How are firms doing at the equilibrium price, Macroeconomics

Perfect Competition.

a.  What does it mean for a market to be perfectly competitive?  What are the three conditions of perfect competition.  What does it mean for firms to be 'price takers'?

b.  Let's focus on just the per unit information from the table in question #1.  Complete the table.

Total Product (Q)

Average Variable Cost

Average Total Cost

Marginal Cost

0

-

-

-

1

 

 

 

2

 

 

 

3

 

 

 

4

 

 

 

5

 

 

 

6

 

 

 

7

 

 

 

8

 

 

 

9

 

 

 

10

 

 

 

c.  Suppose the market price of this product is $57.  How much would a profit maximizing firm choose to produce?  Calculate profits or losses. 

Please note there are two ways to find the right answer to this questions.  The hard way is to calculate total revenue, total cost and profit for each possible quantity and then pick the Q that yields the highest profit.

The easy way is to use marginal analysis.  Since I'm going to ask you to do this several more times with different prices, I suggest you figure out the easy way.

Price

Quantity Supplied

Profit or Loss

27

 

 

33

 

 

38

 

 

41

 

 

47

 

 

57

 

 

67

 

 

d.  How high does the price need to be for firms to be able to make a profit?  This is the long run shutdown price - if a firm can't make a profit it will shutdown at some point.

e.  How low can the price go before a firm will shutdown immediately?

f.  Now let's scale up from 1 firm to many firms.  Suppose there are 500 identical firms competing in this industry.  Complete the table (it's really a supply schedule).

Price

Quantity Supplied

Quantity Supplied by 500 firms

27

 

 

33

 

 

38

 

 

41

 

 

47

 

 

57

 

 

67

 

 

g.  Graph the industry supply curve with Q on the horizontal and P on the vertical.

h.  Take the following data on demand and add it to your graph.  Find the equilibrium price in this market.

Price

Quantity Demanded

27

6500

33

6000

38

5500

41

5000

47

4500

57

4000

67

3500

i.  How are firms doing at the equilibrium price?  Are they earning profits or losing money?  Do you expect the number of firms to rise or fall in this industry?

Posted Date: 3/29/2013 6:20:38 AM | Location : United States







Related Discussions:- How are firms doing at the equilibrium price, Assignment Help, Ask Question on How are firms doing at the equilibrium price, Get Answer, Expert's Help, How are firms doing at the equilibrium price Discussions

Write discussion on How are firms doing at the equilibrium price
Your posts are moderated
Related Questions
Pucker Lemonade, Inc., is a small company that produces bottled lemonade. Pucker's fixed cost includes the monthly rental cost of the lemon-smashing machines, the bottling machines

Suppose that an investment tax credit is stated to be temporary in nature, and the credit will be 10% on newly acquired capital (investment) equipment and will last just one year o

The price and quantity of lumber and other building materials has gone up recently. Show graphically and explain what might have caused this.

Q. How commercial banks create money? Commercial banks clearly can't influence the amount of currency in economy or monetary base because they aren't allowed to print money. Th

Aggregate Supply (AS) We now shift our attention to the supply side of the macroeconomy. Aggregate supply explains the production and pricing side of the economy and the behav

Describe in detail about Exchange rate systems Various countries have different exchange rate systems. The most significant characteristic of an exchange rate system is to what

A bakery has fixed costs of $10 per day and variable costs of $1 per loaf. Its oven can handle up to 50 loaves a day and it is impossible to obtain additional capacity. Sketch the

This problem revolves around determining the LM curve, as we did earlier in the term such that money demand (M D ) equals money supply (M S ), however in this instance under differ

What are the potential disadvantages of growth? The potential disadvantages of growth are as follows: • Raised pollution, • Depletion of non renewable natural resources

Example of Fixed Investment-ACCOUNTING SYSTEM   Consider again the economy in example III. An inventor offers to construct some machines for each of the three companies which wo