Exam 14: Firms in Competitive Markets

Use a graph to demonstrate the circumstances that would prevail in a competitive market where firms are earning economic profits. Can this scenario be maintained in the long run? Explain your answer.

Figure 14-14 -Refer to Figure 14-14. When the market is in long-run equilibrium at point W in panel (b), the firm represented in panel (a) will

In a competitive market,

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

Table 14-13 Diana's Dress Emporium -Refer to Table 14-13. What is Diana's economic profit at the profit maximizing point?

Scenario 14-4 The information below applies to a competitive firm that sells its output for $40 per unit. -When the firm produces and sells 150 units of output, its average total cost is $24.50. -When the firm produces and sells 151 units of output, its average total cost is $24.55. -Refer to Scenario 14-4. When the firm produces 150 units of output, its total cost is

Figure 14-6 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-6. Firms will be earn losses in the short run but will remain in business if the market price

Susan quit her job as a teacher, which paid her $36,000 per year, in order to start her own catering business. She spent $12,000 of her savings, which had been earning 10 percent interest per year, on equipment for her business. She also borrowed $12,000 from her bank at 10 percent interest, which she also spent on equipment. For the past several months she has spent $1,000 per month on ingredients and other variable costs. Also for the past several months she has taken in $3,500 in monthly revenue. In the short run, Susan should

A firm operating in a perfectly competitive market may earn positive, negative, or zero economic profit in the long run.

Explain how a firm in a competitive market identifies the profit-maximizing level of production. When should the firm raise production, and when should the firm lower production?

When price exceeds average variable cost in the short run, a competitive firm's marginal cost curve is regarded as its supply curve because

Suppose that a competitive market is initially in equilibrium. Then demand increases. If entering firms face the same costs as existing firms and sufficient resources are available for entering firms,

Figure 14-10 In the figure below, panel (a) depicts the linear marginal cost of a firm in a competitive market, and panel (b) depicts the linear market supply curve for a market with a fixed number of identical firms. -Refer to Figure 14-10. If there are 500 identical firms in this market, what is the value of Q2?

If a firm notices that its average revenue equals the current market price, that firm must be participating in a competitive market.

Scenario 14-4 The information below applies to a competitive firm that sells its output for $40 per unit. -When the firm produces and sells 150 units of output, its average total cost is $24.50. -When the firm produces and sells 151 units of output, its average total cost is $24.55. -Refer to Scenario 14-4. Suppose the firm is producing 150 units of output and its fixed cost is $975. Then its variable cost amounts to

Figure 14-9 In the figure below, panel (a) depicts the linear marginal cost of a firm in a competitive market, and panel (b) depicts the linear market supply curve for a market with a fixed number of identical firms. -Refer to Figure 14-9. If there are 400 identical firms in this market, what level of output will be supplied to the market when price is $2.00?

Table 14-10 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-10. At which level of output in the table is average variable cost equal to $6?

Because there are many buyers and sellers in a perfectly competitive market, no one seller can influence the market price.

Figure 14-13 Suppose a firm in a competitive industry has the following cost curves: -Refer to Figure 14-13. If the price is $3.50 in the short run, what will happen in the long run?

Figure 14-4 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-4. The firm will earn positive economic profits if the price is