4) Consider the two diagrams below. First diagram represents a typical firm in a purely competitive industry. Second diagram represents the supply and demand conditions in that industry. Assume all the firms are identical and it is a constant cost industry. Price $6 5 4 ATC ↑ $6 5 4 3 2 New S S₁

4) Consider the two diagrams below. First diagram represents a typical firm in a purely competitive industry. Second diagram represents the supply and demand conditions in that industry. Assume all the firms are identical and it is a constant cost industry. Price $6 5 4 ATC ↑ $6 5 4 3 2 New S S₁

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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4) Consider the two diagrams below. First diagram represents a typical firm in a purely
competitive industry. Second diagram represents the supply and demand conditions in that
industry. Assume all the firms are identical and it is a constant cost industry.
(a)
(b)
Price
$6
LO
2
1
0
10
20 30
Quantity
A
ATC
40 50
$6
5
4
3
2
0
New S
S₁
Quantity
B
D₁
1000 2000 3000 4000 5000
Describe the price, output, and profit situation for the individual firm in the short run.
Describe what will happen to the individual firm and the industry in the long run. Show
the changes on diagrams A and B.

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Revenue and Costs ($) TC P61 Given TFC = $40.00 Q1 = 30.00 Q2 = 40.00 TR P6 P5 Q3 = 50.00 Q4 = 80.00 Q5 = 86.00 P4. P1 = $40.00 P2 = $50.00 P3 = $60.0o P4 = $150.00 P5 = $200.00 P6 = $210.00 P61 = $320.00 P3 P2 P1 Q1 Q2 Q4 Q5 Q3 Exhibit TR-TC Output (Q) Refer to Exhibit TR-TC for a typical competitive firm. At an output level of Q5, the firm's losses is about O $100.00 O $90.00 O $110.00 O $120.00