draw a diagram of a perfectly competitive firm earning a positive economic profit assume the wages, which the firm pays to its workers, falls. Illustrate the impact of such an event on the price, output and profits of this firm
2. Examine the following statement to see whether it is true or false. If it is true, explain why it is true. If it is false, explain why it is false and then write the statement correctly.
A profit maximising perfectly competitive firm should select the output level at which the difference between the marginal revenue and marginal cost is greatest. This is equivalent to selecting the output where the spread between total revenue and total cost is greatest.
In the short-run, it is possible for an
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If R < VC the firm should shut down.
A decision to shut down means that the firm is temporarily suspending production. It does not mean that the firm is going out of business (exiting the industry).[24]] If market conditions improve, and prices increase, the firm can resume production. Shutting down is a short-run decision. A firm that has shut down is not producing. The firm still retains its capital assets; however, the firm cannot leave the industry or avoid its fixed costs in the short run. Exit is a long-term decision. A firm that has exited an industry has avoided all commitments and freed all capital for use in more profitable enterprises.[25]
However, a firm cannot continue to incur losses indefinitely. In the long run, the firm will have to earn sufficient revenue to cover all its expenses and must decide whether to continue in business or to leave the industry and pursue profits elsewhere. The long-run decision is based on the relationship of the price and long-run average costs. If P ≥ AC then the firm will not exit the industry. If P < AC, then the firm will exit the industry. These comparisons will be made after the firm has made the necessary and feasible long-term adjustments. In the long run a firm operates where marginal revenue equals long-run marginal costs.[26]
[edit]Short-run supply curve
The short run supply curve for a perfectly competitive firm is the marginal cost (MC) curve at and above the shutdown point. Portions of the marginal
3. Many economists believe that the market for wheat in the United States is an almost perfectly competitive market. If one firm discovers a technology that makes their wheat taste better and have fewer calories than all other wheat offered in the market, the wheat market would become less competitive because:
Throughout this task I will do my best to explain how firms determined to maximize profit do just that. Specifically I will delineate how such firms choose the optimum level of production or output for the goods they produce and how they behave with respect to various elevations of marginal revenue. In my attempt it will be appropriate for me to clarify the definitions of various economic terms in order to assure a proper understanding of my thoughts on this topic, I will provide these definitions throughout.
So, to summarize with all the information given, Company A should always strive to have their marginal cost be equal to their marginal cost in order to maximize profit. If they see that their marginal revenue is higher than the marginal cost then more output needs to be produced to get their max profit. In contract, if the marginal cost if higher than the marginal revenue then output needs to
Explain how a profit maximizing firm determines its optimal level of output, using marginal revenue and marginal cost as criteria:
Indicate whether each sentence below is TRUE or FALSE. If the sentence is false, change the underlined word to make the sentence true.
Kudler Fine Foods is the brain child of Kathy Kudler. She envisioned a one stop gourmet food store and has grown to three locations to date. She continues to maintain direct control over large bulk purchase order items, stringent customer service policies, and hiring. This paper discusses how the organization competes in the marketplace and the strengths and weaknesses of the company according to the marketing surveys their customers completed. The following also discusses which market structure best applies to the organization and how that structure positively and negatively affects the firm, how the effectiveness of the competitive strategies in the market structure affect the
In our analysis we determined the equations for total cost and marginal cost using the average cost obtained from the regression model provided, and the fixed costs estimates in the collected data calculated by a previous resource endorsed by the company. Once we have determined the marginal cost equation, we calculated the output for perfect competition profit maximizing criteria P
Indicate whether the statement is true or false. If false, change the identified word or phrase to make the statement true.
We assume that the company will be a going concern entity and maintain growth in line with the economy. However increased competition, loss of market share, unsuccessful management strategy, or even potential bankruptcy due to various reasons is just examples of the less cheerful scenario for the company.
Secondly, how management of Monash Cow Ltd make decisions about continuing of the entity’s assets and operations. To be more specific, in this case, the management of Monash Cow Ltd may consider the performance of each factory by comparing the amount of milk products generated. In the short run, the management may shut down the factory with the lowest efficiency. However, in the long run, the management may continue that factory if the market price is not lower than average variable cost (Leo, knapp, McGowan, & Sweeting,
|5000 employees at the beginning of the 1990s, it has grown to exports of $70 billion and 2.8 million employees today, and a globally dominating |
As an example, if fixed costs are $100, price per unit is $10, and variable costs per unit are $6, then the break-even quantity is 25 ($100 ÷ [$10 − $6] = $100 ÷$4). When 25 units are produced and sold, each of these units will not only have covered its own marginal (variable) costs, but will have also have contributed enough in total to have covered all associated fixed costs. Beyond these 25 units, all fixed costs have been paid, and each unit contributes to profits by the excess of price over variable costs, or the contribution margin. If demand is estimated to be at least 25 units, then the company will not experience a loss. Profits will grow with each unit demanded above this 25-unit break-even level.
* The company has to suffer economical loss due to its cyclic nature of production. The production does not run at full efficiency every time. This leads to the waste of energy, money and resources.
a) In a perfect competitive market, the sole determinant of pricing is the market demand and the supply curves. A demand curve refers to the total amount that consumers will pay for their products. The supply curve is the total amount that the producers can actually make to supply to the company at the price they can afford or are willing to pay. Another factor in a perfect competitive market structure is the equilibrium price which is basically when the supply of the market meets the market demand of the consumers. Anther unique feature of a perfect competition market is that it is a price taker. In essence, this means that the company doesn’t have any influence on the price. Again, this can only be caused through a market that has a large number of firms with identical products. (Samuelson and Marks, 2010).