Vanh Lenh
Homework number 3
Chapter 10 pg 237, Review Q 1-6
1. The market price for paper clips is 2 cents per paper clip. The demand curve faced by each firm in the industry is a horizontal line at 2 cents per paper clip.
2.
Product price
Quantity Demand
Total Revenue
Marginal Revenue
$2
0
0
2
1
2
2
2
2
4
2
2
3
6
2
2
4
8
2
2
5
10
2
a. The industry is purely competitive—this firm is a “price taker.” The firm is so small relative to the size of the market that it can change its level of output without affecting the market price.
b.
c. Demand cureve is perfectly elastic; MR is constant and equal to P.
d. When output increase by 1 unit, total revenue increase by $2. This $2 increase is the marginal revenue.
3. A purely competitive firm whose goal is to maximize profit will choose to produce the amount of output at which TR exceeds TC by as much as possible.
4. If it is possible for a perfectly competitive firm to do better financially by producing rather than shutting down, then it should produce the amount of output at which MR=MC.
5. A perfectly competitive firm that makes car batteries has a fixed cost of $10,000 per month. The market price at which it can sell its output is $100 per battery. The firm’s minimum AVC is $105 per battery. The firm is currently producing 500 batteries a month (the output level at which MR=MC). This firm is making a loss and shut down.
6. Consider a profit maximizing firm in a competitive industry. Under Minimum AVC minimum ATC, the firm should shut down production or produce where MR=MC.
Chapter 12 page 276, Problems 1 and 3
1.
Price
Quality Demanded
Total Revenue
Marginal Revenue
$115
0
0
0
100
1
100
100
83
2
166
83
71
3
213
71
63
4
252
63
55
5
275
55
48
6
288
48
42
7
294
42
37
8
296
37
33
9
297
33
29
10
290
29
3. a. ATC per bottle is $4 per bottle at 25,000 bottles, $3 per bottle at 50,000...