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    Assignment 6

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    Pratik Raj
    This document outlines an economics assignment that includes 10 questions covering topics related to firm and industry behavior under conditions of perfect competition. The questions address factors like why firms may produce at a loss, how supply curves differ from marginal cost curves, why zero economic profit occurs in long-run equilibrium, and how competitive markets ensure increased output in response to demand shifts. Additional questions involve analyzing specific cost and demand scenarios to determine profit-maximizing output levels and price ranges where firms will face losses, break even, or earn profits.

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    Assignment 6

    Uploaded by

    Pratik Raj
    67 views2 pages
    This document outlines an economics assignment that includes 10 questions covering topics related to firm and industry behavior under conditions of perfect competition. The questions address factors like why firms may produce at a loss, how supply curves differ from marginal cost curves, why zero economic profit occurs in long-run equilibrium, and how competitive markets ensure increased output in response to demand shifts. Additional questions involve analyzing specific cost and demand scenarios to determine profit-maximizing output levels and price ranges where firms will face losses, break even, or earn profits.

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    This document outlines an economics assignment that includes 10 questions covering topics related to firm and industry behavior under conditions of perfect competition. The questions address factors like why firms may produce at a loss, how supply curves differ from marginal cost curves, why zero economic profit occurs in long-run equilibrium, and how competitive markets ensure increased output in response to demand shifts. Additional questions involve analyzing specific cost and demand scenarios to determine profit-maximizing output levels and price ranges where firms will face losses, break even, or earn profits.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    67 views2 pages

    Assignment 6

    Uploaded by

    Pratik Raj
    This document outlines an economics assignment that includes 10 questions covering topics related to firm and industry behavior under conditions of perfect competition. The questions address factors like why firms may produce at a loss, how supply curves differ from marginal cost curves, why zero economic profit occurs in long-run equilibrium, and how competitive markets ensure increased output in response to demand shifts. Additional questions involve analyzing specific cost and demand scenarios to determine profit-maximizing output levels and price ranges where firms will face losses, break even, or earn profits.

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    © All Rights Reserved
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    ECO101A: Introduction to Economics

    Assignment 6
    1. Why would a firm that incurs losses choose to produce rather than shut down?
    2. Explain why the industry supply curve is not the long-run industry marginal cost curve.
    3. In long-run equilibrium, all firms in the industry earn zero economic profit. Why is this
    true?
    4. Why do firms enter an industry when they know that in the long run economic profit
    will be zero?
    5. Suppose a competitive industry faces an increase in demand (i.e., the demand curve
    shifts upward). What are the steps by which a competitive market insures increased
    output? Will your answer change if the government imposes a price ceiling?
    6. Suppose you are the manager of a watchmaking firm operating in a competitive market.
    Your cost of production is given by C = 200 +2q2, where q is the level of output and C
    is total cost. (The marginal cost of production is 4q. The fixed cost of production is
    $200.)
    a. If the price of watches is $100, how many watches should you produce to maximize
    profit?
    b. What will the profit level be?
    c. At what minimum price will the firm produce a positive output?
    7. A firm produces a product in a competitive industry and has a total cost function TC =
    50 + 4q + 2q2 and a marginal cost function MC = 4 + 4q. At the given market price of
    $20, the firm is producing 5 units of output. Is the firm maximizing profit? What
    quantity of output should the firm produce in the long run?
    8. Suppose the cost function is C(q)=4q2+16.
    a. Find variable cost, fixed cost, average cost, average variable cost, and average fixed
    cost.
    b. Show the average cost, marginal cost, and average variable cost curves on a graph.
    c. Find the output that minimizes average cost.
    d. At what range of prices will the firm produce a positive output?
    e. At what range of prices will the firm earn a negative profit?
    f. At what range of prices will the firm earn a positive profit?
    9. Suppose you are given the following information about a particular industry:
    QD = 6500 -100P Market demand
    QS =1200P Market supply
    C(q) = 722 + q2 / 200 Firm total cost function
    Assume that all firms are identical, and that the market is characterized by pure
    competition.
    a. Find the equilibrium price, the equilibrium quantity, the output supplied by the firm,
    and the profit of the firm.
    b. Would you expect to see entry into or exit from the industry in the long-run?
    Explain. What effect will entry or exit have on market equilibrium?
    c. What is the lowest price at which each firm would sell its output in the long run? Is
    profit positive, negative, or zero at this price? Explain.
    d. What is the lowest price at which each firm would sell its output in the short run?
    Is profit positive, negative, or zero at this price? Explain.
    10. Suppose that a competitive firm has a total cost function C(q) = 450 +15q + 2q2 and a
    marginal cost function MC(q) =15 + 4q. If the market price is P=$115 per unit, find
    the level of output produced by the firm. Find the level of profit and the level of
    producer surplus.

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