ECON 310 – Fall 2006. Chapter 9 – “Perfectly Competitive Markets.” “Review Questions” (page 347): 2 and 3. “Problems” (pages 348-350): 9.2, 9.3, 9.4, 9.10, 9.11, 9.14, 9.18, and 9.23. Additional Questions: 1) Consider a perfectly competitive firm operating in the Short Run. Marginal Costs, Average Variable Costs, and Average Total Costs are illustrated below. a. If the price of the output of this firm is 32=p , what quantity should this firm produce in order to maximize profit? Is this firm able to earn a positive profit at this price? Explain. b. If the price of the output of this firm is 20=p , what quantity should this firm produce in order to maximize profit? Is this firm able to earn a positive profit at this price? Explain. c. Should this firm produce a positive level of output at a price of 30=p ? Is this firm able to earn a positive profit at a price of 30=p ? Explain. d. Should this firm produce a positive level of output at a price of 27=p ? Is this firm able to earn a positive profit at a price of 27=p ? Explain. e. Should this firm produce a positive level of output at a price of 18=p ? Is this firm able to earn a positive profit at a price of 18=p ? Explain. f. Determine the numerical value of Fixed Costs of Production. (hint: start by determining Average Fixed Costs for some level of output…) $ q MC ATC AVC 550 500 400 250 100 0 0 32 25 20 282) Consider a market in which ppD81200)(−= and ppS83)(=. Determine the equilibrium values of price, quantity, Producers’ Surplus, and Consumers’ Surplus. 3) Consider a perfectly competitive firm operating in the short run with 000,120)(281++= qqqCSR. For this firm qqMC4120)(+=. a. Determine the functional forms of )(qACSR, )(qAVCSR, and )(qAFCSR. b. Determine the minimum value of )(qAVCSR. Determine the minimum value of )(qACSR (hint: recall that )(qMC must intersect )(qACSR at the minimum of )(qACSR). c. Specify the short run supply function for this firm. Clearly note the range of prices for which the firm will “shutdown.” d. For what range of prices is the maximum short run profit of this firm positive? For what range of prices is the maximum short run profit of this firm negative? Clearly explain. 4) State and clearly explain each of the “Four Characteristics of a perfectly competitive market.” State and clearly explain each of the “Three Implications (of these Four Characteristics) for how perfectly competitive markets
View Full Document
Unlocking...