In the short run, if a competitive firm is making profit, the firm should produce. But if a competitive firm is suffering loss, the firm should shut down.
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- What price will a perfectly competitive firm end up charging up the long run? Why?The diagram at the right shows the various short-run cost curves for a perfectly competitive firm. a. Based on the diagram, and the assumption that the firm is maximizing its profit, fill in the following table. The last three columns require only a "yes" or "no". Market Firm's Is Price > Is Price > Are Price ($) Output ATC? AVC? Profits Positive? $4 $5 $7 $8 $10 Price ($) $1Q $8 $7 $5 $4 135 MC 155:170190 210 Output ATC AVC24) What are shut-down losses (if the firm shuts down)?
- Use a graph to demonstrate the scenario where a competitive firm would be earning positive profit in the short run. Can this scenario be maintained in the long run? Why? What are the ‘shutdown point’ and ‘break even point’ of a competitive firm . Explain with diagram. A competitive market starts in a situation of long run equilibrium. Then there is an increase in demand. Explain what happens in the short run and long run, using necessary diagrams.Homework 4B Draw the MR, MC, AVC, ATC, Demand, supply, MC and MR for the following situations. For each show (as done in class). For each of these situations show the total revenue, total cost area, and shade the profit or loss area, and if the situation is a shut down state why it should shutdown. a. A perfectly competitive firm showing a profit b. A perfectly competitive firm showing a loss but not a shut-down c. A perfectly competitive firm at a break-even point d. A monopolist showing a profit e. A monopolist showing a loss but not a shut-down f. A monopolist at a break-even point g. Difference between a monopolist and a perfectly competitive firm for a profit situation on the same graph space.Q2. Ramzah owned a burger stands along the beach. Figure 2 shows Ramzah’s cost curves. Figure 2: Market for Burger (a) What is Perfect Competition? (b) If the market price of a burger is $4, what is Ramzah’s profit-maximizing output? (c) Calculate the economic profit that Ramzah’s makes. (d) With no change in demand or technology, how will the price change in the long run? (e) Distinguish between technological efficiency and economic efficiency.
- How does a competitive firm determine its profit-maximizing level of out put? Explain. . When does a profit-maximizing competitive firm decide to shut down? When does a profit-maximizing competitive firm decide to exit a market?1. Draw a graph that shows a perfectly competitive firm operating at a loss in the short run. Label all curves and аxes. 2. Find the output Q at which this firm will operate in the short run.1. What two rules does a perfectly competitive firm apply to determine its profit maximizing quantity of output? 2. How does the average cost curve help to show whether a firm is making profits or losses?
- The graph contains the relevant cost curves for a perfectly (or purely) competitive firm. Move point A on the graph to the shutdown point. 1.000 MC 900 ATC In order for the firm to carn positive economic profits the price of the good must be above what value? B00 AVC 700 00 500 400 400 price of a good: $ 400.00 300 Incerrect 200 AFC What is the shutdown price for this firm? 100 400.00 100 200 300 400 500 000 700 B00 000 1,000 Quantity shutdown price: $ IncorrectHow does a competitive firm determines its profit-maximising level of output? Explain. When does a profit-maximising competitive firm decide to shut down? When does it decide to exit a market? Draw diagram.a. Calculate profit for each quantity. How much should the firm produce to maximize profut ? b. Calculate marginal revenue and marginal cost for each quantity. Graph them. (Hint: Put the points between whole numbers. For example, the marginal cost between 2 and 3 should be graphed at ) At what quantity do these curves cross? How does this relate to your answer to part (a)? c. Can you tell whether this firm is in a competitive industry? If so, can you tell whether the industry is in a long-run equilibrium?
