In a perfectly competitive market, there are firms, all selling products. Select one: a. several large; differentiated b. many small; nearly identical c. several large; nearly identical d. many small; differentiated
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- Since a perfectly competitive firm can sell as much as it wishes at the market price, why can the firm not simply increase its profits by selling an extremely high quantity?What are the four basic assumptions of perfect competition? Explain in words what they imply for a perfectly competitive firm.Explain how the profit-maximizing rule of setting P=MC leads a perfectly competitive market to be allocatively efficient.
- A market in perfect competition is in long-run equilibrium. What happens to the market if labor unions are able to increase wages for workers?Sleek Sneakers Co. is one of many firms in the marketfor shoes.a. Assume that Sleek is currently earning short-runeconomic profit. On a correctly labeled diagram,show Sleek’s profit-maximizing output and price,as well as the area representing profit.b. What happens to Sleek’s price, output, and profitin the long run? Explain this change in words, andshow it on a new diagram.c. Suppose that over time consumers become morefocused on stylistic differences among shoe brands.How would this change in attitudes affect eachfirm’s price elasticity of demand? In the long run,how will this change in demand affect Sleek’s price,output, and profit?d. At the profit-maximizing price you identified inpart (c), is Sleek’s demand curve elastic or inelastic?Explain3. Explain under each of the situation, a firm working under a perfectly competitive market would keep on producing or shut down. Show using a diagram and also explain the condition thoroughly. a. P=7; ATC=15; AVC=10 and Q=40b. P=12; ATC=10; AVC=8 and Q=20
- Assume the table below is extracted from Dodi company Ltd a perfectly competitive firm selling cabbages. Assume that when the firm’s selling price is AUD 15, the marginal revenue is also AUD15. Complete the table below and answer the questions that follow. Quantity (Kg) AVC AFC ATC MC 2.50 7.50 5.10 3.50 9.00 3.00 9.00 4.50 10.00 2.50 12.50 5.50 14.00 1.80 13.00 6.00 18.00 1.67 15.00 10.00 25.00 1.43 16.00 Qty = Quantity; AVC=Average variable cost; AFC = Average fixed cost; ATC=Average Total Cost; MC= Marginal Cost; Rev = Revenue; MR= Marginal Revenue; Kg = Kilogram Based on your answers to the table above, identify the profit maximizing quantiy supplied by the firm. Calculate the amount of profit/loss at this optimal point. Show your work.3. What is the meaning of 'acceptable loss' for a perfectiý competitive firm ? Draw a graph and explain.True or false: In a perfectly competetive market, when AVP<P<ATC, a firm will not produce any output to minimize its costs. Explain why using a graph.
- In theory, individual firms in perfectly competitive markets should not advertise. O True FalseAssume that Harry Ellis produces table lamps in the perfectly competitive table lamp market. OUTPUT PER WEEK TOTAL COSTS AFC AVC ATC MC 0 $100 1 150 2 175 3 190 4 210 5 240 6 280 7 330 8 390 9 460 10 540 Fill in the missing values in the table. Suppose the equilibrium price in the table lamp market is $50. How many table lamps should Harry produce, and how much profit will he make? If next week the equilibrium price of table lamps drops to $30, should Harry shut down?1. Draw a graph representing a perfectly competitive firm earning an economic profit.(Make sure to show both the firm and the industry graphs)a. What happens over time, if many firms are earning economic profits?b. Is this good or bad for consumers? Explain.2. Now draw a firm operating under perfect competition that is losing money but shouldstill stay open in the short run. (Again, show both the firm and the industry graphs)a. What happens over-time, if many firms are suffering economic losses?b. Is this good or bad for consumers? Explain.
