12. a) Given a typical firm in a perfectly competitive market show the firm's optimal choice alongside the market equilibrium, and briefly explain why both consumer and producer surplus are maximised in this case. b) A profit-maximising firm faces a downward-sloping demand curve for its output and has marginal costs that increase with output. Show, on a single diagram, how its profit maximisation decision can be represented both in terms of marginal revenue and marginal cost, and a feasible set optimisation. c) Explain and identify on a diagram the dead weight loss that arises in b) above and thereby compare the equilibrium in b) with the equilibrium found in a) above in terms of Pareto efficiency. d) Assume an initial equilibrium in which the typical firm in a perfectly competitive industry is earning excess profits. Explain how this excess profit will be reduced to normal profit. You should illustrate your answer with a diagram.

12. a) Given a typical firm in a perfectly competitive market show the firm's optimal choice alongside the market equilibrium, and briefly explain why both consumer and producer surplus are maximised in this case. b) A profit-maximising firm faces a downward-sloping demand curve for its output and has marginal costs that increase with output. Show, on a single diagram, how its profit maximisation decision can be represented both in terms of marginal revenue and marginal cost, and a feasible set optimisation. c) Explain and identify on a diagram the dead weight loss that arises in b) above and thereby compare the equilibrium in b) with the equilibrium found in a) above in terms of Pareto efficiency. d) Assume an initial equilibrium in which the typical firm in a perfectly competitive industry is earning excess profits. Explain how this excess profit will be reduced to normal profit. You should illustrate your answer with a diagram.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Part C D