Access Millions of academic & study documents

ECON 2600 LCC Principles of Microeconomics Questions

Content type
User Generated
Subject
Economics
School
Lakeland Community College
Type
Other
Showing Page:
1/6
Principles of Microeconomics (Econ 2600)
Lakeland Community College
Dr. Hyojin Jeong
1. “The perfectly competitive firm’s entire marginal cost curve is its short-run
supply curve.” Is the statement true or false? Explain your answer.
This statement is false in that the firm’s short-run supply curve is only a part of its
marginal cost curve that is above the average variable cost curve. This is in relation to the
law of supply, as prices increase, there will be an increase in the number of products
supplied.
3. “Firm A, one firm in a competitive industry, faces higher costs of production.
As a result, consumers end up paying higher prices.” Discuss.
The higher cost of production tends to lead to an increase in the prices of commodities
than the other firms. Its competitors will, in turn, be more preferable hence leading to the
collapse of the firm charging higher rates.
6. For a perfectly competitive firm, profit maximization does not conflict with
resource allocative efficiency. Do you agree? Explain your answer.
I agree with the statement. Profit maximization in a perfectly competitive firm does not
conflict with allocative resource efficiency. Instead, it approves it. Maximum profit goods
and services is earned when the marginal cost is equivalent to marginal revenue that is,
MC=MR.
8. You read in a business magazine that computer firms are reaping high
profits. With the theory of perfect competition in mind, what do you expect
to happen over time to the following: computer prices, the earnings of
computer firms, the number of computers on the market, and the number of
computer firms?
In the instance that the computer firm is perfectly competitive, the profits would urge
many investors into the market hence leading increase cells of computers. The increase in
the number of computers firms would, in turn, lead to a decrease in the prices of
machines.
12. Explain why a perfectly competitive firm will not produce in the short run if
the price is lower than average variable cost. Still, it will produce if the price
is below average total cost (but above average variable cost).
A perfectly competitive firm ought to have an equilibrium price in which it sells its
products. In the instance whereby it sells goods at a rate higher than the market prices, the
firm will not be able to make sells and pay the various factors of production. Thus the
price should be below the average total cost to pay the firm’s values.

Sign up to view the full document!

lock_open Sign Up
Showing Page:
2/6
15. Why is the marginal revenue curve for a perfectly competitive firm the same
as its demand curve?
The two curves differ in that whereas a demand curve plots a trajectory of prices against
quantity, the marginal revenue curve plots a curve of marginal revenue against amount. A
perfectively competitive firm has its costs equal to its marginal revenue, that is, P=MR .
in this equation the price equals the marginal revenue hence both curves are used to plot
the same prices against the same amount of quantity.
17. Do firms in a perfectly competitive market exhibit productive efficiency?
In the long-run equilibrium, perfectly competitive markets exhibit productive efficiency.
Productive efficiency only occurs when firms are producing goods and services in the
lowest possible costs in attempts to avoid wastage.
Working with Numbers and Graphs: 1, 3, 4, 6, 8, 9, 10 (p276)
1. Given the following information, state whether the perfectly competitive firm
should shut down or continue to operate in the short run.
a. Q = 100; P = $10; AFC = $3; AVC = $4.
b. Q = 70; P = $5; AFC = $2; AVC = $7.
c. Q = 150; P = $7; AFC = $5; AVC = $6.
(a) The perfectly competitive firm ought to continue operating since the price is
higher than the average variable cost (P > AVC).
(b) In this case, the price is lower than the average variable cost (P<AVC); hence it
should shut down.
(c) The perfectly competitive firm ought to continue operating since the price is
higher than the average variable cost (P > AVC).
3. Using the table given here, what quantity of output should the firm produce?
Explain your answer.
At the firm’s level of production, marginal revenue equals marginal cost (MR=MC), the
firm ought to produce five units.
4. Is the firm in Question 3 perfectly competitive? Explain your answer.
The firm sells each item at a constant price of $100 per unit it sells hence leading to the
demand curve to be horizontal. This is a perfectly competitive firm.
6. Draw the following:
(a) a perfectly competitive firm that earns profits

Sign up to view the full document!

lock_open Sign Up
Showing Page:
3/6

Sign up to view the full document!

lock_open Sign Up
End of Preview - Want to read all 6 pages?
Access Now
Unformatted Attachment Preview
Principles of Microeconomics (Econ 2600) Lakeland Community College Dr. Hyojin Jeong “The perfectly competitive firm’s entire marginal cost curve is its short-run supply curve.” Is the statement true or false? Explain your answer. This statement is false in that the firm’s short-run supply curve is only a part of its marginal cost curve that is above the average variable cost curve. This is in relation to the law of supply, as prices increase, there will be an increase in the number of products supplied. 1. 3. “Firm A, one firm in a competitive industry, faces higher costs of production. As a result, consumers end up paying higher prices.” Discuss. The higher cost of production tends to lead to an increase in the prices of commodities than the other firms. Its competitors will, in turn, be more preferable hence leading to the collapse of the firm charging higher rates. 6. For a perfectly competitive firm, profit maximization does not conflict with resource allocative efficiency. Do you agree? Explain your answer. I agree with the statement. Profit maximization in a perfectly competitive firm does not conflict with allocative resource efficiency. Instead, it approves it. Maximum profit goods and services is earned when the marginal cost is equivalent to marginal revenue that is, MC=MR. 8. You read in a business magazine that computer firms are reaping high profits. With the theory of perfect competition in mind, what do you expect to happen over time to the f ...
Purchase document to see full attachment
User generated content is uploaded by users for the purposes of learning and should be used following Studypool's honor code & terms of service.
Studypool
4.7
Indeed
4.5
Sitejabber
4.4