Chapter 8 Econ Homework

Table 9.3 shows data for a purely competitive producer, assuming the price of the product is $41, what is the Total Cost of the second unit?

$145

Table 9.3 shows data for a purely competitive producer, assuming the price of the product is $41, what is the Total Revenue of the ninth unit?

$369

Table 9.3 shows data for a purely competitive producer, assuming the price of the product is $41, what is the Marginal Revenue for the fourth unit?

$41

Table 9.2 shows data for a purely competitive producer, assuming the price of the product is $56, what is the Marginal Revenue for the second unit?

$56

Table 9.3 shows data for a purely competitive producer, assuming the price of the product is $41, what quantity should the firm produce to maximize profits or minimize losses?

6 units

Table 9.2 shows data for a purely competitive producer, assuming the price of the product is $56, what quantity should the firm produce to maximize profits or minimize losses?

8 units

Oligopoly is characterized by a

a few large firms with some barriers to entry.

A market with only a few sellers is known as .

a monopoly.

Economists assume that under perfect competition

all firms in the market have access to the same technology and know where to buy inputs at the same prices.

A perfect competitor will have

an incentive to shut down in the short run if its average variable costs exceed its marginal revenue.

In the short run, the perfectly competitive firm maximizes profits by producing the quantity for which

marginal revenue equals marginal cost. How do you find optimal quantity to produce (to maximize profits or minimize losses)? At the quantity where does Marginal revenue = Marginal cost (or at least MR ≥ MC).

When the market structure is one of perfect competition,

marginal revenue is equal to the price of the product. MR = Price = Demand. Is a very important concept to remember when dealing with firms that face perfect competition!!! MR = Price because you sell every unit for the same price... therefore your additional income for selling one additional unity is the same number for every additional unit that you sell. The demand curve for an individual firm in perfect competition graphs as a horizontal line aka perfectly elastic. If you increase the price of your product by one penny your quantity demanded will fall to zero. If you lower increase the price of your product by one penny your quantity demanded will increase to infinity. Each individual firm does not want to produce infinity quantities because economies of scale are exhausted at relatively low levels of quantity produced.

In long run equilibrium, a perfectly competitive firm earns

no economic profit.

A perfect competitor may sometimes continue to

operate in the short run even if its total costs exceed its total revenue. If the losses are smaller than the fixed costs, the firm will continue to operate in the short run

Table 9.3 shows data for a purely competitive producer, assuming the price of the product is $41, this firm's situation is

Operating at a loss but continuing to operate in the short run

Table 9.2 shows data for a purely competitive producer, assuming the price of the product is $56, what are Total Profits or total losses?

$62.96 Total Cost = ATC * Q Total Revenue = MR * Q Total Profit = Total Revenue - Total Cost At the product price of $56: • Will the firm produce in the short run? Yes • If it is preferable to produce, what will be the profit maximizing or loss-minimizing output be? Explain. At output of 8 units the firm is earning a profit. The Firm will produce where Marginal Revenue = Marginal Cost. • What economic profit or loss will the firm realize? $62.96 profit. Or $7.87 profit per unit. Graphically you know there is a profit because: MR > ATC at Quantity of 8 *Note: Here the firm made an economic profit; this indicates that the firm is not in long run equilibrium resulting in more firms realizing profits and entering the market. This will shift the Market Supply curve will shift outward and to the right which ultimately decreases price (MR will stop at ATC minimum point to be in equilibrium). Any time that you see total cost (in econ) you know that we have already added explicit and implicit costs to get the sum that equals total cost.

Table 9.2 shows data for a purely competitive producer, assuming the price of the product is $56, what are the total losses if the firm produces zero units in the short run?

-$60

In the market structure of perfect competition, if firms are making profits within an industry, in the long-run we would expect to see

All of the above More firms enter the industry The market price of the product will decreas until it reaches longrun equilibrium The quantity produced by each individual firm will decrease and the total amount produced in the market increases

A market in which there is more than one firm, but not very many (a few), is known as?

Oligopoly

Which of the following is an assumption regarding costs in perfect competition?

Firms exhaust economies of scale at a low level of output. Because firms exhaust economies of scale at a low level of output they have little to no incentive to produce a quantity beyond the minimum LR-ATC; if the firm did produce beyond that quantity, than their LR-Average total costs would start to increase.

Within a perfectly competitive market structure: The demand curve for an individual firm ___________ & the demand curve for a the market as a whole ___________ .

Is horizontal; slopes downward and to the right

Which of the following are in perfect competition?

Many small firms selling a homogeneous product.

Figure 9.1 shows data for a firm in a perfectly competitive market. If the price of the product is P2, what quantity will be produced to maximize profits or minimize losses? What short run situation is this firm in?

The firm will produce Q2; the firm is suffering losses - but continues to produce in the short run

Figure 9.1 shows data for a firm in a perfectly competitive market. If the price of the product is P3, what quantity will be produced to maximize profits or minimize losses? What short run situation is this firm in?

The firm will produce Q3; the firm is breaking even

Figure 9.1 shows data for a firm in a perfectly competitive market. If the price of the product is P4, what quantity will be produced to maximize profits or minimize losses? What short run situation is this firm in?

The firm will produce Q4; the firm is making profits

Figure 9.1 shows data for a firm in a perfectly competitive market. If the price of the product is P1, what quantity will be produced to maximize profits or minimize losses? What short run situation is this firm in?

The firm will produce zero and shut down in the short run

Perfectly competitive firms are?

price takers These firms sell relatively small quantities, compared to the market as a whole; therefore they do not have control over price (in the short run). Firms that face perfect competition do not have control over the price that they sell their product for - they only have control over how much they produce. Firms that face perfect competition change their levels of profit and loss based on how much they produce at the given market price.

For the perfectly competitive firm to be in long-run equilibrium, the firm will

produce at the minimum of the long run average total cost curve.

The market supply curve is based on

the sum of the marginal cost curves for the individual perfect competitors. This process is known as Horizontal summation because, graphically, we are adding the variable that is on the horizontal axis - Quantity!!! We are adding together all individual firms quantities supplied to get to the market quantity supplied.

For a firm in perfect competition, an individual supply curve (the willingness and ability to supply a product at different prices) is formed by

the upward sloping portion of the individual firm's marginal cost curve.