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Equilibrium Price and Quantity in Perfect Competition
The perfectly competitive firm takes the equilibrium price set by the market and maximizes profit by producing where price, which also equals marginal revenue, is equal to marginal cost. The level of profit earned depends on the relationship between price and average total cost. Graph the perfectly competive industry of market. Graph the perfectly competitive individual firm. Note that the perfectly competitive market is initially in long-run equilibrium with price equal to P1. Assume now that there is an increase in demand for the good produced in this market. Draw a new market demand curve that illustrates this change and lable it D2. Also, draw the new demand curve for the firm and lable it MR2=D2. Is the firm now making economic profit? Given the change in demand described, over time what will happen to the number of firms the industry? As this change takes place, what will happen to the industry supply curve? Draw the new industry supply curve that is consistent with long-run equilibrium in the market and lable it S2. After the market has once again adjusted to long-run equilibrium, market price is (what ?) and economic profit for the firm is equal to (what ?)
Illustrate what happens to the supply curve and the equilibrium point when a new technology improves a production process.
Illustrate what does empirical evidence on the U.S. experience with the Earned Income Tax Credit predict will be the effect of the new policy.
Explain what would happen to the demand for Motorola picture phones if the price of digital cameras rose
Elucidate when producers reduce price for good and services, it increase consumers surplus and everyone standard of living.
Assume that Congress is considering imposing the 30% tariff on imported automobiles. Who would be the gainers and who would be the losers from such move?
The Lexus LS 430, the top of the line Lexus sedan, riad a base price in Canada of C$85,700 during the fall of 2005. Restated in US dollars using the exchange rate prevailing then, that price is $71,885.
Explain why the Fed must normally add reserves to the banking system via open market operations, on most days, in order to maintain its interest rate target in the federal funds market.
In the US the long-run inflation rate can be expressed simply as the growth rate.
Illustrate what sources of information were researched and utilized. What economic measures are commonly used in discussions of the health of the economy.
The present spot exchange rate is $1.55/£ and the 3M forward rate is $1.50/£. On the basis of your analysis of the exchange rate.
P stands for price Pr stands for price of related good also N stands for per capita disposable income.
For each of the following concepts provide a definition, a complete explanation as to their significance, and a practical example.
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