Demand on equilibrium market price and output

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Reference no: EM13509892

Q1. Suppose a perfectly competitive firm is initially in long-run equilibrium. In the short run, what will happen in each of the following cases to average and marginal costs, and to economic profits? Carefully, explain your answer in eac h case using a graph.

a. The firm experiences an increase in the wages it must pay its employees.
b. The firm acquired an improved production technology.

Q2. Assess the following statement regarding the agricultural industry: "Although farming has become increasingly concentrated over the last 70 years, it is still a highly competitive industry". Explain why you agree or disagree.

Q3. Assume a perfectly competitive firm is currently producing 5,000 units of output and is earning $15,000 in total revenue. The marginal cost of the 5,000th unit of output is $3. The corresponding average total cost is $3.50 and total fixed costs equal $1250. Based on this information, should this firm continue to operate in the short run? Why or why not?

Q4. Assume the market for a good produced by perfectly competitive firms is currently in equilibrium (economic profit = 0). Now assume there is a decrease in market demand for the good. Anal yze the short-run effects of the decrease in demand on equilibrium market price and output. What has happened to the profits of each of the firms in the industry? Over time, what will happen to the number of firms in the industry? Why?

Reference no: EM13509892

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