Answered: TRUE/FALSE 1. For a purely competitive…

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Economics

TRUE/FALSE 1. For a purely competitive firm, the demand curve facing it is the same as its marginal revenue curve.

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter22: Perfect Competition

Section: Chapter Questions

Problem 15QP

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TRUE/FALSE
1. For a purely competitive firm, the demand curve facing it is the same as its marginal
revenue curve.

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A firm in a perfectly competitive industry has patented a newprocess for making widgets. The new process lowers the firm’saverage cost, meaning that this firm alone (although still aprice taker) can earn real economic profits in the long run. a. If the market price is $20 per widget and the firm’s marginalcost is given by MC=0.4q , where q is the dailywidget production for the firm, how many widgets willthe firm produce? b. Suppose a government study has found that the firm’snew process is polluting the air and estimates the socialmarginal cost of widget production by this firm to be. If the market price is still $20, what is thesocially optimal level of production for the firm? Whatshould be the rate of a government-imposed excise tax tobring about this optimal level of production? c. Graph your results.
What two rules does a perfectly competitive firm apply to determine its profit-maximizing quantity of output?
Explain how the profit-maximizing rule of setting P=MC leads a perfectly competitive market to be allocatively efficient.
Since a perfectly competitive firm can sell as much as it wishes at the market price, why can the firm not simply increase its profits by selling an extremely high quantity?