What is a perfectly competitive market

Assignment Help Business Economics
Reference no: EM131548301

Exercise

1. What is a perfectly competitive market? What features or assumptions do these industries have?

2. What is the difference between the short run and the long run? In the long run, how much profits do all firms in a perfectly competitive market earn?

3. How do we find the average total cost, average fixed cost, marginal cost, and marginal revenue? What do each of these mean?

4. What is the point at which producing is no longer profitable? What is the shutdown point for a firm? What should a firm do if it is not profitable, but not at the shutdown point? Why?

5. The table below describes a partial demand function. Estimate marginal revenue for the third unit.

Quantity Demanded

Price

1

30

2

28

3

24

4

12

6. Production Under Perfect Competition

Consider the problem faced by Alice, the owner of a small restaurant in Stockbridge, Massachusetts. In the short run (this week), her scale of production is fixed with respect to all factors except labor: she can hire as many hours of help as she wants at $10 per hour. Her fixed costs (all of which are unavoidable) total $10000 per week.

Alice's production of meals this week is described by the function

Y = 100√L

where Y is meals served per week and L is hours of labor hired.

Graph the production function above (for 0 to 900 hours of labor input). Explain what is meant by "diminishing marginal returns" to a factor of production and illustrate using this production function.

Calculate Alice's total cost of producing 200, 300, and 400 meals per week. Does this production function result in "increasing marginal costs"?

Now suppose that there are a large number of restaurants in Stockbridge, all of them too small to affect the price of meals, and that meals are a homogeneous good. Assuming that the market clears at $10 per meal, so that Alice can sell as many meals as she wants at $10 each, what is Alice's total revenue and profit at 200, 300, and 400 meals per week? Graph Alice's total revenue and total cost.

How many meals will Alice choose to produce this week? What is her profit (or loss) at this level of production? Suppose instead that Alice must pay $20 per hour to hire labor. How will this change Alice's production decision and profit?

Hint: TC = 10000 + Q2/10000, MC = Q/500, P=MR=10, TR = 10Q

Reference no: EM131548301

Questions Cloud

Start from a medium run equilibrium : Consider the medium run. You should assume there is no liquidity trap. Start from a medium run equilibrium.
The delivery of quality health care services : Discover how these two issues may contribute to the rising health care costs as well as the delivery of quality health care services.
Analyze the duties of administrative agencies : What are ethical concerns regarding the President's actions, and what do you believe Eric should do-Which administrative agency governs regulatory compliance
The key elements of a solid emergency response program : Summarize the key points presented in the article.Describe the key elements of a solid emergency response program.
What is a perfectly competitive market : 1. What is a perfectly competitive market? What features or assumptions do these industries have?
Review the asian american brief historical chronology : Review the Asian American Brief Historical Chronology and the Notes on the Ancheta text - identify the constitutional right or combination of rights involved
Describe general policy making viewpoints : Describe general policy making viewpoints that exist today on each of the following health care issues: Access to Care,etc.
Define dialect definition for xml information introduction : Extensible Stylesheet Language Transformations (XSLT) have advanced from the early Extensible Stylesheet Language (XSL) standard.
The state subsidizes the loan for the company : What is the total value added from debt financing if the tax rate is 34% and the state subsidizes the loan for the company?

Reviews

Write a Review

Business Economics Questions & Answers

  Q1 a nation has a population of 260 million people of these

q1. a nation has a population of 260 million people. of these 60 million are retired in the military in institutions or

  Focus on short-run as well as long-run equilibrium

how the economy moves to a new equilibrium. Focus on short-run as well as long-run equilibrium.

  Q assume that the production function for all countries is

q. assume that the production function for all countries is given by y ak13. assume that the depreciation rate d and

  Primary characteristics of relationship include mutuality

The primary characteristics of a “relationship” include mutuality, interaction, iterative nature, ongoing benefit, change in behavior, uniqueness, and trust. Think about a company with which you have a strong relationship. How are each of these attri..

  Calculating the future worth of a geometric gradient series

Assume you were told to prepare a table of factored values for calculating the future worth of a geometric gradient series. Determine the first three values for an interest rate of 10% per year and a rate of change g of 6% per year

  Calculate cournot equilibrium-levels of each firm output

Suppose now that a second firm enters the market. Let Q1 be the output of the first firm, yours, and Q2 the output level of the second firm. Market demand is now given by Q1 + Q2 = 53 – P or inverse demand can be expressed as P = 53 – Q1 – Q2. Calcul..

  Draw the cash flow diagram

Lee Inc, is considering a robot that will cost $6,000 to purchace. At the end of it 9 year life, it salvage value will be $1,000. The robot will need to overhauled in year 5 at a cost of $3,000. O&M costs per year will be $1,000. The robot will gener..

  Explore the higher net present value of education

Are there any studies that explore the higher net present value (NPV) of education in countries with higher Gini coefficients? Additionally, do any of these studies include the impacts of economic mobility as a reducing factor of the NPV or price of ..

  How microsofts incentive to engage in second-degree price

How does Microsoft's incentive to engage in second-degree price discrimination in the market for applications affect its incentives to raise the price of Windows?

  Prepare a power point presentation on networks

Prepare a power point presentation on networks and networking suitable for work areas for the company you are currently employed in.

  Market interest rate is expected to rise

If the market interest rate is expected to rise from this year to the next, would you prefer to be holding a 5-year bond or a 10-year bond? If the market interest rate is expected to fall from this year to the next, would you prefer to be holding a 5..

  Using the alarm system

The Cole family owns a house with an alarm system that they activate whenever they leave the house. Recently, the Cole family purchased homeowner's insurance that fully covers all losses. After purchasing the insurance, family members haven't been us..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd