Econ: Economics and Supply Curve Essay

973 Words Feb 22nd, 2014 4 Pages
ECON
1. (Demand Under Perfect Competition) what type of demand curve does a perfectly competitive firm face? Why?

A horizontal or a perfectly elastic, demand curve. A perfectly competitive firm is called a price taker because that firm must “take,” or accept, the market price- as in “take it or leave it.”

2. Explain the different options a firm has to minimize losses in the short run.

A firm in perfect competition has no control over the market place. Sometimes that price may be so low that a firm loses money no matter how much it produces. Such a firm can either continue to produce at a loss or temporarily shut down.

3. (The Short-Run Firm Supply Curve) Each of the following situations could exist for a firm in the short run.
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This is very competitive to other firms in the industry.

5. (Long-Run Industry Supply) Why does the long-run industry supply curve for an increasing-cost industry slope upward? What causes the increasing costs in an increasing-cost industry?

Having a supply curve that slopes upward means the higher the price, the more suppliers are willing to supply the market. In the long run as price increases, more and more firms are willing to produce more product as Price is greater than Marginal cost. So the supply curve is upward sloping.

6. The National Council of Economic Education’s EconEdLink has an interesting module on the economics of Internet access at http://www.econedlink.org/lessons/index.cfm?lesson=NN10 Please review the materials provided. Is provision of Internet access a competitive industry? Briefly discuss.

Anything which has price is competitive. Firms attempt to take away business from competitors by reducing prices and/or providing better service so as to gain their business. In the internet business it is no different. If the internet service provider charge per minute, by the hour, by the week or month than there will invariably be a decrease in usage as the prices go up. However, when there is a flat rate across the board regardless of usage more and more people will simply use the services.

7. Commodities like gold often trade in markets that are examples of perfect competition. Think of a commodity…