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).

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Micro Economics For Today

10th Edition

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter8: Perefect Competition

Section8.5: Long-run Supply Curves Under Perfect Competition

Problem 1YTE

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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).

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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