Chapter 8 17. 18. What is perfectly competitive market? Why a firm in this marke
ID: 1153892 • Letter: C
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Chapter 8 17. 18. What is perfectly competitive market? Why a firm in this market faces a perfectly horizontal demand curve and what does this mean? 19. Show that the firm maximizes profit where price MC of production. Is this condition similar to saying MR - MC? Using diagram for the short-run, show a firm's shut-down point positive profit and zero profit situation. 20. If government impose tariff is the short-run equilibrium show that the firm produces less output 21. What is the firm's short run supply curve? 22. Given that a competitive firm's short-run cost function is C() 100q 4q2+ 0.2q3 450, what is the firm's short-run supply curve? If the price P- 115, how much output does the firm produce? How is firm's long run supply curve derived? When is it horizontal line and when is it a upward slopping one? 23. 24. Question 2.6Explanation / Answer
17)
A perfectly competitve market is one in which there are a large number of buyers and sellers who all produce a homogeneous product so that all the firms cannot influence the price and are price takers.
The features of perfect competition are as following-
Large number of buyers and sellers- In this market,there are large number of buyers and sellers and all these are too small to influece the price in any way.Each seller produces a very small share of the output so that even if it changes its production,there would be no effect on the market supply and therefore on the price of the product.Also,there are a large number of buyers so that any change in consumption or buying habit of a single consumer will have no effect on the market demand and therefore,prices.
Homogeneous Product-All the firms under perfect competition produces a homogeneous or perfectly standardized commodity.These goods are perfect substitutes for one another,so that a uniform price will be present in the market and the seller cannot charge a premium price for their goods.
Freedom of entry and exit-All the firms in the market have the freedom of entry and exit in the market.Any new firm can enter the market at any time and any existing firm can leave the market if they want to.No legal restrictions are present in the amrket in the form of legal,man made or natural.
Perfect knowledge-The consumers,firms and the owners of factors of production have perfect knowledge in the perfect competition.All the firm know the prevailing price in the market and also all the buyers have perfect knowledge about the prevailing price so there exist a equilibrium in the market as any deviation in the market would be quickly corrected.
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