ONLINECO 

Chapter 14. Firms in Competitive Markets. Exercises 7-12. Principles of Economics

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7. A firm in a competitive market receives $500 in total revenue and has marginal revenue of $10. What is the average revenue, and how many units were sold?

 

8. A profit-maximizing firm in a competitive market iscurrently producing 100 units of output. It has average revenue of $10, average total cost of $8, and fixed costs of $200.a. What is its profit? d. Is the efficient scale of the firm more than, less than, or exactly 100 units?

 

9. The market for fertilizer is perfectly competitive. Firms in the market are producing output but are currently incurring economic losses.How does the price of fertilizer compare to theaverage total cost, the average variable cost, andthe marginal cost of producing fertilizer? b. Draw two graphs, side by side, illustrating the present situation for the typical firm and for the market. c. Assuming there is no change in either demand or the firms’ cost curves, explain what will happen in the long run to the price of fertilizer, marginal cost, average total cost, the quantity supplied by each firm, and the total quantity supplied to the market.

 

10. The market for apple pies in the city of Ectenia is competitive and has the following demand schedule: a. Compute each producer’s total cost and average total cost for 1 to 6 pies. b. The price of a pie is now $11. How many pies are sold? How many pies does each producer make? How many producers are there? How much profit does each producer earn? c. Is the situation described in part (b) a long-run equilibrium? Why or why not? d. Suppose that in the long run there is free entry and exit. How much profit does each producer earn in the long-run equilibrium? What is the market price and number of pies each producer makes? How many pies are sold? How many pie producers are operating?

 

11. Suppose that the U.S. textile industry is competitive and there is no international trade in textiles. In longrun equilibrium, the price per unit of cloth is $30.a. Describe the equilibrium using graphs for the entire market and for an individual producer. Now suppose that textile producers in other countriesare willing to sell large quantities of cloth in theUnited States for only $25 per unit. b. Assuming that U.S. textile producers have large fixed costs, what is the short-run effect of these imports on the quantity produced by an individual producer? What is the short-run effect on profits?Illustrate your answer with a graph. c. What is the long-run effect on the number of U.S. firms in the industry?

 

12. An industry currently has 100 firms, each of which has fixed costs of $16 and average variable costs as follows:a. Compute a firm’s marginal cost and average totalcost for each quantity from 1 to 6. b. The equilibrium price is currently $10. How muchdoes each firm produce? What is the total quantitysupplied in the market? c. In the long run, firms can enter and exit the market, and all entrants have the same costs as above. As this market makes the transition to its long-run equilibrium, will the price rise or fall? Will the quantity demanded rise or fall? Will the quantity supplied by each firm rise or fall? Explain your answers. d. Graph the long-run supply curve for this market,with specific numbers on the axes as relevant.