In the short run, in a perfect competition market structure, if P>ATC which of the following will occur? Firms will enter the market and price will fall. Firms will exit the market and price will fall. Firms will enter the market and price will rise. Firms will exit the market and price will rise.
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- What is the correct answer? In pure competition, if the market price of the product is lower than the minimum average total cost of the firms, then A. some firms will enter the industry and the industry supply will increase B. other firms will exit the industry and the industry supply will decrease C. some firms will exit the industry and the industry supply will increase D. other firms will enter the industry and the industry supply will decreaseFigure 14-7 Graph (a) Graph (b) MC ATC 1. D, Q, a, 0, 0: QUANTITY QUANTITY Refer to Figure 14-7. Assume that the market starts in equilibrium at point W in graph (b). An increase in demand from Do to Di will result in a new market equilibrium at point X. an eventual increase in the number of firms in the market and a new long-run equilibrium at point Z. rising prices and falling profits for existing firms in the market. falling prices and falling profits for existing firms in the market. PRICE PRICEPrice B C O Cannot be determined B The graph above depicts the demand, short-run industry supply curve and the long- run industry supply curve. Which line represents the long-run industry supply curve? I Quantity
- can you draw a diagram of long run industry supply curve, with price on the y-axis and quantity on the x-axis, and a downward-sloping curve showing the relationship between price and quantity supplied? then also draw another diagram of long run industry supply curve, with price on the y-axis and quantity on the x-axis, and a downward-sloping curve showing the original relationship between price and quantity supplied, and a second, upward-sloping curve showing the new relationship between price and quantity supplied after the increase in the price of oil?A Quantity Demanded Figure 1 Quantity Demanded Figure 2 For a perfectly competitive firm, which line or lines represent the firm's demand and marginal revenue curves lines B and C respectively in figure 2 lines A and C respectively in figure 2 lines A and B respectively in figue 1 line B only in figure 1 Price, Marginal o Revenue, Total Revenue B. Price, Marginal o Revenue, Total Revenuea) What is the profit maximising condition in a market with perfect competition?b) Explain what is meant by abnormal profit? What is the adjustment process from short-run abnormal profit to long-run equilibrium in a perfectly competitive market?c) Please find below Pricing options for firm A and B, along with individual payoffs (Firm A’s payoff/Firm B’s payoff)Firm BFirm APrice £2 Price £1Price £2 £20,000/£20,000 £10,000/£24,000Price £1 £24,000/£10,000 £12,000/£12,000Assume you are the pricing manager at Firm A;i) What is your payoff for a ‘maximin’ strategy?ii) What is your payoff for a ‘maximax’ strategy?iii) Does a dominant strategy exist within this prisoners’ dilemma?
- Consider a perfectly competitive market that was in a long-run equilibrium when a permanent increase in demand occurs. Which of the following will occur as a result? i. The existing firms will start to earn an economic profit. ii. New firms will be motivated to enter the market. iii. Some firms that cannot meet the new demand will exit the market. A) i and ii only B) ii and ii only C) i and iii D) ii only E) i, ii and iiUse the table below listing Average Total Cost (ATC)d and Marginal Cost (MC) for a firm in perfect competition to answer the following questions. Quantity ATC MC 1 17.5 15 14.3 12 3 10 10 4 16 20 22 31 In each scenario determine if the firm is profitable, breaks even, or incurs a loss. 1. If market price is $8, the firm 2. If market price is $14, the firm 3. If market price is $10, the firm12.3 A perfectly competitive market has 1,000 firms. In the very short run, each of the firms has a fixed supply of 100 units. The market demand is given by Q = 160,000 10,000P. a. Calculate the equilibrium price in the very short run. b. Calculate the demand schedule facing any one firm in this industry. c. Calculate what the equilibrium price would be if one of the sellers decided to sell nothing or if one seller decided to sell 200 units. d. At the original equilibrium point, calculate the elasticity of the industry demand curve and the elasticity of the demand curve facing any one seller. Suppose now that, in the short run, each firm has a supply curve that shows the quantity the firm will supply (q) as a function of market price. The specific form of this supply curve is given by 9-200+50P. Using this short-run supply response, supply revised answers to (a)-(d). 11
- Star Inc. is a firm selling its product in a perfectly competitive market. The market price is $10. The table below describes the firm's costs for each possible quantity sold. Quantity sold Total Revenue Marginal Marginal Total Price Cost Revenue Cost 1 10 3 14 4 20 27 35 7 45 8. 58 a, Is Fill in the table. b. Determine what would be the profit-maximizing quantity that Star Inc. would sell and explain the profit-maximizing condition that needs to be satisfied. c. (- part b) change? Explain. r the fixed cost of Star Inc. were to increase by $5, would your answer toIn a perfect market the TR and TC create a ___________________breakeven quantity whenever the MC is constant and the potential profit is ___________________________________?Refer to the table. For a firm operating in a competitive market, the price is Quantity Total Revenue 0 $0 1 $15 2 $30 3 $45 4 $60 5 $75 Question 3 options: a) $45 b) $30 c) $15 d) $0