SELF-CHECK QUESTIONS 1. Firms in a perfectly competitive market are said to be \"price takers\"that is, once the market determines an equilibrium price for the product. firms must accept this price. If you sell a product in a perfectly competitive market, but you are not happy with its price. would you raise the price, even by a cent? 2. Would independent trucking fit the characteristics of a perfectly competitive industry? 3. Look at Table 3.13. What would happen to the firm's profits if the market price increases to $6 per pack of raspberries? Quantity Total Cost Fixed Coat Variable Cost Total Revenue Prot 10 $60 $62 $26 $60 $30 30 $126 $62 $160 $64 40 $144 $62 $62 $240 $96 50 $166 $62 $300 $134 60 $162 $62 $360 $166 70 $224 $62 $420 $166 60 $324 $62 m $640 $216 100 $404 $62 m $600 $166 Table 3.13 4. Suppose that the market price increases to $6. as Table 8.14 shows. What would happen to the profit-maximizing output level? Qu - Total Fixed Variable Marginal Tcrtal Marginal \" l l3 Cast Cast Cast Cost Revenue Revenue . \"m - 2o m .2... 30 $02 004 $1.00 00.00 40 $144 $02 002 $1.00 00.00 50 0100 $02 0104 $2.20 00.00 00 0102 $02 0 30 $2.00 $300 $0.00 II 70 $224 $ $102 $3.20 $420 $0.00 02 00 .52 .2... $4.00 .5... .. mo .. mo Table 3.14 5. Explain in words why a prot-maximizing firm will not choose to produce at a quantity where marginal cost exceeds marginal revenue. 6. A firm's marginal cost curve above the average variable cost curve is equal to the rm's individual supply curve. This means that every time a rm receives a price from the market it will be willing to supply the amount of output where the price equals marginal cost. What happens to the firm's individual supply curve if marginal costs increase? 7. If new technology in a perfectly competitive market brings about a substantial reduction in costs of production. how will this affect the market? 0. A market in perfect competition is in long-run equilibrium. What happens to the market if labor unions are able to increase wages for workers? . --_ - mo Table 8.14 5. Explain in words why a prot-maximizing firm will not choose to produce at a quantity where marginal cost exceeds marginal revenue. 6. A firm's marginal cost curve above the average variable cost curve is equal to the rm's individual supply curve. This means that every time a rm receives a price from the market it will be willing to supply the amount of output where the price equals marginal cost. What happens to the firm's individual supply curve if marginal costs increase? 7. If new technology in a perfectly competitive market brings about a substantial reduction in costs of production. how will this affect the market? 3. A market in perfect competition is in long-run equilibrium. What happens to the market if labor unions are able to increase wages for workers? 9. Productive efficiency and allocative e'iciency are two concepts achieved in the long run in a perfectly competitive market. These are the two reasons why we call them \"perfect.\" How would you use these two concepts to analyze other market structures and label them "imperfect?\" 1!). Explain howr the profit-maiomtaing rule of setting P = MC leads a perfectly competitive market to be allocativel}r efcient. 41. A computer company produces affordable, easy- to-use home computer systems and has fixed costs of $25!]. The marginal cost of producing computers is $'FIJIJ for the rst computer, $25!} for the second, $300 for the third, $351] for the fourth, $400 for the fifth, $451] for the sixth, and $511") for the seventh. 51. Create a table that shows the company's output, total cost, marginal cost, average cost, variable cost, and average variable cost. b. At what price is the zero-prot point? At what price is the Shutdown point? c. If the company' sells the computers for issue, is it making a prot or a loss? How big is the prot or loss? Sketch a graph with AC, MC, and AVE curves to illustrate your answer and show the prot or loss. {1. If the firm sells the computers for $3M, is it making a prot or a loss? How big is the prot or loss? Sketch a graph with AC, ME, and AVE curves to illustrate your answer and show the prot or loss