The first two conditions imply that all consumers and firms are price takers. While the third is not necessary for price-taking behaviour, ass 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 why or why no Scenario Competitive? A few major airlines account for the vast majority of air travel. Consumers view all airlines as providing basically the same service and will shop around for the lowest price. Yes, meets all assumptions No, no free entry There are hundreds of universities that serve millions of students each year. The universities vary by location, size, and educational quality, which allows students with No, not many sellers diverse preferences to find schools that match their needs. No, not an identical product The government has granted a patent to a pharmaceutical company for an experimental AIDS drug. That company is the only firm permitted to sell the drug. Dozens of companies produce plain white socks. Consumers regard plain white socks as identical and don't care who manufactures their socks.2. The demand curve facing a competitive firm Suppose that Falero is one of more than a hundred competitive firms in Vancouver that produces cardboard boxes. In other words, it faces a perfectly elastic (horizontal) demand curve for its output at the current market price (in this case, $5 per small box). It is important to note that while the demand curve of a competitive firm is perfectly elastic, the market demand curve of a competitive market still obeys the law of demand and is downward sloping. In a competitive market, many firms sell an identical product to many buyers. Therefore, if Falero charges even slightly more for a box than other firms charge, it will lose all its customers because every other firm in the industry is offering a lower price. In other words, one of Falero's boxes is a perfect substitute for boxes from the factory next door or from any other factory. On the other hand, if Falero charges less than what other firms charge, Falero would also be worse off because the quantity sold would remain the same since the firm can already sell as much output as it wants at the market price, but the revenue from each unit sold would be lower. Thus, as a competitive firm, Falero must accept the price of $10 per medium box as given. In other words, it faces a perfectly elastic (horizontal) demand curve for its output at the current market price (in this case, $10 per medium box). The green line on the following graph illustrates the demand curve for Falero's medium cardboard boxes: 20 10, 10 10 A PRICE (Dollars per medium box) A N 2 3 5 6 7 9 10 QUANTITY (Thousands of medium boxes)Fill in the price and the total, marginal, and average revenue Falero earns when it produces zero, one, two, or three boxes each day. Quantity Price Total Revenue Marginal Revenue Average Revenue (Boxes) (Dollars per box) (Dollars) (Dollars) (Dollars per box) 0 1 2 3 The demand curve that Falero faces is identical to which of its other curves? Check all that apply. Marginal cost curve Marginal revenue curve Average revenue curve O Supply curve3. Profit maximization using total cost and total revenue curves Suppose Edison runs a small business that manufactures teddy bears. Assume that the market for teddy bears is a competitive market, and the market price is $25 per teddy bear. The following graph shows Edison's total cost curve. On the graph below, use the blue points (circle symbol) to plot total revenue and the green points (triangle symbol) to plot profit for the first seven teddy bears that Edison produces, including zero teddy bears. 200 O 175 Total Revenue 150 Total Cost A 125 Profit 100 TOTAL COST AND REVENUE (Dollars) 75 50 25 -25 1 2 3 4 5 6 7 8 QUANTITY (Teddy bears)Calculate Edison's marginal revenue and marginal cost for the first seven teddy bears he produces, and plot them on the following graph. Use the blue points (circle symbol) to plot marginal revenue and the orange points (square symbol) to plot marginal cost. Remember, for marginal curves, plot the horizontal points between the integers, starting at a quantity of 0.5. 40 O 35 Marginal Revenue 30 -0- 25 Marginal Cost 20 COSTS AND REVENUE (Dollars perteddy bear) 15 10 1 2 3 5 7 QUANTITY (Teddy bears) Edison's profit is maximized when he produces teddy bears. When he does this, the marginal cost of the last teddy bear he produces is ,which is than the price Edison receives for each teddy bear he sells. The marginal cost of producing an additional teddy bear (that is, one more teddy bear over the amount that would maximize his profit) is $ , which is than the price Edison receives for each teddy bear he sells. Therefore, Edison's profit-maximizing quantity corresponds to the intersection of the curves. Because Edison is a price taker, this last condition can also be written as4. Profit maximization in the cost-curve diagram Suppose that the market for wind chimes is a competitive market. The following graph shows the daily cost curves of a firm operating in this market. (Note: Area in blue rectangle is shown in thousands.) 40 36 32 Profit or Loss (in thousands) 24 PRICE (Dollars per wind chime) ATC MC AVC 8 10 12 14 16 18 20 QUANTITY (Thousands of wind chimes) In the short run, at a market price of $20 per wind chime, this firm will choose to produce wind chimes per day. On the previous graph, use the blue rectangle (circle symbols) to shade the area (in thousands) representing the firm's profit or loss if the market price is $20 and the firm chooses to produce the quantity you alre economic loss Note: In the following question, you should enter a positive numb profit c entry field. The area (in thousands) of this rectangle indicates that the firm's would be $ per day.5. Profit maximization and shutting down in the short run Suppose that the market for sports watches is a competitive market. The following graph shows the daily cost curves of a firm operating in this market. 