Part (b) Suppose that you have the following information about a perfectly competitive firm: P Q ATC AVC MC $8 1000 $9 $7.8 $7 Based on this information, answer the following questions. (i) Calculate the amount of profit the firm is currently making. Show your working. (ii) Calculate the firm's current producer surplus. Show your working. Should the firm stay in business or shut down? Explain your answer. (iii)
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- Your company operates in a perfectly competitive market. You have been told that advertising can help you increase your sales in the short run. Would you create an aggressive advertising campaign for your product?Briefly explain the reason for the shape of a marginal revenue curve for a perfectly competitive firm.28.The following information is available for a company that operates in a perfectly competitive market. Current Output 5000 units Current Market Price $5 Total Cost $25,000 Marginal Cost $4 Total Variable Cost $20,000 What is the best action for this firm? A-Increase output in the short run and stay in the market the long run. B-Increase output in the short run and decrease output in the long run C-Shut down in the short run and exit in the long run D-Shut down in the short run and produce in the long run E-Reduce output in the short run and increase output in the long run 29.Which of the following statements is true of a perfectly competitive market in the long run? A-No firms can enter or exit. B-All firms earn normal profits, and there is both productive and allocative efficiency. C-Individual firms produce where average variable cost equals marginal cost and marginal revenue. D-It is allocatively efficient but may or may not be productively…
- 32. Company Alpha produces its product in a perfectly competitive market that is in long-run equilibrium. What will happen if it lowers its price while increasing its output? It will increase revenue but increase costs by the same amount. It will incur economic losses. It will take business from its competitors, increasing its revenue and profit. It will begin to develop market power, making its market imperfectly competitive. Its producer surplus will increase but consumer surplus will decrease by a greater amount.Q2 (a). Assume apples are sold in a perfectly competitive market and firms are making zero economic profit. Explain and illustrate graphically, the effect of increase in market price on the short run position of a single firm selling apples. (Hint: Make sure your graph includes the firm’s demand curve, marginal revenue curve, marginal cost curve and average total cost curve and also explain the profit maximising position of a firm)Discuss the long-term effects in a perfectly competitive market if an existing firm is making profits and also losses . Use appropriate graphs to illustrate your explanations.
- 32) Corn is produced in a perfectly competitive market. The demand for ethanol decreases. This will cause the individual corn farmerʹs marginal revenue to ________ and their profit-maximizing level of output to ________.A) increase; increase B) increase; decreaseC) decrease; increase D) decrease; decreaseThe Watts Brewing Company owns valuable water rights that allow it to produce better beer than competitors. The company sells its beer at a premium and reports a large profit each year. Is this firm necessarily making economic profits? Explain.Case D: Apex Company. Apex is a perfectly competitive firm. It has total fixed costs of $300/day and a daily variable cost schedule in the table below. Apex’s product sells for $200 per unit. Quantity (units) 0 1 2 3 4 5 6 7 8 9 10 Total Variable Cost (TVC) 0 100 180 220 300 390 500 640 800 1000 1250 Answer the following questions: If the market price dropped to $80, what is the profit-maximizing level of output? What is Apex’s profit (or loss) in this case? If the market price dropped further to $40, what is the profit-maximizing level of output? What is Apex’s profit (or loss) in this case? Comment on your answers to parts (1) and (2).
- 30. Company Alpha produces its product in a perfectly competitive market that is in long-run equilibrium. What will happen if it lowers its price while increasing its output? It will increase revenue but increase costs by the same amount. It will incur economic losses. It will take business from its competitors, increasing its revenue and profit. It will begin to develop market power, making its market imperfectly competitive. Its producer surplus will increase but consumer surplus will decrease by a greater amount. 31. If barriers to entry ________ or product differentiation ________, competition in a market will ________. increase; increases; increase increase; decreases; increase decrease; increases; increase decrease; decreases; increase decrease; decreases; decreaseHow does a perfectly competitive market adjust during exit and how does this reduce economic loss of existing firms? Show diagram.M/c questions - Microeconomics 15) The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above which average cost? A. fixed cost B. variable cost C. total cost D. sunk cost 14) When a perfectly competitive firm makes a decision to shut down, which is most likely? A. price is below the minimum of average variable cost B. marginal cost is above average total cost C. marginal cost is above average variable cost D. fixed costs exceed variable costs