1)If the conditions for perfect competition are generally not met, why do econom

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Question

1)If the conditions for perfect competition are generally not met, why do economists use the model?

To explain how the Internet has impacted firms' buying practices.

2) Why is the long-run market supply curve upward-sloping in an increasing-cost industry?

As output rises, some firms gain more influence in the market because smaller firms cannot absorb the increases in costs, allowing remaining firms to raise price.

a. The profit-maximizing output is units.

b. In the long run, the market price will (Remain Unchaged , rise , or Decline)remain unchangedrisedecline because (firms will enter the market, there are no firms entering or exiting the market, or firms will exit the market.)firms will enter the marketthere are no firms entering or exiting the marketfirms will exit the market.

4) A farmer is producing where MC = MR. Say that half of the cost of producing wheat is the rental cost of land (a fixed cost) and half is the cost of labor and machines (a variable cost). If the average total cost of producing wheat is $14 and the price of wheat is $11, what would you advise the farmer to do? (“Grow something else” is not allowed.)

The farmer should increase the price at which he sells wheat to $14.

5) You’re thinking of buying one of two firms. One has a profit margin of $9 per unit; the other has a profit margin of $7 per unit. Which should you buy? Why?

If both firms are producing where MR = MC and you could buy either for the same amount, then you should buy the firm:

with the higher total profit. This means that you don't have enough information to determine which firm to buy.

6)Under what cost condition is the shutdown point the same as the point at which a firm exits the market?

When the minimum of the average variable cost curve and the minimum of the average total cost curve intersect.

7)Each of 10 firms in a given perfectly competitive industry has the identical costs given in the first table. The market demand schedule is given in the second table.

Instructions: Round all answers to 2 decimal places.

a. The market equilibrium price and the price each firm gets for its product is $.______

b. Equilibrium market quantity is ________ units, and each firm will produce ______ units.

c. Each firm will make a profit of $_______.

d. Firms begin to exit the market when price falls below $________.

A) To show the impact on long-run profits when barriers to entry are absent. B) To illustrate how firms maximize profits. C) To have a reference point to understand what happens when the invisible hand of the market operates unimpeded.

To explain how the Internet has impacted firms' buying practices.

2) Why is the long-run market supply curve upward-sloping in an increasing-cost industry?

A) As output rises, average total costs shift down. Lower marginal costs decrease the price at which firms make zero profit in the short run but increase the long-run equilibrium price. B) As output rises, demand increases. Higher demand increases the price that firms can charge for their product. C) As output rises, average total costs shift up. Higher marginal costs increase the price at which firms make zero profit and increase the long-run equilibrium price. D)

As output rises, some firms gain more influence in the market because smaller firms cannot absorb the increases in costs, allowing remaining firms to raise price.

0 10 3 1 10 5 2 10 6 3 10 8 4 10 11 5 10 16 6 10 23 7 10 33 8 10 47 9 10 62 10 10 78

A) The farmer should reduce output so that average total costs would decline. B) In the short run, the farmer should still grow wheat because by producing he will lose $3 per unit, but if he did not produce he would lose $7 per unit. In the long run, the farmer will go out of business. C) In the short run, the farmer should shut down because he is making a net loss. By producing he will lose $3 per unit, but if he did not produce he would simply have zero profit. D)

The farmer should increase the price at which he sells wheat to $14.

A) that has a profit margin of $7 per unit because it must be producing more and is therefore earning the higher total profits. B) that has a profit margin of $9 per unit because it must be producing more and is therefore earning the higher total profits. C) that has a profit margin of $7 per unit. A higher profit margin means that you could increase output and further increase total profits. D)

with the higher total profit. This means that you don't have enough information to determine which firm to buy.

6)Under what cost condition is the shutdown point the same as the point at which a firm exits the market?

A)When there are no fixed costs—that is, when AVC is the same as ATC. B) When the short-run average total cost curve and the long-run average total cost curve are identical. C) When average total costs are always declining. D)

When the minimum of the average variable cost curve and the minimum of the average total cost curve intersect.

7)Each of 10 firms in a given perfectly competitive industry has the identical costs given in the first table. The market demand schedule is given in the second table.

Firm
Quantity Firm
Total Cost ($) Firm
Marginal Cost ($) 0 12 -- 1 24 2 27 3 31 4 39 5 53 6 73 7 99 Price
($) Market Quantity
Demanded 16 40 14 50 12 60 10 70 8 80 6 90 4 100 2 110

Explanation / Answer

1. To have a reference point to understand what happens when the invisible hand of the market operates unimpeded.

2. C. As output rises, average total costs shift up. Higher marginal costs increase the price at which firms make zero profit and increase the long-run equilibrium price.

3. Question n't clearly visible

4. In the short run, the farmer should still grow wheat because by producing he will lose $3 per unit, but if he did not produce he would lose $7 per unit. In the long run, the farmer will go out of business.

5. with the higher total profit. This means that you don't have enough information to determine which firm to buy.

6.When the short-run average total cost curve and the long-run average total cost curve are identical.

7. a. $14

b 50 and 5

c 14*5 = 70

d 10.6

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