Assignment:
1. You may submit an assignment with one name or with two names.
2. If you and a partner submit the assignment together, you must both be from the same section. You will both receive credit.
3. You must submit the homework assignment in your correct section.
4. The assignment can either be hand-written or typed on a computer-I don't care as long as I can read it.
5. Assignments will be collected at the end of class on the due date. They must be submitted by the end of the class period. No Late Assignments!
6. Please staple your homework pages together with this page on top.
1.Draw a graph showing a firm that is operating at a loss in a perfectly competitive market. Be sure your graph includes the firm's demand curve, marginal revenue curve, marginal cost curve, average total cost curve, and average variable cost curve. Please clearly label the area that represents the firm's loss.
2.Frances sells earrings in the perfectly competitive earrings market. Her output per day and her costs are as follows:
|
Output per Day
|
Total Cost
|
|
0
|
$ 1.00
|
|
1
|
2.50
|
|
2
|
3.50
|
|
3
|
4.20
|
|
4
|
4.50
|
|
5
|
5.20
|
|
6
|
6.80
|
|
7
|
8.70
|
|
8
|
10.70
|
|
9
|
13.00
|
(a) Suppose the current equilibrium price in the earring market is P* = $ 1.80. (HINT: Be sure to use the "price = MR = MC" rule to answer these questions.)
- How many earrings will Frances produce?
- What price will she charge?
- How much profit (or loss) will she make?
Draw a graph to show me your answer. The graph should be clearly labeled and should include Frances's demand, ATC, AVC, MC, and MR curves; the price she is charging; the quantity she is producing; and the area representing her profit or loss.
(b) Suppose the equilibrium price of earrings falls to P* = $ 1.00.
- Now how many earrings will Frances produce?
- What price will she charge?
- How much profit (or loss) will she make?
Like above, show your work and draw a graph to illustrate this situation. Use the same instructions from part (a).
(c) Lastly, suppose the equilibrium price of earrings falls to P* = $0.25.
- Now how many earrings will Frances produce?
- What price will she charge?
- How much profit (or loss) will she make?
3.What is the difference between a firm's shutdown point in the short-run and in the long-run? Why are firms willing to accept losses in the short-run but not in the long-run?
4.Edward produces table lamps in the perfectly competitive desk lamp market.
(a) First, fill in the missing values in the following table:
|
Output per Week
|
Total Cost
|
AFC
|
AVC
|
ATC
|
MC
|
|
0
|
$ 100
|
|
|
|
|
|
1
|
150
|
|
|
|
|
|
2
|
175
|
|
|
|
|
|
3
|
190
|
|
|
|
|
|
4
|
210
|
|
|
|
|
|
5
|
240
|
|
|
|
|
|
6
|
280
|
|
|
|
|
|
7
|
330
|
|
|
|
|
|
8
|
390
|
|
|
|
|
|
9
|
460
|
|
|
|
|
|
10
|
540
|
|
|
|
|
(b) Suppose the equilibrium price in the desk lamp market is P* = $ 50. How many table lamps should Edward produce, and how much profit will he make?
(c) If next week the equilibrium price of desk lamps drops to P* = $ 30, should Edward shut down? Explain.
5.A student in a principles of microeconomics course makes the following remark:
The economic model of perfectly competitive markets is fine in theory but not very realistic. It predicts that in the long-run, a firm in a perfectly competitive market will earn no profits. No firm in the real world would stay in business if it earned zero profits.
Do you agree with this statement?