2. lExplain whether a perfectly competitive firm would or would not innovate.
3. Discuss the following statement "In the real world there is no industry which conforms precisely to the economist's model of perfect competitors. This means that the model is of little practical value".
4. If the ACCC or the NZCC is not liable to promote increased competition in particular industry, what action is it likely to take to increase the welfare of consumers?
5. Suppose the market equilibrium price of lawn-mowing services is 10 cents per square meter in a perfectly competitive industry. Draw the industry supply and demand curves and the demand curve for a single lawn-mowing business. Be sure to indicate on the horizontal axes the actual quantities of lawn-mowing services sold each week. Explain why the single lawn-mowing business is a price taker.
6. Consider the following cost date for a perfectly competitive firm in the short run:

Output	Total Fixed cost	Total Variable cost	Total Cost	Total Revenue	Profit
1	$100	$120	$____	$___	$___
2	100	200	____	____	____
3	100	290	_____	_____	_____
4	100	430	_____	______	_______
5	100	590	______	_______	______

If the market price is $150, how many units of output will the firms produce in order to maximize profit in the short run? Specify the amount of economic profit or loss. At what level of output does the firm break even?

6. Assuming the market equilibrium price for potatoes is $1,35 per kilo, draw the total revenue and the marginal revenue curves for the typical potato grower in the same graph. Explain how marginal revenue and price are related to the total revenue curve.

7. Consider this statement: "Regardless of whether the short run or the long run is being considered, a firm should continue to operate as long as price is greater than average variable cost". Explain whether you agree or disagree and why.

8. Do you agree or disagree with the following statement: "When marginal revenue equals marginal cost, total cost equals total revenue and the firm makes zero profit? Explain your answer.

9. Consider Exhibit 7.15, which shows the graph of a perfectly competitive firm in the short run.

a. If the firm's demand curve is MR, state whether the firm earns an economic profit or loss.

b. Which demand curve(s) indicates the firm incurs a loss?

c. Which demand curve(s) indicates the firm would shut down?

d. Identify the firm's short-run supply curve.

Perfectly competitive Exhibit 7.15 firm IC - ATC AVC MR (dodars) Price per unit MR. Quantity of output qunita per hour