Perfect Competition

d) Break even sales change that would change the profits by the same amount as a reduction in price.

15. In pure competition, each extra unit of output that a firm sells will yield a marginal revenue that is ( )

20. What is the term for the extra revenue derived from the sale of one more unit?

In our second assumption, instead of using the cost of goods per cases in 1986, we try to use the percentage it counts in the total expenses which is 50.4% and to find the sales needed to break-even. The detail of the calculation is shown in the answer for questions d. The result is that 95,635, a little bit higher than the estimated sales of 90,000.

6. In a monopolistic competition industry, if one firm appreciably increased its price from the existing equilibrium price, which of the following outcomes would most likely ensue?

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

* Use the profit maximization rule MR = MC to determine your optimal price and optimal output level now that you have market power. Compare these values with the values you generated in Assignment 1. Determine whether your price higher is or lower.)

Suppose a frost destroys much of the Florida orange corp. At the same time, suppose consumer tastes shift toward orange juice. What would we expect to happen to the equilibrium price and quantity in the market for orange juice?

8. Compared to a perfectly competitive industry with the same demand and cost curves, a monopoly’s price and output will be which of the following?

In a competitive market, the market demand is Qd = 60 - 6P and the market supply is Qs = 4P. A price ceiling of $3 will result in a A. B. C. D. shortage of 30 units. shortage of 15 units. surplus of 30 units. surplus of 12 units.

In economic theory, perfect competition describes markets such that no participants are large enough to have the market power to set the price of a homogeneous product. Because the conditions for perfect competition are strict, there are few if any perfectly competitive markets. Still, buyers and sellers in some auction-type markets, say for commodities or some financial assets, may approximate the concept. Perfect competition serves as a benchmark against which to measure real-life and imperfectly competitive markets.

Evaluate each of the following changes in supply and/or demand. How will each affect equilibrium price and quantity in a competitive market? Will price and quantity rise, fall, or be unchanged? Based on shifts, will the answers be indeterminate?

(a) Suppose you own a coffee shop. List some of the fixed inputs and variable inputs you would use in operating the shop. (4 marks)

Demand Price VC FC Profit Probability 150000 170 4500000 20000000 1000000 0.25 250000 180000 170 5400000 20000000 5200000 0.5 2600000 200000 170 6000000 20000000 8000000 0.25 2000000 4850000 Est. Profit The second scenario has fixed costs of $25 million, but a higher selling price of $200. These changes need to be made to the calculation. The demand and probabilities do not change, nor does the variable cost associated with producing the good. Under the second strategy, the results are as follows:

a) Draw Brennan's average total, marginal revenue and marginal cost curves. (Hints: calculate total revenue (P* times Q) first, and then calculate MR)