1. Using diagrams, illustrate how the price (P) and the demand (d) for a perfectly-competitive firm...

1. Using diagrams, illustrate how the price (P) and the demand (d) for a perfectly-competitive firm are determined.

2. Using a diagram, show how the perfectly-competitive firm determines its profit-maximizing output.

3. Differentiate between productive efficiency and allocative efficiency.

Expert Solution

Ans) a) Perfectly competitive market is where there are many sellers selling homogeneous products. Firms are price takers and price is decided by forces of demand and supply. This price is equal to marginal revenue for an individual firm and also acts as its demand curve. (P=MR=D)

b) A profit maximising firm produces the quantity where MR and MC curve intersect. If price is above ATC, firms earn positive economic profit. If price is equal to ATC, firms earn zero economic profit. If price is below ATC, firms earn negative economic profit. But firm will continue to produce in short run if price is above AVC and will shutdown if price is below AVC.

c) Allocative efficiency is when the resources used for making the goods and services are allocated in such a way that they are most desired by the society. It occurs where price is equal to marginal cost (P=MC).

Productive efficiency is when least costly techniques are used for producing desirable goods and services. It happens when P = min of ATC (see in zero economic profit graph, where Price is equal to min of ATC)

Rahul Sunny answered 8 months ago

Assume that the gold-mining industry is perfectly competitive. a) Illustrate a long-run equilibrium using diagrams for...

Assume that the gold-mining industry is perfectly competitive. a) Illustrate a long-run equilibrium using diagrams for the gold market and for a representative gold mine. b) Suppose that an increase in jewelry demand induces a surge in the demand for gold. Using your diagrams, show what happens in the short run to the gold market and to each existing gold mine. c) If the demand for gold remains high, what would happen to the price over time? Specifically, would the...

In a perfectly competitive firm and a perfectly price discriminating monopolistic face the same demand and...

In a perfectly competitive firm and a perfectly price discriminating monopolistic face the same demand and cost curves, then a.the competitive firm will attain resource-allocative efficiency but the monopolist will not b.the competitive firm will attain resource allocative efficiency but the monopolist may or may not depending upon the demand for its product c.the competitive firm will not attain resource allocative efficiency but the monopolist will d.noth the competitive firm and the monopolist will attain resource allocative efficiency e.neither the...

1) While a perfectly competitive firm charges P=MR=MC. the monopolist firm charges a price that is...

1) While a perfectly competitive firm charges P=MR=MC. the monopolist firm charges a price that is Dalton Utilities Burger King Belk Department Store Smith's Wheat Farm 2) A natural monopoly is said exist if a firm is a price taker in a perfectly competitive market. there are few, if any barriers to entry. the economies of scale are such that many firms produce a homogenous product. economies of scale are so pronounced in an industry that only one firm can...

1: Demand facing an individual, perfectly competitive firm is: a. perfectly inelastic at the quantity the...

1: Demand facing an individual, perfectly competitive firm is: a. perfectly inelastic at the quantity the firm chooses to produce. b. perfectly inelastic at the quantity determined by market forces. c. perfectly elastic at the price the firm chooses to charge. d. perfectly elastic at the price determined by market forces. 2: At the point at which P= MC, suppose that a perfectly competitive firm's MC = $100, its AVC = $80 and its ATC = $110. This firm should...

Please explain the following: a) Explain using properly labelled diagrams, why a perfectly competitive firm will...

Please explain the following: a) Explain using properly labelled diagrams, why a perfectly competitive firm will earn only normal profit in the long -run b) Explain SEVEN (7) conditions necessary for a perfectly competitive market to exist. please provide references

How do the demand curves facing the perfectly competitive firm, the monopolist, and the monopolistically competitive...

How do the demand curves facing the perfectly competitive firm, the monopolist, and the monopolistically competitive firm differ? Explain why these differences arise.

The demand curve for an individual perfectly competitive firm:

MicroEcon 7&822.The demand curve for an individual perfectly competitive firm:A)is a downward sloping demand curve.B)is perfectly elastic.C)is perfectly inelastic.D)is equal to the firms average variable cost curve.23.In a perfectly competitive market, individual firms set:A)prices and quantities.B)neither prices nor quantities.C)quantities but not prices.D)prices but not quantities.24.Which industry best illustrates a perfectly competitive market?A)automobile industryB)soft drink industryC)public utility25.Profit maximizing firms will always operate where:A)MC = MR.B)MC > MR.C)MC < MR.D)It will vary from firm to firm.26.When a firm experiences economies of scale:A)average...

A firm operates in a perfectly competitive market where the market price is p=$200. The firm’s...

A firm operates in a perfectly competitive market where the market price is p=$200. The firm’s total cost of production is given by the following equation: TC(q) = 250 + 10q2 + 20q, where q is the quantity supplied. When this firm maximizes profit, what is the optimal quantity to produce in the short run and what will happen in the long run? a) q=0 (shut-down) both in the long run and in the short run b) q=9 in the...

Explain using properly labelled diagrams, why a perfectly competitive firm will earn only normal profit in...

Explain using properly labelled diagrams, why a perfectly competitive firm will earn only normal profit in the long-run. (16)

Equilibrium price is $10 in a perfectly competitive market. For a perfectly competitive firm, MR=MC at...

Equilibrium price is $10 in a perfectly competitive market. For a perfectly competitive firm, MR=MC at 1200 units of output. At 1200 units, atc is $23 and avc is $18. The best policy for this firm is to ___ in the short run. Also, this firm earns ___ of ___ if it produces and sells 1200 units. a.shut down, losses, 15,600 b.shut down, losses, 9,600 c.continue to produce, losses, $15,600 d.continue to produce, profits, $15,600 Ultimately, market supply curves are...

Question