Exam 9: Profit Maximization in Perfectly Competitive Markets

The competitive firm's demand curve is:

Answer the following: a)Assume that the gold-mining industry is perfectly competitive.On the diagrams below,illustrate the long-run equilibrium in the overall gold market and for a representative gold mine.Draw the industry supply and demand curves as well as the firm's marginal cost curve.Indicate the equilibrium prices and quantities in both markets (at the industry-level and at the firm-level). b)Assume an increase in the demand for jewelry causes a surge in the demand for gold.Using your diagrams,show what happens in the short-run to the gold market and to each existing gold mine.Specifically,are individual firms earning positive,negative,or zero economic profits? Indicate their profit on your graph. c)If the demand for gold remains high,what would happen to the price over time? Specifically,would the new long-run equilibrium price be above,below,or equal to the short-run equilibrium price in part (b)? What causes this change in price,if any? d)Would the new long-run equilibrium price be above,below,or equal to the original long-run equilibrium price? That is,as you've drawn it,is the long-run supply curve in the gold industry upward-sloping,horizontal,or downward-sloping? Explain why it would have this shape.

The perfectly competitive firm's demand curve is horizontal because:

Use the following figure to answer the question : Figure 9-1 : shows the total cost and total revenue for a firm when it prices its products at $8 and $10. -Refer to Figure 9-1.At a price of $10,the profit maximizing level of output for the firm is _____.

Resources are not free to move into and out of an industry when:

In the long-run,firms in a competitive industry earn only a normal rate of return because:

A competitive firm maximizes profit at the output level where:

A perfectly competitive firm is a price taker.This implies that:

The demand for corn has increased over the past few decades to satisfy the increasing demand from the food and ethanol industries.The primary beneficiaries of an expansion in the output of corn are owners of farmland suitable for corn production.What can you conclude about the nature of the corn industry?

The competitive firm maximizes its profit by operating at the point where _____ and price is greater than average variable cost.

The demand curve of a perfectly competitive firm is determined by:

Which of the following will reduce the competitive nature of the agricultural industry?

Use the following figure to answer the question : Figure 9-3 : shows the marginal cost curve,average total cost curve,average variable cost curve,and marginal revenue curve for a firm for different levels of output. -Refer to Figure 9-3.At the output level OC,average fixed cost is equal to _____.

Which of the following will occur in response to an unexpected increase in demand in a constant-cost,competitive industry?

Assume that labor is the variable input for a firm.Which of the following will occur if the wage rate increases?

A profit-maximizing firm expands output until marginal revenue equals the _____ of producing the last unit.

The short-run supply curve for a competitive industry is upward-sloping because:

Firms in an industry are unlikely to have pricing power if:

Use the following figure to answer the question : Figure 9-3 : shows the marginal cost curve,average total cost curve,average variable cost curve,and marginal revenue curve for a firm for different levels of output. -At the output level of OC in Figure 9-3,average profit per unit of output is equal to _____.