Question 1

Consider the following table of numbers, which represents demand and cost conditions for a competitive firm.
(a) Fill in the missing values.
(b) What level of output should the firm produce? Explain. $$\begin{array} { c c c c c c c c c c c } 
& & & & & & & & && \text { Total } \
\text { P=MR } & \text { Q } & \text { TFC } & \text { AFC } & \text { TVC } & \text { AVC } & \text { TC } & \text { ATC } & \text { MC } & \text { TR } & \text { Profit } \
600 & 0 & & - & 0 & - & 570 & - & & & \
600 & 1 & & 570 & 240 & & & & & & \
600 & 2 & & & 430 & & & & & & \
600 & 3 & & & 670 & & & & & & \
600 & 4 & & & 960 & & & & & & \
600 & 5 & & & 1,350 & & & & & & \
600 & 6 & & & 1,840 & & & & & & \
600 & 7 & & & 2,430 & & & & & & \
600 & 8 & & & 3,120 & & & & & & \
600 & 9 & & & 3,910 & & & & & & \
600 & 10 & & & 4,800 & & & & & &
\end{array}$$

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Question 2

Using a supply and demand and a typical firm diagram, illustrate the impact of a flood on the market for contractors once the flood has receded. NOTE: Assume the market was perfectly competitive and in a long-run equilibrium position before the flood. Also assume that construction is a constant-cost industry.

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Question 3

Using the following diagram, demonstrate graphically and explain verbally why Q₀ is not a profit maximizing output level.

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Question 4

Consider the following table of numbers, which represents demand and cost conditions for a competitive firm. The price of the product this firm produces is $50. $$\begin{array} { | c | c | c | c | c | c | c | c | } 
\hline \text { Q } & \text { TFC } & \text { MC } & \text { TVC } & \text { TC } & \text { TR } & \text { MR } & \text { Total Profit } \
\hline 0 & 30 & 0 & & & & & \
\hline 1 & & 20 & & & & & \
\hline 2 & & 30 & & & & & \
\hline 3 & & 40 & & & & & \
\hline 4 & & 50 & & & & & \
\hline 5 & & 60 & & & & & \
\hline 6 & & 70 & & & & & \
\hline
\end{array}$$ (a) Fill in the missing values.
(b) What level of output should the firm produces? Why?
(c) What do you predict will happen to the number of firms in the industry? Why?
(d) What do you predict will happen to supply and the market price?
(e) At which price must the firm shut down?

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Question 5

Using the following diagram, demonstrate that producing at the level of output associated with maximum per unit profit (minimum of the ATC curve) does not maximize total profit.

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Question 6

Consider the following table of numbers, which represents demand and cost conditions for a competitive firm. What output level should the firm produce? Explain. $$\begin{array}{l}
\begin{array} { c c c } 
&\text { Quantity }\

\text { Price } = \text { MR } & \text { Produced } & \text { MC } \
600 & 0 & \
600 & 1 & 240 \
600 & 2 & 190 \
600 & 3 & 240 \
600 & 4 & 290 \
600 & 5 & 390 \
600 & 6 & 490 \
600 & 7 & 590 \
600 & 8 & 690 \
600 & 9 & 790 \
600 & 10 & 890
\end{array}
\end{array}$$ NOTE: Marginal values represent values between levels of output. For example, the marginal cost between 0 units and 1 unit is $240.

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Question 7

Consider the following diagram:  Would a perfectly competitive firm facing these conditions stay in business in the short run? Demonstrate your answer by comparing the loss if it stayed open to the loss if it closed.

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Question 8

Study the graph below and answer the following questions.  (a) Is this firm making profit by producing 500 units in the short run? Why or why not?
(b) What will happen in the long run in this industry?
(c) Will the firm survive in this industry?

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Question 9

Demonstrate graphically and explain verbally how a perfectly competitive firm's MC curve is its supply curve.

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Question 10

Demonstrate graphically and explain verbally the case of a constant-cost industry in a perfectly competitive market. Draw both a firm and a market diagram. HINT: The long-run market supply curve in your diagram should be perfectly elastic (i.e., horizontal).

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Question 11

The American Widget Corporation (AWC) is a profit-maximizing and perfectly competitive firm that is currently experiencing a loss. However, the market price of widgets is expected to increase in the near future. The company's vice-president, Alan R. ("Big Tuna") Burns, has recommended against increasing output in response to a higher price for widgets. His argument is that the marginal cost of the additional units of output will increase, and these higher costs will worsen AWC's losses. Evaluate this argument using an appropriate picture.

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Question 12

Demonstrate graphically and explain verbally where the level of output should be when a perfectly competitive firm is earning a positive economic profit. Be sure to label the profit maximizing level of output and shade in the area that represents profit.

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Question 13

Using the following diagram, demonstrate graphically and explain verbally why any movement away from output level Q₀ would decrease the firm's profit.

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Question 14

Demonstrate graphically and explain verbally a perfectly competitive firms' long run equilibrium situation (be sure to show the long-run average total cost curve, short-run average total cost curve, marginal curve, and marginal revenue curve).

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Question 15

Consider the following diagram of a representative competitive firm:  Is this a long-run equilibrium situation? If yes, explain why it is. If no, explain what will happen to transform it into a long-run equilibrium situation.

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Quiz 13: Perfect Competition

Using the following diagram, demonstrate graphically and explain verbally why Q0 is not a profit maximizing output level.

Using the following diagram, demonstrate that producing at the level of output associated with maximum per unit profit (minimum of the ATC curve) does not maximize total profit.

Consider the following diagram: Would a perfectly competitive firm facing these conditions stay in business in the short run? Demonstrate your answer by comparing the loss if it stayed open to the loss if it closed.

Study the graph below and answer the following questions. (a) Is this firm making profit by producing 500 units in the short run? Why or why not? (b) What will happen in the long run in this industry? (c) Will the firm survive in this industry?

Demonstrate graphically and explain verbally how a perfectly competitive firm's MC curve is its supply curve.

Demonstrate graphically and explain verbally the case of a constant-cost industry in a perfectly competitive market. Draw both a firm and a market diagram. HINT: The long-run market supply curve in your diagram should be perfectly elastic (i.e., horizontal).

Demonstrate graphically and explain verbally where the level of output should be when a perfectly competitive firm is earning a positive economic profit. Be sure to label the profit maximizing level of output and shade in the area that represents profit.

Using the following diagram, demonstrate graphically and explain verbally why any movement away from output level Q0 would decrease the firm's profit.

Demonstrate graphically and explain verbally a perfectly competitive firms' long run equilibrium situation (be sure to show the long-run average total cost curve, short-run average total cost curve, marginal curve, and marginal revenue curve).

Consider the following diagram of a representative competitive firm: Is this a long-run equilibrium situation? If yes, explain why it is. If no, explain what will happen to transform it into a long-run equilibrium situation.

Using the following diagram, demonstrate graphically and explain verbally why Q₀ is not a profit maximizing output level.

Using the following diagram, demonstrate graphically and explain verbally why any movement away from output level Q₀ would decrease the firm's profit.