Question 1

Explain how a firm in a competitive market identifies the profit-maximizing level of production. When should the firm raise production, and when should the firm lower production?

Accepted Answer

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Question 2

Why would a firm in a perfectly competitive market always choose to set its price equal to the current market price? If a firm set its price below the current market price, what effect would this have on the market?

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Question 3

At its current level of production a profit-maximizing firm in a competitive market receives $12.50 for each unit it produces and faces an average total cost of $10. At the market price of $12.50 per unit, the firm's marginal cost curve crosses the marginal revenue curve at an output level of 1,000 units. What is the firm's current profit? What is likely to occur in this market and why?

Accepted Answer

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Question 4

Give two reasons why the long-run industry supply curve may slope upward. Use an example to demonstrate your reasons.

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Question 5

Use a graph to demonstrate the circumstances that would prevail in a perfectly competitive market where firms are experiencing economic losses. Identify costs, revenue, and the economic losses on your graph. Using your graph, determine whether an individual firm will shut down in the short run, or choose to remain in the market. Explain your answer.

Accepted Answer

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Question 6

Use a graph to demonstrate the circumstances that would prevail in a competitive market where firms are earning economic profits. Can this scenario be maintained in the long run? Explain your answer.

Accepted Answer

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Question 7

News reports from the western United States occasionally report incidents of cattle ranchers slaughtering a large number of newborn calves and burying them in mass graves rather than transporting them to markets. Assuming that this is rational behavior by profit-maximizing "firms," explain what economic factors may influence such behavior.

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Question 8

If identical firms that remain in a competitive market over the long run make zero economic profit, why do these firms choose to remain in the market?

Accepted Answer

The answer of If identical firms that remain in a...

Quiz 14: Firms in Competitive Markets

Explain how a firm in a competitive market identifies the profit-maximizing level of production. When should the firm raise production, and when should the firm lower production?

Why would a firm in a perfectly competitive market always choose to set its price equal to the current market price? If a firm set its price below the current market price, what effect would this have on the market?

Give two reasons why the long-run industry supply curve may slope upward. Use an example to demonstrate your reasons.

Use a graph to demonstrate the circumstances that would prevail in a competitive market where firms are earning economic profits. Can this scenario be maintained in the long run? Explain your answer.

If identical firms that remain in a competitive market over the long run make zero economic profit, why do these firms choose to remain in the market?