Project #33541 - MICRO ECON

1) Firms in a competitive market maximize profits by operating at the level of output, which minimizes their average cost of production in the short run. Agree or disagree with this statement and explain your reasons.

 

2) What features characterize a ”perfectly competitive” market? What rule will guide the supply decision of a perfectly competitive firm in such a market? What will be the long run equilibrium price in such a market?

 

3) Explain the importance of "free entry" in establishing the long run equilibrium price.

 

4) "In a world in which all markets were perfectly competitive, the ceaseless search for maximum profits will drive all prices down to the level of minimum average cost in the long run" Agree or disagree with this statement and explain your reasoning.

 

5) Do you think that the long run equilibrium price of oil as world demand expands will behave in a fashion similar to the long run equilibrium price of motorcycles as world demand for them expands? (Assume in each case no further changes in known techniques of production and also assume that the long run equilibrium price stays close to minimum average total cost in both industries even though they are not perfectly competitive. )  Explain your answer.

 

 

 

                                               

6) In the above diagrams assume the following: MC intersects AVC @ P= $8, Q=40 and MC intersects ATC @ P= $12, Q = 50. (Min MC =$ 4). In the market demand schedule on the right, at a price of $16, the quantity demanded = 6000, and at a price of $12 the quantity demanded rise to 7000.

 

a) What is the output of a typical firm when the market price is $16?

 

b) What is the lowest price at which the typical firm will stay in business in the short run?

 

c) If there are currently 100 firms in this industry. Draw the short run market supply curve.

 

d) Is $16 the long run equilibrium price? Explain why if your answer is yes. If your answer is no, then identify the long run equilibrium price and explain what happens in the transition from the short to the long run. (Assume no shift in the market demand schedule)

 

e) If the prices of real estate on which firms had their production facilities located rose, which of the firm's cost schedules would shift and in which direction? Suppose unions in the industry negotiated a wage increase. Which cost curves would shift and in which direction?

Subject Business
Due By (Pacific Time) 06/18/2014 05:00 pm
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