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Chapter 23: Q. 23.4LO (page 510)
Explain how the equilibrium price is determined in a perfectly competitive market
The market cost price is bigger than orcapable the minimum AVC.
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Why do economists seeking to study industry entry and exit measure the number of firms instead of the number of establishments? (Hint: At which level are fundamentally independent economic decisions made by a business; the firm as a whole or an individual sales outlet of the firm?)
The table nearby represents the hourly output and cost structure for a local pizza shop. The market is perfectly competitive, and the market price of a pizza in the area is . Total costs include all opportunity costs. Fixed costs equal zero.
a. Calculate the total revenue and total economic profit for this pizza shop at each rate of output.
b. Assuming that the pizza shop always produces and sells at least one pizza per hour, does this appear to be a situation of short-run or long-run equilibrium?
c. Calculate the pizza shop's marginal cost and marginal revenue at each rate of output. Based on marginal analysis, what is the profit maximizing rate of output for the pizza shop?
d. Draw a diagram depicting the short-run marginal revenue and marginal cost curves for this pizza shop, and illustrate the determination of its profit-maximizing output rate.
A perfectly competitive industry is initially in a short-run equilibrium in which all firms are earning zero economic profits but in which firms are operating below their minimum efficient scale. Explain the long-run adjustments that will take place for the industry to attain long-run equilibrium with firms operating at their minimum efficient scale.
Take a look at Figure 23-3. This figure uses the data in the table from Figure 23-2, which indicates that the area of the blue rectangle displaying hourly economic profits is $5 per period. What prevents this firm from continuing to produce the same number of units per hour but raising the price that it charges for each unit in order to enlarge the area of the profit rectangle?
Yesterday, a perfectly competitive producer of construction bricks manufactured and sold bricks per week at a market price that was just equal to the minimum average variable cost of producing each brick. Today, all the firm's costs are the same. but the market price of bricks has declined.
a. Assuming that this firm has positive fixed costs, did the firm earn economic profits, economic losses, or zero economic profits yesterday?
b. To maximize economic profits today, how many bricks should this firm produce today?
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