Transcript Module 60 - Perfect Competition Reading the Graphs

Mr.
Weiss
Section 11 – Module 60 – Perfect Competition: Reading the Graphs
Refer to the graph below to answer the following questions.
1. What is the price facing this
perfect competitor?
2. What is the average revenue
received by this firm?
3. Describe the demand curve facing
this firm.
4. What quantity can this perfect
competitor sell at the price you
indicated in question #1?
Mr.
Weiss
Section 11 – Module 60 – Perfect Competition: Reading the Graphs
Answers:
1. What is the price facing this perfect competitor? $5
2. What is the average revenue received by this firm? $5
3. Describe the demand curve facing this firm? Perfectly
elastic at the market price of $5
4. What quantity can this perfect competitor sell at the price
you indicated in question #1? Any quantity it wants.
Mr.
Weiss
Section 11 – Module 60 – Perfect Competition: Reading the Graphs
5. At what level of output does ATC reach
its minimum level?
6. At what level of output does AVC reach
its minimum level?
7. At what level of output would this firm
choose to operate? Why?
8. At the level of output you indicated in
question 7, calculate each of the following.
A. Total Cost
B. Total Revenue
C. Profit or loss
Mr.
Weiss
Section 11 – Module 60 – Perfect Competition: Reading the Graphs
Answers:
5. At what level of output does ATC reach its minimum level? 6
6. At what level of output does AVC reach its minimum level? 4
7. At what level of output would this firm chose to operate? Why? At 7
units of output, marginal revenue equals marginal cost and the firm is at
the profit-maximizing level of output.
8. At the level of output you indicated in question 7, calculate each of the
following.
A. Total cost - $28 ($4 x 7)
B. Total revenue - $35 ($5 x 7)
C. Profit or loss – profit of $7 ($35 - $28)
Mr.
Weiss
Section 11 – Module 60 – Perfect Competition: Reading the Graphs
9. What would happen in the long run in a
market in which all firms found themselves
facing a $5 price?
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 produce?
A. Total Cost
B. Total Revenue
C. Profit or loss
11. What would happen in the long run in a
market in which all firms found themselves
facing a $3 price?
12. What is the long run equilibrium price that
would prevail if all firms faced similar cost
conditions?
Mr.
Weiss
Section 11 – Module 60 – Perfect Competition: Reading the Graphs
Answers:
9. What would happen in the long-run in a market in which all firms
found themselves facing a $5 price? Attracted by economic
profits, new firms would enter the market and drive the price down
(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
of each of the following at the quantity that the firm would
product?
A. Total Cost – About $20.63 ($3.75 x 5.5)
B. Total Revenue - $16.50 ($3.00 x 5.5)
C. Profit or Loss – Loss of about $4.13 ($16.50 - $20.63)
Mr.
Weiss
Section 11 – Module 60 – Perfect Competition: Reading the Graphs
Answers:
11. What would happen in the long-run in a market in which
all firms found themselves facing a $3 price? Discouraged by
economic losses, existing firms would exit the market and
drive the price up until it reached $3.50.
12. What is the long-run equilibrium price that would prevail if
all the firms faced similar cost conditions? The long-run
break even price is $3.50.