Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Chapter 10, Problem 2DQ
To determine
The equality of
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According to marginal analysis, a perfectly competitive firm will produce an output level where what is true about its Marginal Revenue and its Marginal Cost?
What is the condition for profit maximization for a pure competitive firm?
Explain why a demand curve is also a curve of average revenue. Recalling that when average revenue curve is not falling nor rising, marginal revenue must equal average revenue, explain why it is always true that $ = MR = AR for the perfectly competitive firm
Chapter 10 Solutions
Economics: Principles & Policy
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- What is the shape of the demand curve faced by the perfectly competitive firm? Explain your answer with a diagram.arrow_forward“The profit-maximizing (or loss-minimizing) perfectly competitive firm will want to produce the quantity of output at which the difference between MR and MC is greatest.” Do you agree or disagree with this statement? Explain your answer.arrow_forwardHow does the equilibrium of the perfectly competitive firm differ from the equilibrium of the industry?arrow_forward
- How is it possible for perfectly competitive firms to maximize profit in the short run versus in the long run?arrow_forwardSuppose the market for peaches is perfectly competitive. The short-run average total cost and marginal cost of growing peaches for an individual grower are illustrated in the figure to the right. Assume that the market price for peaches is $30.00 per box. What is the profit-maximizing quantity for peach growers to produce? boxes. (Enter your response as an integer.) At this level of output, profit will be $. (Enter your response rounded to the nearest dollar.) Peach growers will earn positive economic profit in the short run at any market price above $ per box. (Enter your response rounded to one decimal place.) Price (dollars per box) 40- 36- 32- 28- 24 20 16- 12- 8 4- 10 MC 20 30 40 50 60 70 80 Output (boxes of peaches per day) ▬▬ ATC 90 100 Qarrow_forwardWill a profit-maximizing firm in a competitive market ever produce a positive level of output in the range where the marginal cost is falling? Give an explanation.arrow_forward
- The graph shows the average total cost (ATC) curve, the marginal cost (MC) curve, the average variable cost (AVC) curve, and the marginal revenue (MR) curve (which is also the market price) for a perfectly competitive firm that prođuces stuffed animals. Answer the three accompanying questions, MC ATC $320 $300- AVC assuming that the firm is profit-maximizing and does not shut $200 down in the short run. MR-P SI50 What is the firm's total revenue? 205 260 336 365 Quantity 78000 What is the firm's total cost? 126100 What is the firm's profit? (Enter a negative number for a loss.) 48100 Pricearrow_forwardExplain why a competitive firm’s marginal cost curve is the same as its supply curve.arrow_forwardThe following graph illustrates the demand and marginal revenue curve (D=MR) of a perfectly competitive firm. Suppose that when the firm produces 70 units, its average variable cost equals $30 per unit and its average total cost equals $55 per unit. Use the green rectangle (triangle symbols) to plot the total cost of producing 70 units. Next, use the grey rectangle (star symbols) to plot the total variable cost of producing 70 units. Then, use the tan rectangle (dash symbols) to plot the total revenue at 70 units. Finally, use the purple rectangle (diamond symbols) to plot the profit or loss at 70 units. PRICE AND COST (Dollars) 100 90 80 70 60 50 40 30 20 10 0 O 10 20 30 40 50 60 QUANTITY (Units) +ATC + AVC 70 D=MR 80 90 100 Total Cost Total Variable Cost Total Revenue Profit or Loss ?arrow_forward
- Draw a diagram for a perfectly competitive industry with firms earning normal profits in the long run. Assume that all firms in the industry use oil as key inputs. Using an appropriate diagram, illustrate an increase in the price of inputs. Will firm-level profits increase or decrease and will market supply increase or decrease? Also, it asks for perfect competition and graphs to include in this answer.arrow_forwardCan a perfectly competitive firm set its own market price?arrow_forwardWrite True or False and explain briefly 1- Consider a firm in a perfectly competitive market.There are situations where it is optimal for the firm to continue operating in the short-run , but shut down in the long-run. 2- Consider a firm in a perfectly competitive market.There are situations where it is optimal for the firm to shut-down in the short-run , but continue to operate in the long-run.arrow_forward
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