Question

1. Draw each of the following scenarios for a firm in a price searcher market with low barriers to
entry for the short-term and long-term. In the end, you should have 6 graphs. Label and include
all of the following in each graph: demand curve (d), equilibrium price (P), equilibrium quantity
(q). MC curve, ATC curve, MR curve, area of profit (if there are any), area for losses (if there are
any). Be sure the MC curve intersects the ATC curve at its lowest point.
a. A price searcher market firm making a profit.
b. A price searcher market firm with zero economic profits.
c. A price searcher market firm with economic losses.

Answer 1

The equilibrium price is the market price where the quantity of goods supplied is equal to the quantity of goods demanded. This is the point at which the demand and supply curves in the market intersect.

Equilibrium quantity is when supply equals demand for a product. The supply and demand curves have opposite trajectories and eventually intersect, creating economic equilibrium and equilibrium quantity. Hypothetically, this is the most efficient state the market can reach and the state to which it naturally gravitates.

a)

Since price is less than average cost, the firm is making a loss. First consider a situation where the price is equal to $5 for a pack of frozen raspberries.
...

Table 1. Profit and Average Total Cost
If…	Then…
Price > ATC	Firm earns an economic profit
Price = ATC	Firm earns zero economic profit

Price searcher is a firm that must determine the price-output combination that maximizes profit because it faces a downward-sloping demand curve (Miller, 2012). There are two different ways to determine price-output combination either looking at total revenues and total cost or marginal revenues and marginal costs.

b) A  a price searcher may make either economic profits or losses, depending on market conditions. ... After long-run adjustments have been made, price and quantity fall with firm entry until P = ATC and firms earn zero economic profit.A Zero Economic profit or Normal profit in Economic terms would mean Total Revenue minus Explicit Costs minus Implicit Costs. A normal profit is an economic condition that occurs when the difference between a firm's total revenue and total cost(both explicit and implicit) is equal to zero.

c) Price searcher may make either economic profits or losses, depending on market conditions. As firms enter the industry, each existing firm loses some of its market share. ... If firms incur an economic loss, firms exit, to achieve long-run equilibrium.

In the long run, neither competitive price takers nor competitive price searchers will be able to earn economic
profits because If firms in a competitive price-searcher market are currently earning economic losses, then in the long run, a. new firms will enter the market, and the current firms will experience a decrease in As long as a market is contestable, then even if it has only a few sellers