2. Questions and Problems 3 Firm A, one firm in a perfectly competitive industry, faces higher costs of production. As a result, will consumers end up paying higher prices? O No, because in a perfectly competitive industry, the more efficient firms with lower costs will drive firm A out of the market. O No, because it is likely illegal to raise prices to cover the higher costs. O Yes, because firm A likely offers a differentiated product that consumers cannot get from other firms. O Yes, because firm A is the only firm in the industry, so consumers must purchase products from firm A at increased prices.

2. Questions and Problems 3 Firm A, one firm in a perfectly competitive industry, faces higher costs of production. As a result, will consumers end up paying higher prices? O No, because in a perfectly competitive industry, the more efficient firms with lower costs will drive firm A out of the market. O No, because it is likely illegal to raise prices to cover the higher costs. O Yes, because firm A likely offers a differentiated product that consumers cannot get from other firms. O Yes, because firm A is the only firm in the industry, so consumers must purchase products from firm A at increased prices.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A9 The characteristics of a "perfectly competitive" market require that there is 1) a large number of firms, 2) producing products that are identical across firms, 3) in an industry where there are no barriers to entry. It's unlikely that any industry accurately reflects these extreme assumptions, but what industries can you think of that do display these characteristics at least to some extent? Try to identify the limits of your example in reflecting "perfect" competition.
Suppose that in a competitive market the equilibrium price is $2.50. What is marginal revenue for the last unit sold by the typical firm in this market? Select one: O a. less than $2.50 O b. more than $2.50 Oc. exactly $2.50 Od. The marginal revenue cannot be determined without knowing the actual quantity sold by the typical firm.
4. The demand for an individual firm's output depends on the demand for the industry's output, the number of firms in the industry, and the structure of the industry. O a. True Ob. False
Suppose that the firm in a competitive market faces the following revenues and cost: Quantity Total Revenue Total Cost 0 $0 3 1 $7 5 2 14 8 3 21 12 4 28 17 5 35 23 6 42 30 7 49 38 In order to maximize profits, the firm will produce__ a. 6 units of output because marginal revenue equals marginal cost. b. 8 units of output because marginal revenue equals marginal cost. c. 4 units of output because marginal revenue exceeds marginal cost. d. 1 unit of output because marginal cost is maximized.
1. Explain the relationship between price, marginal revenue and average revenue for a perfectly competitive firm? 2. When does a perfectly competitive firm maximize their profits? What they should do if at their current production level their marginal revenue is greater than marginal cost? 3. Explain the difference between a shut-down decision and exiting decision for a competitive firm? When and how they make such decision? 4. Refer to the graph below: Price 19 18 MC 16 12 ATC 1 2 3 43 6 1 8 Quantity In the above graph, assume that the price per unit is $10. Based on this information calculate: a. Profit maximization quantity b. Total revenue at that level c. Total cost at that level d. Profit or loss for this firm (if any) Please refer to the discussion board requirement announcement before posting. First post due on Thursday, May 6th, and reply to two other student's posts due on Sunday, May 9th.
11. The graph below shows the marginal revenue, marginal cost, and average total cost at different quantities for a firm in a perfectly competitive market. If this firm chooses to produce no output in the short run, what must the market price be? A-Below $20 $21-$30 $31-$40 $41-$50 Above $50 7. firm's implicit costs are $10,000, explicit costs are $5,000, and its total revenue is $10,000. This firm is earning A-normal accounting profit B-positive accounting profit of $5,000 C-positive economic profit of $5,000 D-normal economic profit E-negative accounting profit of $5,000
Which of the following statements is TRUE? O Assume that wheat farmers operate in a competitive industry. A decrease in the cost of producing wheat will lead to greater profits for wheat farmers in the long run than in the short run. O A rational decision maker will never take sunk costs into account. A change in price will have no effect on total revenue when the own-price elasticity of demand is zero. O (From the perspective of the consumer) When the fixed fee increases, the quantity consumed will always decrease.
QUESTION 8 Which of the following is true for monopoly and perfect competition? 1 points A. The demand for the B. Economic profits can O C. Marginal revenue is horizontal at the O D. Profits are maximized by producing at the level of output where marginal revenue is equal to marginal cost individual firm's product be sustained is perfectly elastic. indefinitely over industry equilibrium time. price.
Price $70 5.50 530 $10 Demand 10 20 30 40 50 60 70 Quantity If this firm were to sell 20 units of output, its marginal revenue would be O $40 O $600 O $30. O $1,000
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