Exam 8: Firms in Perfectly Competitive Markets

Ethan Nicholas, who developed the iShoot application for the iPhone 3G, found that to maintain sales in a profitable competitive market, the price of a product

Figure 8.7 Figure 8.7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 8.7.Identify the short-run shut down point for the firm.

Figure 8.11 -Refer to Figure 8.11.Suppose the prevailing price is P₁ and the firm is currently producing its loss-minimising quantity.If the firm represented in the diagram continues to stay in business, in the long-run equilibrium

If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, the firm

Which of the following is true of firms that are price takers?

Explain two different ways to determine the profit-maximising level of output for a firm in a perfectly competitive market. __________________________________________________________________________________________________________________________________________________________________________________________

What are the two options for a firm that is operating at a loss in the short run?

Assuming a market price of $4, fill in the columns in the following table.What is the profit-maximising level of production? What are the two ways to determine the profit-maximising level of production? __________________________________________________________________________________________________________________________________________________________________________________________

Ted's Pancake Kitchen suffers a short-run loss.Ted should decide to shut down rather than continue to produce

After an increase in demand in a constant-cost industry, firms will find themselves with higher average cost curves.

Assume that price is greater than average variable cost.If a perfectly competitive seller is producing at an output where price is $11 and the marginal cost is $14.54, then to maximise profits the firm should

The demand curve for an individual seller's product in perfect competition is

Suppose Veronica sells teapots in the perfectly competitive teapot market.Her output per day and her costs are as follows: Suppose the current equilibrium price in the teapot market is $10.To maximise profit, how many teapots will Veronica produce, what price will she charge, and how much profit (or loss)will she make? Draw a graph to illustrate your answer.Your graph should include Veronica's demand, ATC, AVC, MC, and MR curves, the price she is charging, the quantity she is producing, and the area representing her profit (or loss). __________________________________________________________________________________________________________________________________________________________________________________________

For a perfectly competitive firm, at the profit-maximising output, average revenue equals marginal cost.

What assumptions are necessary for a market to be perfectly competitive? Explain why each of these assumptions is important. __________________________________________________________________________________________________________________________________________________________________________________________

Figure 8.16 -Refer to Figure 8.16.If the market price is P₁, the allocatively efficient output level is

Table 8.3 Arnie sells basketballs in a perfectly competitive market.Table 8.3 summarises Arnie's output per day (Q), total cost (TC), average total cost (ATC)and marginal cost (MC). -Refer to Table 8.3.What will Arnie's output be and how much profit will he earn if the market price of basketballs is $5.00?

Suppose Veronica sells teapots in the perfectly competitive teapot market.Her output per day and her costs are as follows: Suppose the current equilibrium price in the teapot market is $20.To maximise profit, how many teapots will Veronica produce, what price will she charge, and how much profit (or loss)will she make? Draw a graph to illustrate your answer.Your graph should include Veronica's demand, ATC, AVC, MC, and MR curves, the price she is charging, the quantity she is producing, and the area representing her profit (or loss). __________________________________________________________________________________________________________________________________________________________________________________________

Letters are used to represent the terms used to answer this question: price (P), quantity of output (Q), total cost (TC)and average total cost (ATC).Which of the following equations is equal to a firm's profit?

Which of the following describes a situation in which a good or service is produced at the lowest possible cost?