Exam 7: Firms in Perfectly Competitive Markets

An increase in a firm's fixed cost will not change the firm's profit-maximising output in the short run.

Using two graphs,illustrate how a positive technological change in the market for notebook computers could eliminate short-run economic profit for a firm in that market.On the first graph,use a supply and demand graph to illustrate the positive technological change.On the second graph,use demand,ATC,MC,and MR curves to illustrate the elimination of economic profit resulting from the positive technological change.Explain what is taking place in each graph. __________________________________________________________________________________________________________________________________________________________________________________________

How are sunk costs and fixed costs related?

Allocative efficiency is achieved in an industry when firms supply those goods and services that provide consumers with a marginal benefit equal to the marginal cost of producing those goods and services.

Figure 7.4 Figure 7.4 shows the cost and demand curves for a profit-maximising firm in a perfectly competitive market. -Refer to Figure 7.4.If the market price is $30 and the firm is producing output,the amount of the firm's profit or loss is -.

Figure 7.6 -Refer to Figure 7.6.Suppose the market price is $120.Which of the following is true?

Figure 7.2 -Refer to Figure 7.2.At what output level does the firm break even?

Figure 7.9 -Refer to Figure 7.9.Suppose the prevailing price is $20 and the firm is currently producing 1350 units.In the long-run equilibrium,the firm represented in the diagram

Assume that a perfectly competitive market is in long-run equilibrium.Suppose as a result of a health hazard associated with the industry's product,demand decreases drastically.The immediate result of this event is:

Figure 7.2 -Refer to Figure 7.2.What is the amount of profit if the firm produces Q₂ units?

Assume that the personal computer industry is perfectly competitive.The fact that the price of personal computers over the last decade has fallen despite increases in demand signifies that the industry is a decreasing-cost industry.

Perfectly competitive industries tend to produce low-priced,low-technology products.

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

A firm will break even when

Why would a company continue to operate for many years while never once turning a profit rather than shut down immediately? Using revenue and cost analysis,explain when the company would shut down. __________________________________________________________________________________________________________________________________________________________________________________________

A firm will make a profit when

Figure 7.9 -Refer to Figure 7.9.Suppose the prevailing price is $20 and the firm is currently producing 1350 units.In the long-run equilibrium,

If a typical firm in a perfectly competitive industry is incurring losses,then

Suppose Veronica sells teapots in the perfectly competitive teapot market.Her output per day and her costs are as follows: Output per Day Total Cost 0 \ 20 1 32 2 37 3 48 4 61 5 75 6 92 7 113 8 136 Suppose the current equilibrium price in the teapot market is $15.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 given quantity,the total profit of a perfectly competitive firm is equal to the vertical distance between the firm's total revenue curve and its total cost curve.