Question

1. A single firm in a perfectly competitive market is a price taker? True or False. Explain with examples.

2. What is the supply curve of a perfectly competitive firm? Is it different from that of the market supply curve? Explain.

3.If a firm makes a loss in the short run, then it would shut down? If no, discuss. If yes, discuss.Offer examples

4. Does the monopolist have a supply curve? Discuss

Answer 1

1) it is true

Price taker firm - One that cannot influence the price of the market, but accept it as a given.

A perfecly competitive firm must charge the going market price, since it has no ability to set prices itself.

A perfectly competitive firm is a price taker because many other firms produce the same product.

Example - agricultural commodities (wheat, soybeans)

2)

A perfectly competitive firm's supply curve is the portion of its marginal cost curve that lies above the minimum of the average variable cost. A perfectly competitive firm maximizes profit by producing the quantity of output that equates price and marginal cost. Yes, the market supply curve is different from supply curve. The market supply curve is an upward sloping curve derived by summing the quantity suppliers are willing to produce when the product can be sold for a given price. It represents the price to quantitycombinations available to consumers of goods and services. In integration with market demand, the market supply curve is necessary for determining the market equilibrium price and quantity.

3)

When firm produce loss and want to shut down then also has to incurred fix cost which is cost liable for the firm. So the market price is lies below average total cost curve but above the average variable cost. So when price exceed the AVC, each unit sold generate more revenue than firm should continue to produce in short run. If firm would earn zero economic profit if shut down even has to pay fix cost.For instance, a restaurant near Toyota company which has 500$ fix cost that is rent and variable cost $ 500 per week. If there is strike in Toyota then nobody will come in restaurant then what can be done. Now, if they generate $ 600 per week then they should continue as it is $ 600 > $ 500 of variable cost.

If the firm cannot earn total revenue more than $3000 that is more than fix cost and variable cost $ 3000, then they should shut down the firm.

4)

Monopolist does not have a supply curve because it is not a price taker; it chooses its profit-maximizing price-quantity combination from among the possible combinations on the market demand curve.

Firm and Industry

monopolistis the industry Competition and Monopoly Compareda monopolist restricts output below the competitive level and thus reduces the amount of economic surplus generated in the market; the monopolist creates an inefficient market outcome

Entry Barriers and Long-Run Equilibrium

If the monopoly profits are to persist in the long run, the entry of new firms into the industry must be prevented.