Question
In: Economics
Suppose we have n firms in a perfectly competitive industry. The shapes of the marginal and...
Suppose we have n firms in a perfectly competitive industry. The shapes of the marginal and average cost curves are as usual, i.e., they are U-shaped. The industry demand curve is downward sloping. Please answer the following questions associated with this simple model.
a. Write down the basic assumptions of a perfectly competitive industry. We have frequently stated that these assumptions were very crucial in obtaining certain results from this model. Explain each assumption in that sense in a few sentences.
b. Describe the industry equilibrium and corresponding long-run equilibrium of any firm in this market. For this analysis, you are supposed to draw two graphs.
c. If there is an increase in the demand for the product in this industry, how is the market going to be affected? What will be the effect of this change on a representative firm in the short-run? Explain possible profit opportunities in the market. As you did in part (b), draw two graphs showing all these changes. For simplicity purposes, please use the same long-run AC curve for your analysis.
d. How will the industry adjust to the change in the demand in the long-run? More briefly: (i) What will happen to the number of firms in the industry? (ii) What are the properties of the new long-run equilibrium in terms of profits? (iii) Which particular assumption(s) did you use in reaching these conclusions? Assume a change in total industry supply will not change the input prices.
Solutions
Rahul Sunny answered 8 months agoRelated Solutions
Suppose we have n firms in a perfectly competitive industry. The shapes of the marginal and...
Suppose we have n firms in a perfectly competitive industry. The
shapes of the marginal and average cost curves are as usual, i.e.,
they are U-shaped. The industry demand curve is downward sloping.
Please answer the following questions associated with this simple
model. a. Write down the basic assumptions of a perfectly
competitive industry. We have frequently stated that these
assumptions were very crucial in obtaining certain results from
this model. Explain each assumption in that sense in a few...
Let a perfectly competitive industry have 100 identical firms with a marginal cost curve given by...
Let a perfectly competitive industry have 100 identical firms
with a marginal cost curve given by MC = Q/2.
a. Construct the short run industry supply curve with 100
firms.
b. Let the market demand curve be Q = 4000 – 200*P. Find the
short run equilibrium price, industry quantity, and firm
quantity.
c. This is a constant cost industry with a cost of $8. Will
firms be making profits or losses in the short run equilibrium in
b?
d....
Suppose you have a perfectly competitive industry and firms have positive profits. Explain the forces of...
Suppose you have a perfectly competitive industry and firms have
positive profits. Explain the forces of change that will move the
situation toward equilibrium (just as in the assignment on this
chapter)
include what happens in the market diagram and then say how that
changes the picture of the firm's diagram (what is the relationship
between the firm's Demand and ATC after the adjustment?) be clear
about how that picture looks
compared with firms in a perfectly competitive industry, firms in a monopolistically competitive industry are inefficient...
compared with firms in a perfectly competitive industry, firms
in a monopolistically competitive industry are inefficient because
thery
a. do not lower the product price if put prices fall
b. waste resources by producing an excess amount of output
c. restrict their output levels to maximiz profirs
d make economic profits in the long run.
which of the following statement is true about a firm in a
perfectly competitive market
a. the demand for its product is a downward sloping...
In the long run in a perfectly competitive industry, price equals marginal cost and firms earn...
In the long run in a perfectly competitive industry, price
equals marginal cost and firms earn no economic profits. The
following two equations describe this long-run situation for prices
and costs, where the numbers indicate the amounts of each input
(labor and land) needed to produce a unit of each product (wheat
and cloth):
P wheat = 60w + 40r
P cloth = 75w + 25r
If the price of wheat is initially 100 and the price of cloth is...
3. In the long run in a perfectly competitive industry, price equals marginal cost and firms...
3.
In the long run in a perfectly competitive industry, price
equals marginal cost and firms earn no economic profits. The
following two equations describe this long-run situation for prices
and costs, where the numbers indicate the amounts of each input
(labor and land) needed to produce a unit of each product (wheat
and cloth):
P wheat = 60w + 40r
P cloth = 75w + 25r
If the price of wheat is initially 100 and the price of cloth...
There are 20 firms in a perfectly competitive industry. Ten firms have production function q =...
There are 20 firms in a perfectly competitive industry. Ten
firms have production function q = 2L^0.5 while the other ten firms
have production function q = 4L^0.5. We label the first type of
firms, “low productivity” and the second type of firms, “high
productivity.” All firms sell their output at a unit price of P =
$1. All firms are price takers in the labor market.
Find the profit maximizing demand for labor of the two types of
firms....
Suppose there is a perfectly competitive industry where all the firms are identical with identical cost...
Suppose there is a perfectly competitive industry where all the
firms are identical with identical cost curves.
Furthermore, suppose that a representative firm’s total cost is
given by the equation TC = 120 + q2 + 2q where q is the
quantity of output produced by the firm.
You also know that the market demand for this product is given
by the equation P = 1200 – 2Q where Q is the market quantity. In
addition you are told that...
Suppose there is a perfectly competitive industry where all the firms are identical with identical cost...
Suppose there is a perfectly competitive industry where all the
firms are identical with identical cost curves.
Furthermore, suppose that a representative firm’s total revenue
is given by the equation TR = q.p; where q is the quantity of
output produced by the firm and p the market price (=P).
The market demand for this product is given by the equation P =
5000 – 9Q where Q is the market quantity.
In addition you are told that the market...
Suppose there is a perfectly competitive industry where all the firms are identical with identical cost...
Suppose there is a perfectly competitive industry where all the
firms are identical with identical cost curves.
Furthermore, suppose that a representative firm’s total revenue
is given by the equation TR = q.p; where q is the quantity of
output produced by the firm and p the market price (=P).
The market demand for this product is given by the equation P =
5000 – 9Q where Q is the market quantity.
In addition you are told that the market...
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