supply curve when there are 15 firms. Finally, use the green points (triangle symbol) to plot the short-run industry supply curve when there are 20 firms.…Suppose a firm in a competitive industry has the following cost curves: 10 4.5 3.5 9+ 8 7 6 3 ↑Price 2 1 2 3 4 5 MC ATC AVC + + 6 7 8 Quantity Refer to Figure 14-13. If the price is $6 in the short run, what will happen in the long run? a. Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the industry. b. Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry. C. Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the industry. d. Because the price is below the firm's average variable costs, the firms will shut down.13. Suppose a representative firm in a perfectly competitive industry has the following totalcost of production in the short run: TC=Q^3-40Q^2+600Q.a. What will be the long run equilibrium quantity for the firm? What will be the longrun equilibrium price in this industry?b. Let the industry demand be given by QD=12400-4P. How many firms will be activein the long-run equilibrium?c. Suppose the firm faces a positive demand shock that increases the industry demandto QD=16000-4P. Describe how the industry would respond and calculate thechange in the number of firms.