Firm Alpha operates in a perfectly competitive market in a constant-cost industry and is earning negative economic profit.How does Firm Alpha determine its profit-maximizing quantity of output? Explain.Draw correctly labeled side-by-side graphs for Firm Alpha and the market it operates in. Label the axes and all of the following:Market price (PE) and market quantity (QE)The firm's quantity of output (Qe)The firm's average total cost (ATC)Completely shade the area of the firm's total cost.Identify whether the following increase, decrease, or remain constant as the market moves to long-run equilibrium:Market equilibrium quantityMarket equilibrium priceAssume the product that Firm Alpha produces has a negative externality. Draw the marginal social cost (MSC) on the market graph from part (b).Will the unregulated market produce more or less than the socially optimal quantity?Label the socially optimal quantity (Qso) for the market on your graph from part (b). Source StylesNormalFontSize

Perfect competition: Perfect competition occurs in economic theory when all firms sell identical items, the market share has no effect on pricing, companies may enter and depart without barriers, customers have perfect or full knowledge, and corporations cannot control prices. A perfectly competitive corporation must make just one fundamental decision: how much to produce. In other words, it is a market influenced exclusively by market forces. It is the inverse of imperfect competition, which more accurately reflects actual market structure.(A) Assume that Alpha makes negative economic profits in a perfectly competitive market in a constant cost industry. The first technique for the business Alpha to recognize and understand its profit-maximizing level (or quantity) of output is to look at and observe at what quantity/level of output the total revenue exceeds the total cost by the highest and most proportionate margin (or amount). The vertical gap that will tend to form between the total revenue and total cost will either reveal the profits to be earned by firm Alpha (when its total revenue exceeds its total cost by the greatest amount at a given level of output) or the losses to be incurred and borne by firm Alpha (when its total cost is going to exceed its total revenue at a specific level of output). Evaluating whether the marginal revenue equals the marginal cost at a certain level of output is another key technique to evaluate the profit-maximizing level (or quantity) of output of the business Alpha. The level of output at which the marginal revenue equals the marginal cost is the level at which the business Alpha will make the most economic profits conceivable.(B) Marginal Revenue will now cross Marginal Cost directly below the Average Total Cost curve, as seen in the diagram below. As a result, pricing is less than the firm Alpha's average total cost, and the firm Alpha is earning negative economic profits (or, say, losses).(C) The total cost incurred by the firm Alpha is indicated by the red-shaded rectangle (abbreviated as ABCD). The total cost is calculated by multiplying the level (or amount) of product generated and sold by the business Alpha (Qe*) by the average total cost (which is just above the market price level, PE).Since you have posted a multipart question, we are providing you with the solutions to the first three parts of the questions. To get the solution to the remaining parts of the question, please repost the question again.

Answered: Firm Alpha operates in a perfectly…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Firm Alpha operates in a perfectly competitive market in a constant-cost industry and is earning negative economic profit.

How does Firm Alpha determine its profit-maximizing quantity of output? Explain.
Draw correctly labeled side-by-side graphs for Firm Alpha and the market it operates in. Label the axes and all of the following:
1. Market price (P_E) and market quantity (Q_E)
2. The firm's quantity of output (Qe)
3. The firm's average total cost (ATC)
Completely shade the area of the firm's total cost.
Identify whether the following increase, decrease, or remain constant as the market moves to long-run equilibrium:
1. Market equilibrium quantity
2. Market equilibrium price
Assume the product that Firm Alpha produces has a negative externality. Draw the marginal social cost (MSC) on the market graph from part (b).
Will the unregulated market produce more or less than the socially optimal quantity?
Label the socially optimal quantity (Qso) for the market on your graph from part (b).

Source StylesNormalFontSize

Definition Video Formula Definition Phenomenon in which market supply and demand balance each other. Market equilibrium is the economic state in which the market demand curve intersects the market supply curve, giving us the equilibrium price and equilibrium quantity for which a commodity can be sold and purchased in an economy. When market equilibrium is achieved, it suggests that all resources have been allocated efficiently and that there is just a distribution of income and resources in the economy. Video Formula

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