ECON 310 – Spring 2007. Chapter 9 – “Perfectly Competitive Markets.” “Review Questions” (page 347): 2, 3, and 8. “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 60.16=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 25.8=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 35.14=p ? Is this firm able to earn a positive profit at a price of 35.14=p ? Explain. d. Should this firm produce a positive level of output at a price of 00.12=p ? Is this firm able to earn a positive profit at a price of 00.12=p ? Explain. e. Should this firm produce a positive level of output at a price of 50.7=p ? Is this firm able to earn a positive profit at a price of 50.7=p ? Explain. f. Determine the numerical value of Fixed Costs of Production when producing 1,000 units of output. $ q MC ATC AVC 3,350 2,800 2,300 1,500 650 0 0 16.60 11.30 8.25 13.902) Consider a market in which ppD 200000,20)(−= and ppS 300)(=. Determine the equilibrium values of price, quantity, Producers’ Surplus, and Consumers’ Surplus. 3) Consider a perfectly competitive firm operating in the short run with 000,210)(2161++= qqqCSR. For this firm qqMC8110)(+=. 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 work.” 5) Alice is the manager of “Bob’s Copper Mine,” located just outside of Grantsville, Utah. Suppose an increase in market demand drives the price of copper up from $0.83 to $0.97 per pound. a. Will the Producer’s Surplus of “Bob’s Copper Mine” increase or decrease? Explain. b. Will the Total Market Producer’s Surplus increase or decrease? Explain. c. Which change is greater, the change in the Producer’s Surplus of “Bob’s Copper Mine” or the change in Total Market Producers’ Surplus?
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