Question 1: A perfectly competitive firm is operating in a market where price is given as $20 and the cost of production is as shown on the table below:
Q P TR MR FC VC TC MC AFC AVC P/L
0 20 10 10
1 20 10 18
2 20 10 25
3 20 10 35
4 20 10 55
5 20 10 90__________________________________
a. Find the values of TR, MR, VC, TC, MC, AFC, AVC, P/L
b. Is this firm a profit max., loss min., or a close-down case.
c. Show your answers graphically using the TR/TC or MR/MC approach.
d. Would the situation in '2' above change if the price was as given below:
Question 2: What would be the decision of the firm in each case? (Closing down, loss minimizing, profit maximizing)
Construct a table showing short-term supply for the firm at the different competitive prices given in '4' above?
Construct a table assuming ten identical firms (same cost) in the market (also called industry in macroeconomics)
a) What is the relationship between the MC and short-run supply curve.
b) Why is the profit for the competitive firm zero in the long- run?
c) Explain the shapes of the long-run supply curve for:-
i. Increasing cost industry
ii. Constant cost industry
iii. Decreasing cost industry
d) Why is the consumer better off with a competitive firm than with a monopoly in the long-run? Explain the answer in terms of ATC, MC, and Prices?
e) Explain allocative and productive efficiencies for the purely competitive firm.