In the long run, perfectly competitive firms will exit the market if the price is O A. equal to average fixed cost. O B. less than average total cost. OC. equal to average total cost. O D. higher than average variable cost. O E. equal to marginal revenue.
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- If new technology in a perfectly competitive market brings about a substantial reduction in costs of production, how will this affect the market?(a) What are the basic assumptions that need to be satisfied for a market to be called perfectly competitive? List them one after the other. (b) What must be satisfied (in the general case) for a firm to be maximizing profit in the short run? (That is, what condition must hold at the profit-maximizing output level for a general firm in the short run?). A firm in a perfectly competitive industry currently faces a market price of $20 and is maximizing profit by producing 500 units of output at this price. The firm’s total costs are $14,000, of which $5,000 are fixed costs. a) How much profit is the firm making? (Show how you determine this.) b) Should the firm continue to produce in the short run? Explain fully. c) Should the firm continue to produce in the long run? Explain clearly WHY the long run decision may be different than the short run decision, assuming the firm expects no changes in demand conditions.
- a. Why is the marginal revenue of a perfectly competitive firm equal to the market price? b. Would a perfectly competitive firm produce if price were less than the minimum level of average variable cost? Why?(a) Why the competitive firm faces a relatively horizontal demand curve. (b) The profit maximization rule for a perfectly competitive firm states that the perfectly competitive firm will maximize its profits when it produces that quantity where marginal revenue equals marginal cost for the last unit produced and sold. In your own words explain why the firm is better off producing that quantity where MR = MC rather than that quantity where MR > MC or that quantity where MR < MC. (c) Should a firm shut down and why if its revenue is R=$ 1, 000. Its variable cost VC=$ 500 and its sunk fixed cost is F= $ 600. Its variable cost VC=$ 1, 500 and its sunk fixed cost is F= $ 500.Assume that there are 100 identical company in the perfectly competitive cabbage industry. Each firmhas a short-run total cost curve given by ST C = 0.5Q2 − 10Q + 300. Solve the following: 1. Derive expressions for the corresponding short-run average cost, average variable cost,average fixed cost curve, and marginal cost.2. Calcalute the firm’s short-run supply curve with market price (P) as a function of Q (thenumber of kilos of cabbage)3. Show the industry supply curve for the 50 firms in this industry
- A perfectly competitive firm decides to shut down if: O the price falls below the average-total-cost. O the price falls below the marginal cost. average revenue falls below the average-variable-cost. O the average revenue curve lies below the marginal cost curve. the total revenue is less than total cost.Answer the following: 1. Assuming that the product’s price is P58 per pack, should the competitor sell in the short-runWhy or why not?If it decides to sell, what will be the profit-maximizing (or loss-minimizing output per day)?What is the profit (or loss) that the seller can realize per day? What is the profit (or loss) per pack?A. Assuming that the product price is P42 per pack, answer the same questions in letter A.B. Because of increasing sellers of masks in the market, the product’s price further decreased to P32per pack. Again, answer the same questions in letter A.C. When is this seller going to shut down?D. Now generate the seller’s supply curve of mask in the short run.a. Are the following statements true or false? Explain your reasons. For a firm with price in excess of average total cost, the presence of economic profits implies that the firm should increase output in the short run even if price is below marginal cost. If marginal cost is rising with increasing output, average cost must also be rising. Fixed cost is the same at each output level except when no output is produced. When a firm produces no output, there are no fixed costs. b. Allsmart’s demand curve is given by Q=10-P for its dishwashers. The marginal and average cost is $3 per dishwasher produced. Complete the following table.
- Question 3 The current market price in a competitive industry is $15. Every firm in the industry operates a technology that implies costs described by the function C = 12.5 + 0.3Q2. In the future, the technology is expected to change, and the new cost function will then be C = 10 + 0.2Q2. How much profit is the typical firm making today and in the long run? O. Profit is zero both today and in the long run. O. Profit is 125 both today and in the long run. O. Profit is 175 today and zero in the long run. O. Profit is 250 today and 125 in the long run.Consider total cost and total revenue given in the following table: TABLE IN IMAGE Calculate profit for each quantity. How much should the firm produce to maximize profit?(ii) Calculate marginal revenue and marginal cost for each quantity. Graph them. (Hint: Put the points betweenwhole numbers. For example, the marginal cost between 2 and 3 should be graphed at 2½.) At what quantitydo these curves cross? How does this relate to your answer to part (a)?(iii) Can you tell whether this firm is in a competitive industry? If so, can you tell whether the industry is in along-run equilibrium? (8.75)(The Short-Run Firm Supply Curve) Each of the followingsituations could exist for a perfectly competitive firm inthe short run. In each case, indicate whether the firmshould produce in the short run or shut down in the shortrun, or whether additional information is needed to determinewhat it should do in the short run.a. Total cost exceeds total revenue at all output levels.b. Variable cost exceeds total revenue at all output levels.c. Total revenue exceeds fixed cost at all output levels.d. Marginal revenue exceeds marginal cost at the currentoutput level.e. Price exceeds average total cost at all output levels.f. Average variable cost exceeds price at all output levels.g. Average total cost exceeds price at all output levels.
