Exam 14: Firms in Competitive Markets

The market for arts and crafts used in home decoration is a very competitive market. In this market, costs vary since some people work faster than others and have more artistic talent in producing arts and crafts. In this competitive market, we would expect to observe:

The implication of a firm being a price taker is that, if it increases its price then:

Why would a profit-maximising firm in a competitive market set a price higher than the market price?

New Zealand possums produce the highest quality fur, due to the large pelts per body size. Demand for New Zealand possums products has risen dramatically. This is partly a result of the conservation benefits of harvesting New Zealand possums. This has made the product seem more environment-friendly than other fur products and boosted sales to concerned consumers. Assume that the possums market satisfies all of the attributes of a competitive market. Further assume that high grade possum furs are the most expensive input into the possum fur production function. a. Use a graph of the market for possum fur to demonstrate the effect of its environmentally friendly status on the market equilibrium. b. Graph the reaction of an individual incumbent firm to the increase in market demand. In your graph, identify the firm's revenue and cost structures. c. What would you predict would happen to long-run industry supply if the price of possum fur increased as possum culling increased their production of possum furs? Use a graph to demonstrate the validity of your prediction.

Graph 14-4 This graph depicts the cost structure of a profit-maximising firm in a competitive market. Use the graph to answer the following question(s). -Refer to Graph 14-4. This firm will exit the market for any price on the line segment:

When a profit-maximising firm is earning profits, those profits can be identified as:

When firms in a perfectly competitive market face the same costs, in the long-run they must be operating:

From the perspective of a price-taking competitive firm, what is the relationship between price, average revenue and marginal revenue?

When firms have an incentive to exit a competitive market, their exit will:

Table 14-1 This table shows the revenue and costs of a parrot farmer. -Refer to Table 14-1. If the farmer harvested three parrots then:

Restaurants often remain open for lunch even if they attract few customers because, the variable costs are small relative to the revenue, even if the fixed costs are large.

NARRBEGIN 14-2 Graph 14-2 This graph depicts the cost structure for a firm in a competitive market. Use the graph to answer the following question(s). -Refer to Graph 14-2. When price rises from P₃ to P₄, the firm finds that:

Table 14-1 This table shows the revenue and costs of a parrot farmer. -Refer to Table 14-1. If the farmer finds that its marginal cost is $20, the best response would be to:

Graph 14-9 -Refer to Graph 14-9. An increase in market supply from Supply₀ to Supply₁ is most likely the result of:

A profit-maximising firm in a competitive market will always make marginal adjustments to production as long as:

Profit-maximising firms enter a competitive market when:

As a general rule, when accountants calculate profit they account for explicit costs but miss:

In the long run, all of a firm's costs are variable. In this case the exit criterion for a profit-maximising firm is:

In a market with 1000 identical firms, the market supply is equal to the:

Graph 14-1 This graph depicts the cost structure for a firm in a competitive market. Use the graph to answer the following question(s). -Refer to Graph 14-1. When market price is at MC₄, a profit-maximising firm will produce what level of output?