MICROECONOMICS
MICROECONOMICS
11th Edition
ISBN: 9781266686764
Author: Colander
Publisher: MCG
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Chapter 13, Problem 4QAP

(a)

To determine

Check whether the perfectly competitive firm can produce profit-maximizing level of output without perfect knowledge.

(b)

To determine

Check whether perfect competition without perfect knowledge reflects the real world.

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You read in a business magazine that farmers are reaping high profits. With the theory of perfect competition in mind, what do you expect to happen over time (in the long run) to each of the following? The equilibrium output in agricultural markets based on what happens to the price given the change in supply, what do you think will happen to the equilibrium quantity? Will it remain the same, increase or decrease?
George​ Stigler, "Perfect​ Competition, Historically​ Contemplated," Journal of Political Economy​,Vol.​ 55, No.​ 1, (February​ 1957), pp.​ 1-17.   Despite the fact that few firms sell identical products in markets where there are no barriers to​ entry, economists believe that the model of perfect competition is important because     A. economists prefer studying theoretical markets instead of actual markets.   B. all markets eventually become perfectly competitive.   C. it is a benchmark—a market with the maximum possible competition—that economists use to evaluate actual markets that are not perfectly competitive.   D. this is the type of market that our business laws protect and promote.
Suppose the shirts industry is perfectly competitive and begins in a long-run equilibrium. (a) Pluto Company invents a new production process that reduces the production cost. What happens to Pluto Company’s profits and the price of shirts in the short run when Pluto Company’s patent prevents other firms from using the new technology?      (b) What happens in the long run when the patent expires and other firms are free to use the technology?
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