1-Market Structure
2- Market Power.
3- Pure competition
4- Long Run
5- Short Run
6- Price Setting
7- Price making
8- Degree of freedom
9- Price in Pure competition
2. Complete the table directly below by calculating marginal product and average product.
Inputs of Labor Total Product Marginal Product Average Product
0 o
1 25
2 44
3 61
4 75
5 84
6 90
7 93
8 92
3. Why is a firm in perfect competition a price taker?
4. In perfect competition, why is a firm’s marginal revenue curve also the demand curve for the firm’s output?
5. What is the lowest price at which a firm produces an output? Explain why.
6. Why does a firm in perfect competition produce the quantity at which marginal cost equals price?
7. Explain why resources are used efficiently in a competitive market.
8. Pat’s Pizza Kitchen is a price taker. Its costs are in the table.
a. Calculate Pat’s profit-maximizing output and economic profit if the market price is
(i) $14 a pizza.
(ii) $12 a pizza.
(iii) $10 a pizza.
Output (pizzas per hour) Total cost (dollars per hour
0 10
1 21
2 30
3 41
4 54
5 69
Quantity, Total cost, Fixed cost, Variable cost, Total revenue, Profit
0 $62
10 $90
20 $110
30 $126
40 $144
50 $166
60 $192
70 $224
80 $264
90 $324
100 $404
Selling price is $4.00
Problem: 1
A competitive firm’s short-run cost information is shown in the table below.
Output Fixed Cost Variable Cost Total Cost
0 $9.00 $ 0.00 $ 9.00
1 9.00 8.00 17.00
2 9.00 15.00 24.00
3 9.00 21.00 30.00
4 9.00 26.00 35.00
5 9.00 32.00 41.00
6 9.00 39.00 48.00
7 9.00 47.00 56.00
8 9.00 56.00 65.00
9 9.00 66.00 75.00
10 9.00 77.00 86.00
a. Suppose the firm can sell all the output it desires at the market price of $9.10. Compute the firm’s total revenue and its total profit (loss) for the potential output choices shown in the table. What output level maximizes the firm’s profits (or minimizes its losses)?
b. Repeat part a. assuming the price has fallen t
Problem 02 – Profit maximization: MR = MC approach
Problem:
Suppose a competitive firm’s cost information is as shown in the table below. Its total fixed cost is $9.00.
Output Marginal Cost Average Variable Cost Average Total Cost
0
1 $ 8.00 $8.00 $17.00
2 7.00 7.50 12.00
3 6.00 7.00 10.00
4 5.00 6.50 8.75
5 6.00 6.40 8.20
6 7.00 6.50 8.00
7 8.00 6.71 8.00
8 9.00 7.00 8.13
9 10.00 7.33 8.33
10 11.00 7.70 8.60
a. Suppose the firm sells its output at a price of $9.10. What is the firm’s marginal revenue (MR)?
b. Compare MR to marginal cost (MC) to determine the firm’s profit maximizing (loss-minimizing) output level. Be sure to check whether or not the firm should shut down.
c. What is the firm’s per-unit profit (loss) at this output level?
d. What is the firm’s total profit (loss) at this output level?
e. Repeat parts a. through d. assuming the price has fallen to $7.10.
f. Repeat again assuming the price has fallen to $6.10
Ch 8-
Problem 1 – Monopoly price and output
Problem:
Suppose a monopoly’s demand schedule is given by the first two columns of the following table. Its total cost of production is given in the next column.
Output Price Total Cost Total Revenue MC MR
0 $24 $10
1 21 14
2 18 20
3 15 28
4 12 38
5 9 50
a. Fill in the Total Revenue column by computing the firm’s total revenue associated with each output level.
b. By comparing total cost and total revenue, find the output level that maximizes the firm’s profit.
c. What price should the firm set to achieve maximum profit?
d. Complete the final two columns to verify that the same conclusions are reached using the MR = MC rule.
Problem .2 – Price discrimination
Problem:
Suppose a price-discriminating monopoly has segregated its market into two submarkets and can prevent resale between the two. Assume that its marginal cost is constant and equal to its average total cost of $8. The firm’s demand schedule for the first group is given by the first two columns of the following table.
Output Price Total Revenue MR
0 $24
1 22
2 20
3 18
4 16
5 14
6 12
7 10
8 8
a. Find the firm’s total revenue schedule for this submarket, entering the data into the table where indicated. Use these data to determine the marginal revenue schedule in this submarket.
b. What output level and price will maximize the firm’s profit in this submarket?
c. The firm’s demand schedule for the second group is given by the first two columns of the following table.
Output Price Total Revenue MR
0 $33
1 30
2 27
3 24
4 21
5 18
6 15
7 12
8 9
d.
Find the firm’s total and marginal revenue schedules in this second submarket. What output level and price will maximize the firm’s profit in this submarket?
e. Based on these prices, which submarket has the more elastic demand?
f. What is this firm’s total economic profit?
