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Chapter 23: Q. 1CT (page 528)
Why would a number of plastic-recycling firms continue to operate even though the market clearing price of recycled plastic is lower than their break-even price?
It obtain packing recovery enabling effective producer responsibility laws.
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Why might firms that hire mostly untrustworthy people struggle to provide as much output in a competitive market as firms that attract and retain mostly honest individuals?
Suppose that a firm in a perfectly competitive industry finds that at its current output rate, marginal revenue exceeds the minimum average total cost of producing any feasible rate of output. Furthermore, Marginal revenue (MR)is that the increase in revenue that results from the saleof 1 additional unit of output. While marginal revenue can remain constant overa specific level of output, it follows from the law of diminishing returnsand can eventuallyblock because the output level increases. Intheory, perfectly competitive firms continue producing output until marginal revenue equalsincremental cost.
Is the firm maximizing its economic profits? Why or why not?
Two years ago, a large number of firms entered a market in which existing firms had been earning positive economic profits. By the end of last year, the typical firm in this industry had begun earning negative economic profits. No other events occurred in this market during the past two years.
a. Explain the adjustment process that occurred last year.
b. Predict what adjustments will take place in this market beginning this year, other things being equal.
Explain why each of the following examples is not a perfectly competitive industry.
a. One firm produces a large portion of the industry's total output, but there are many firms in the industry, and their products are indistinguishable. Firms can easily exit and enter the industry.
b. There are many buyers and sellers in the industry. Consumers have equal information about the prices of firms' products, which differ moderately in quality from firm to firm.
c. Many taxicabs compete in a city. The city's government requires all taxicabs to provide identical services. Taxicabs are nearly identical, and all drivers must wear a designated uniform. The government also enforces a binding limit on the number of taxicab companies that can operate within the city's boundaries.
Why are we unable to conclude that large numbers of entries into and exits from all U.S. industries imply that all the industries are perfectly competitive? (Hint: What are the other characteristics of perfect competition?)
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