100 60 50 PRICE (Dollars per watch) ATC 30 20 MC AVC 10 10 20 30 40 50 80 70 80 90 100 QUANTITY (Thousands of watches)For each price in the following table, calculate the firm's optimal quantity of units to produce, and determine the profit or loss if it produces at that quantity, using the data from the previous graph to identify its total variable cost. Assume that if the firm is indifferent between producing and shutting down, it will produce. (Hint: You can select the purple points [diamond symbols] on the previous graph to see precise information on average variable cost.) Price Quantity Total Revenue Fixed Cost Variable Cost Profit (Dollars per watch) (Watches) (Dollars) ( Dollars) (Dollars) (Dollars) 25.00 520,000 40.00 520,000 65.00 520,000 If the firm shuts down, it must incur its fixed costs (FC) in the short run. In this case, the firm's fixed cost is $520,000 per day. In other words, if it shuts down, the firm would suffer losses of $520,000 per day until its fixed costs end (such as the expiration of a building lease). This firm's shutdown price-that is, the price below which it is optimal for the firm to shut down-is per watch.Attempts Keep the Highest / 4 6. Deriving the short-run supply curve Consider the competitive market for sports jackets. The following graph shows the marginal-cost (MC), average-total-cost (ATC), and average- variable-cost (AVC) curves for a typical firm in the industry. (? 100 80 70 ATC 50 COSTS (Dollars) 40 30 20 "AVC O MC O 10 20 30 40 50 60 70 80 90 100 QUANTITY (Thousands of jackets)For each price in the following table, use the graph to determine the number of jackets this firm would produce in order to maximize its profit. Assume that when the price is exactly equal to the average variable cost, the firm is indifferent between producing zero jackets and the profit-maximizing quantity. Also, indicate whether the firm will produce, shut down, or be indifferent between the two in the short run. Lastly, determine whether it will make a profit, suffer a loss, or break even at each price. Price Quantity (Dollars per jacket) (Jackets) Produce or Shut Down? Profit or Loss? 15 20 25 55 70 85Suppose there are 7 firms in this industry, each of which has the cost curves previously shown. On the following graph, use the orange points (square symbol) to plot points along the portion of the industry's short-run supply curve that corresponds to prices where there is positive output. (Note: You are given more points to plot than you need.) Then, place the black point (plus symbol) on the graph to indicate the short-run equilibrium price and quantity in this market. Note: Dashed drop lines will automatically extend to both axes. (?) 100 Demand Industry's Short-Run Supply 70 -+ Equilibrium 50 PRICE (Dollars perjacket) 40 30 20 70 140 210 280 350 420 490 580 630 700 QUANTITY (Thousands of jackets) At the current short-run market price, firms will in the short run. In the long run,7. Short-run supply and long-run equilibrium Consider the competitive market for copper. Assume that, regardless of how many firms are in the industry, every firm in the industry is identical and faces the marginal-cost (MC), average-total-cost (ATC), and average-variable-cost (AVC) curves shown on the following graph. 100 22.5, 40 COSTS (Dollars per kilogram) MC O AVC 10 15 20 25 30 35 40 45 50 QUANTITY (Thousands of kilograms) The following diagram shows the market demand for copper. On the graph below, use the orange points (square symbol) to plot the initial short-run industry supply curve when there are 20 firms in the market. (Hint: You can disregard the portion of the supply curve that corresponds to prices where there is no output since this is the industry supply curve.) Next, use the purple points (diamond symbol) to plot the short-run industry supply curve when there are 30 firms. Finally, use the green points (triangle symbol) to plot the short-run industry supply curve when there are 40 firms.The following diagram shows the market demand for copper. On the graph below, use the orange points (square symbol) to plot the initial short-run industry supply curve when there are 20 firms in the market. (Hint: You can disregard the portion of the supply curve that corresponds to prices where there is no output since this is the industry supply curve.) Next, use the purple points (diamond symbol) to plot the short-run industry supply curve when there are 30 firms. Finally, use the green points (triangle symbol) to plot the short-run industry supply curve when there are 40 firms. (? 100 90 Supply (20 firms) Supply (30 firms) PRICE (Dollars perkilogram) Supply (40 firms) Demand 30 20 10 125 250 375 500 625 750 875 1000 1125 1250 QUANTITY (Thousands of kilograms) If there were 20 firms in this market, the short-run equilibrium price of copper would be |$ per kilogram. At that price, firms in this industry would . Therefore, in the long run, firms would the copper market. Because you know that competitive firms earn economic profit in the long run, you know the long-run equilibrium price must be per kilogram. From the graph, you can see that this means there will be * firms operating in the copper industry in long-run equilibrium. True or False: Assuming implicit costs are positive, each of the firms operating in this industry in the long run earns positive accounting profit. O True O False8. Short-run and long-run effects of a shift in demand Suppose that the turkey industry is in long-run equilibrium at a price of $5 per kilogram of turkey and a quantity of 300 million kilograms per year. Suppose that the Public Health Agency of Canada (PHAC) announces that a bacteria found in turkey is causing an infection to spread around the world. The PHAC's announcement will cause consumers to demand _ turkey at every price. In the short run, firms will respond by On the graph below, shift the demand curve, the supply curve, or both on the following diagram to illustrate these short-run effects of the PHAC's announcement. (? ) 10 O Supply Demand Co Supply PRICE (Dollars per kilogram ) Demand 30 120 180 240 300 360 420 480 540 600 QUANTITY (Millions of kilograms) In the long run, some firms will respond by untilOn the graph below, shift the demand curve, the supply curve, or both on the following diagram to illustrate both the short-run effects of the PHAC's announcement and the new long-run equilibrium after firms and consumers finish adjusting to the news. 10 O Supply Demand CO Supply PRICE (Dollars per kilogram ) Demand 80 120 180 240 300 350 420 4 480 540 600 QUANTITY (Millions of kilograms) The new equilibrium price and quantity suggest that the shape of the long-run supply curve in this industry is in the long run