Problem 1:
a. Draw a situation where a perfectly competitive firm is making a loss, make sure to label loss. When should the firm shut down? (Make sure to include a market diagram).
b. State and draw a graph explaining the long run equilibrium in a perfectly competitive market. Why does the market come to rest at this point? Explain.
a)
The firm in the perfectly competitive market will produce by setting P=MC at which ATC is more than the price so the firm is making losses, however, since the P>minimum AVC,the firm will continue to produce. The shaded region represents the loss.The firm will shut down when the price falls down below the minimum AVC.
b)
In the long run,since the firms are making losses,some firms will exit the market in the long run which will decrease the supply and increase the price to the minimum of ATC so,the P=MC=ATC in the long run and all the firms will breakeven and earn zero profits in the long run.
Problem 1: a. Draw a situation where a perfectly competitive firm is making a loss, make...
Problem 1: a. Draw a situation where a perfectly competitive firm is making a loss, make sure to label loss. When should the firm shut down? (Make sure to include a market diagram). b. State and draw a graph explaining the long run equilibrium in a perfectly competitive market. Why does the market come to rest at this point? Explain.
Name 1. Describe a perfectly competitive market structure in terms of number of firms, ease of entry a and product differentiation. 2. Draw the short-ran cost and revenue curves for a firm making an economic profit in a perfectly petitive industry. Show the firm's short-run supply curve. 3. Why might a firm continue to produce at a loss in the short na instead of shutting down? a perfectly competitive firm will make an economie profit in the short b. fP-...
2.A. Draw a perfectly competitive firm in the soybean market, in a short run equilibrium. Identify the market price, MR, Total Revenue, Total Cost Variable Cost, and Fixed Cost. B. For your diagram(s), is the firm earning, a profit or a loss (identify it)? C. Explain, and show this market will move toward a long run equilibrium, state any needed assumptions.
2. A perfectly competitive potato farm is currently in long run equilibrium. a. Graph the firm in long run equilibrium. Be sure to label all of the curves and the profit maximizing price and quantity. b. The demand for potatoes increases. Draw a new graph that shows the impact on an individual firm. Be sure to shade the area of loss or profit. c. Draw a new graph that shows how the firm and the industry adjusts to a new...
a) Using both market and firm graphs for a perfectly competitive industry, show the effect of an increase in consumers’ income taxes. Assume the representative firm and market begin in long run equilibrium. Illustrate the short run effect on price, output, and profits, assuming this firm does not shut down. Label your graphs and explain your answer. b) Assuming the representative firm does not withdraw from the market, show the long run effect on price, output, and profits. Label your...
Draw the MC, MR, ATC, and long-run ATC curves for a perfectly competitive firm in long-run equilibrium. Explain the relationship between those curves. Next, draw another graph showing long-run equilibrium for the perfectly competitive market. What is the relationship between the two graphs?
Question 2: Consider a firm in a perfectly competitive market that should produce a positive quantity in the short-run, but is still earning a loss. A.) Draw the cost curves (ATC, AVC, MC, MR) for the firm. Clearly label the quantity this firm would produce. Label the loss the firm would incur. B.) Briefly explain why the MR looks the way it does and why you placed it where you did on your diagram. (How do we determine MR for...
In the short-run, a firm in a perfectly competitive market is making a loss. Describe how the firm should decide if it should continue production or stop production.
In the short run, a perfectly competitive firm might earn negative economic profits and then decide to shut down. On a graph, show this situation, using marginal revenue, marginal cost, average-total-cost, and average-variable-cost curves. Indicate the level of output at which the firm will no longer produce. Explain why your graph shows the shut down point.
T=_$410 5) On the graph below, show the situation in which a firm in a perfectly competitive market is making an economic profit in the short-run. Label the axes and all curves. Label the short-run profit maximizing quantity with q* and the market price with P. Shade the area on the graph corresponding to the economic profit.