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Chapter 8: Q13 (page 211)
What is a 鈥減rice taker鈥� firm?
A price taker firm is the firm that charges price determined by the market.
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A firm鈥檚 marginal cost curve above the average variable cost curve is equal to the firm鈥檚 individual supply curve. This means that every time a firm receives a price from the market it will be willing to supply the amount of output where the price equals marginal cost. What happens to the firm鈥檚 individual supply curve if marginal costs increase?
Why will profits for firms in a perfectly competitive industry tend to vanish in the long run?
In the argument for why perfect competition is allocatively efficient, the price that people are willing to pay represents the gains to society and the marginal cost to the firm represents the costs to society. Can you think of some social costs or issues that are not included in the marginal cost to the firm? Or some social gains that are not included in what people pay for a good?
What are the four basic assumptions of perfect competition? Explain in words what they imply for a perfectly competitive firm.
Look at Table 8.13. What would happen to the firm鈥檚 profits if the market price increases to $6 per pack of raspberries?
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