Question 8

The model of competitive markets relies on these three core assumptions: 1. There must be many buyers and sellersa few players can't dominate the market. 2. Firms must produce an identical productbuyers must regard all sellers' products as equivalent. 3. Firms and resources must be fully mobile, allowing free entry into and exit from the industry. The first two conditions imply that all consumers and firms are price takers. While the third is not necessary for pricetaking behavior, assume for this problem that a market cannot maintain competition in the long run without free entry. Identify whether or not each of the following scenarios describes a competitive market, along with the correct explanation of wh y or why not. Scenario Competitive? V Scholastik Inc. owns the U.S. copyright to a popular book series. It is the only company with the legal right to publish books in the series in the United States. V In a small town, there are two providers of broadband Internet access: a cable company and the phone company. The Internet access offered by both providers is of the same speed. V Dozens of companies produce plain white socks. Consumers regard plain white socks as identical and don't care who manufactures their socks. V In a major metropolitan area, one chain of coffee shops has gained a large market share because customers feel its coffee tastes better than that of its competitors. Attempts I I Keep the Highest / 1 8. Firm's Revenue A firm in a competitive market receives $1,120 in total revenue and has marginal revenue of $20. The firm's average revenue is S , and units were sold. 9. Firm's Cost Schedule Jane's Juice Bar has the following cost schedules: In the following table, complete the marginal cost, average variable cost, and average total cost columns. Quantity Variable Cost Total Cost Marginal Cost Average Variable Cost Average Total Cost (Vats ofjuice) (Dollars) (Dollars) (Dollars) (Dollars) (Dollars) 0 0 3O 1 5 3S 2 15 45 3 3O 60 4 50 80 5 75 105 6 105 135 right and to plot between integers. For example, if the marginal cost of increasing production from 1 vat of juice to 2 vats of juice is $5, then you would plot a point at (1.5, 5 ). ) Then use the purple points (diamond symbol) to plot the averagevariable cost curve starting at 1 vat of juice, and use the green points (triangle symbol) to plot the average-total-cost curve also starting at 1 vat of juice. /_\\ K21 4a - El 35 -- Marginal Cost 30 -- + 25 - . Average Variable Cost .9 g 20 - A o 15 __ Average Total Cost 10 5 __ 0 l l l l l l 0 1 2 3 4 5 6 Quantity (Vats ofjuice) Which of the following statements are true according to the previous graph? Check all that apply. The marginal-cost curve is below the averagetotaI-cost curve when output is greater than four and average total cost is rising. The marginal-cost curve lies above the averagevariabIe-cost curve. The marginal-cost curve is below the averagetotaI-cost curve when output is less than four and average total cost is declining