mr. weiss section 11 – module 60 – perfect competition: reading the graphs refer to the graph...

Mr. Weiss

Section 11 – Module 60 – Perfect Competition: Reading the GraphsSection 11 – Module 60 – Perfect Competition: Reading the Graphs

Refer to the graph below to answer the following questions.Refer to the graph below to answer the following questions.1.1. What is the price facing this What is the price facing this

perfect competitor?perfect competitor?

2. What is the average revenue 2. What is the average revenue received by this firm?received by this firm?

3. Describe the demand curve facing 3. Describe the demand curve facing this firm.this firm.

4. What quantity can this perfect 4. What quantity can this perfect competitor sell at the price you competitor sell at the price you indicated in question #1?indicated in question #1?

Mr. Weiss


Answers:Answers:

1. What is the price facing this perfect competitor? 1. What is the price facing this perfect competitor? $5$5

2. What is the average revenue received by this firm? 2. What is the average revenue received by this firm? $5$5

3. Describe the demand curve facing this firm? 3. Describe the demand curve facing this firm? Perfectly Perfectly elastic at the market price of $5elastic at the market price of $5

4. What quantity can this perfect competitor sell at the price 4. What quantity can this perfect competitor sell at the price you indicated in question #1? you indicated in question #1? Any quantity it wants.Any quantity it wants.

Mr. Weiss


5. At what level of output does ATC reach 5. At what level of output does ATC reach its minimum level?its minimum level?

6. At what level of output does AVC reach 6. At what level of output does AVC reach its minimum level?its minimum level?

7. At what level of output would this firm 7. At what level of output would this firm choose to operate? Why?choose to operate? Why?

8. At the level of output you indicated in 8. At the level of output you indicated in question 7, calculate each of the following.question 7, calculate each of the following.

A. Total CostA. Total CostB. Total RevenueB. Total RevenueC. Profit or lossC. Profit or loss

Mr. Weiss

Section 11 – Module 60 – Perfect Competition: Reading the GraphsSection 11 – Module 60 – Perfect Competition: Reading the GraphsAnswers:Answers:

5. At what level of output does ATC reach its minimum level? 5. At what level of output does ATC reach its minimum level? 66

6. At what level of output does AVC reach its minimum level? 6. At what level of output does AVC reach its minimum level? 44

7. At what level of output would this firm chose to operate? Why? 7. At what level of output would this firm chose to operate? Why? At 7 At 7 units of output, marginal revenue equals marginal cost and the firm is at units of output, marginal revenue equals marginal cost and the firm is at the profit-maximizing level of output.the profit-maximizing level of output.

8. At the level of output you indicated in question 7, calculate each of the 8. At the level of output you indicated in question 7, calculate each of the following.following.

A.A.Total cost - Total cost - $28 ($4 x 7)$28 ($4 x 7)B.B.Total revenue - Total revenue - $35 ($5 x 7)$35 ($5 x 7)C.C.Profit or loss – Profit or loss – profit of $7 ($35 - $28)profit of $7 ($35 - $28)

Mr. Weiss


9. What would happen in the long run in a 9. What would happen in the long run in a market in which all firms found themselves market in which all firms found themselves facing a $5 price?facing a $5 price?

10. If the price facing this firm fell to $3, what 10. If the price facing this firm fell to $3, what would be the values of each of the following at would be the values of each of the following at the quantity that the firm would produce?the quantity that the firm would produce?

A. Total CostA. Total CostB. Total RevenueB. Total RevenueC. Profit or lossC. Profit or loss

11. What would happen in the long run in a 11. What would happen in the long run in a market in which all firms found themselves market in which all firms found themselves facing a $3 price?facing a $3 price?

12. What is the long run equilibrium price that 12. What is the long run equilibrium price that would prevail if all firms faced similar cost would prevail if all firms faced similar cost conditions?conditions?

Mr. Weiss


Answers:Answers:

9. What would happen in the long-run in a market in which all firms 9. What would happen in the long-run in a market in which all firms found themselves facing a $5 price? Attracted by economic found themselves facing a $5 price? Attracted by economic profits, new firms would enter the market and drive the price down profits, new firms would enter the market and drive the price down (eventually to $3.50, which is the minimum of ATC.(eventually to $3.50, which is the minimum of ATC.

10. If the price facing this firm fell to $3, what would be the values 10. If the price facing this firm fell to $3, what would be the values of each of the following at the quantity that the firm would of each of the following at the quantity that the firm would product?product?

A.A.Total Cost – About $20.63 ($3.75 x 5.5)Total Cost – About $20.63 ($3.75 x 5.5)B.B.Total Revenue - $16.50 ($3.00 x 5.5)Total Revenue - $16.50 ($3.00 x 5.5)C.C.Profit or Loss – Loss of about $4.13 ($16.50 - $20.63)Profit or Loss – Loss of about $4.13 ($16.50 - $20.63)

Mr. Weiss


Answers:Answers:

11. What would happen in the long-run in a market in which 11. What would happen in the long-run in a market in which all firms found themselves facing a $3 price? all firms found themselves facing a $3 price? Discouraged Discouraged by economic losses, existing firms would exit the market and by economic losses, existing firms would exit the market and drive the price up until it reached $3.50.drive the price up until it reached $3.50.

12. What is the long-run equilibrium price that would prevail if 12. What is the long-run equilibrium price that would prevail if all the firms faced similar cost conditions? all the firms faced similar cost conditions? The long-run The long-run break even price is $3.50.break even price is $3.50.

mr. weiss section 11 – module 60 – perfect competition: reading the graphs refer to the graph...

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