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Describe the market structure of perfect competition

Assignment Help Microeconomics
Reference no: EM131716813

Question:

1 - Describe the market structure of perfect competition

1. Define market structure. What factors are considered in determining the market structure of a particular industry?

2. (Perfect Competition Characteristics) Describe the characteristics of perfect competition.

3. (Demand Under Perfect Competition) What type of demand curve does a perfectly competitive firm face? Why?

2 - Determine the perfectly competitive firm's profit-maximizing output in the short run

1. (Short-Run Profit Maximization) A perfectly competitive firm has the following fixed and variable costs in the short run. The market price for the firm's product is $150.

Output FC VC TC TR Profit/Loss
0 $100 $0 __ __ __
1 $100 $100 __ __ __
2 $100 $180 __ __ __
3 $100 $300 __ __ __
4 $100 $440 __ __ __
5 $100 $600 __ __ __
6 $100 $780 __ __ __

a. Complete the table.

b. At what output rate does the firm maximize profit or minimize loss?

c. What is the firm's marginal revenue at each positive level of output? Its average revenue?

d. What can you say about the relationship between marginal revenue and marginal cost for output rates below the profit-maximizing (or loss-minimizing) rate? For output rates above the profit-maximizing (or loss-minimizing) rate?

3 - Outline the conditions under which a firm should produce in the short run rather than shut down, even though it incurs an economic loss

5. (Minimizing Loss in the Short Run) Explain the different options a firm has for minimizing losses in the short run.

6. (Short-Run Loss) Suppose a firm decides to shut down in the short run. What is the resulting loss?

4 - Describe a perfectly competitive firm's short-run supply curve
7. (The Short-Run Firm Supply Curve) Use the following data to answer the questions below:

Q VC MC AVC
1 $10 __ __
2 $16 __ __
3 $20 __ __
4 $25 __ __
5 $31 __ __
6 $38 __ __
7 $46 __ __
8 $55 __ __
9 $65 __ __

a. Calculate the marginal cost and average variable cost for each level of production.
b. How much would the firm produce if it could sell its product for $5? For $7? For $10?
c. Explain your answers.
d. Assuming that its fixed cost is $3, calculate the firm's profit at each of the production levels determined in part (b).

8. (The Short-Run Firm Supply Curve) Each of the following situations could exist for a perfectly competitive firm in the short run. In each case, indicate whether the firm should produce in the short run or shut down in the short run, or whether ad¬ditional information is needed to determine what 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 current output 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.

Verified Expert

This assignment was of microeconomics.It is branch of economics that deals with the study of an individual entity like an individual cost,individual firm and so on. The chapter that was covered in the given assignment is cost. Questions pertained to various types of cost and to the analysis of the behaviour of a perfectly competitive firm in the short run. It further looked at the profit maximization of a firm in the perfectly competitive market and the choices made by such a firm in various cost condition.

Reference no: EM131716813

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Reviews

len1716813

11/11/2017 12:28:41 AM

please answer questions 1-8 from chapter8 on the attachment. the questions are also highlighted. I have also uploaded the study guide for quick reference. Average total cost exceeds price at all output levels. PROBLEMS APPENDIX 357

len1716813

11/11/2017 12:26:57 AM

Upon completion of this unit, students should be able to: 4. Discuss how perfectly competitive markets affect the decision-making process in business firms. Describe the market structure of perfect competition. Determine the perfectly competitive firm’s profit-maximizing output in the short run. Describe a perfectly competitive firm’s short-run supply curve. Be sure to understand the chapter concept as to why a firm would not operate at the lowest point of the average-cost curve in the short run. Confusion comes in because it seems intuitive that the average cost-per- unit produced results in the highest cost-per-unit profit. However, what would you rather have happen, sell eight hammers at a price per unit of $10, or 12 units at an average price per unit of seven dollars? The concept of zero economic profits is most important to grasp. What this means is that in the long-run, in a perfectly competitive market, stability can only occur when there are unlimited amounts of competitors and no advantage can occur. This means that the firms in the industry are being paid exactly the amount to stay in the market, or that the opportunity costs are being covered.

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