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Assignment #10 Market Structures 1 Perfect Competition and .docx
- 1. Assignment #10 Market Structures 1: Perfect Competition and Monopoly (10 Points) Define the following terms: Barriers to Entry: _____________________________________________________ _________________ _____________________________________________________ ________________________________ _____________________________________________________ ________________________________ Long-run Competitive Equilibrium: _____________________________________________________ ___ _____________________________________________________ ________________________________ _____________________________________________________ ________________________________ Marginal Cost: _____________________________________________________ ___________________ _____________________________________________________ ________________________________ _____________________________________________________ ________________________________
- 2. Marginal Revenue: _____________________________________________________ ________________ _____________________________________________________ ________________________________ _____________________________________________________ ________________________________ Market Power: _____________________________________________________ ___________________ _____________________________________________________ ________________________________ _____________________________________________________ ________________________________ Market Share: _____________________________________________________ ___________________ _____________________________________________________ ________________________________ _____________________________________________________ ________________________________ Market Structure: _____________________________________________________ ________________ _____________________________________________________ ________________________________ _____________________________________________________ ________________________________ Monopoly: _____________________________________________________ ______________________ _____________________________________________________
- 3. ________________________________ _____________________________________________________ ________________________________ Normal Profit: _____________________________________________________ ___________________ _____________________________________________________ ________________________________ _____________________________________________________ ________________________________ Short Answer Questions: 1. What are the six defining characteristics of a perfectly competitive market? I. ______________________________ II. _____________________________ III. ____________________________ IV. ____________________________ V. ____________________________ VI. ____________________________ 2. Explain the shutdown decision? (When do firms decide not to produce?) _____________________________________________________
- 4. _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________ 3. Why do firms in a competitive market earn zero profits in the long run? _____________ _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________ 4. Why do firms in a competitive industry have a perfectly elastic (horizontal) demand curve? _____________________________________________________ _________________________ _____________________________________________________ _________________________
- 5. _____________________________________________________ _________________________ _____________________________________________________ _________________________ 5. Explain why a perfectly competitive firm will still earn a positive accounting profit even though they earn zero economic profit? _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________ 6. What factors are necessary for a monopoly to exist? _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________
- 6. _________________________ P = MC Output Total Revenue Fixed Costs Vatiable Costs Total Costs Marginal Coss Average Total Costs Profit 20 0 50 - - 1 15
- 7. 2 75 3 5 4 2 5 13 6 47 7 112 8 25 9 18 10 3 7. What gives the monopolist the ability to earn positive economic profits when the firm facing perfect competition can only earn zero economic profits in the long-run _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________
- 8. Problems and Exercises: 1. Complete the table below and answer the corresponding questions. a. According to the table above, is this a perfectly competitive firm or a monopolist? ___________. b. What is the profit maximizing level of output? ___________________________ c. How much profit does this firm make at the profit maximizing level of output? _______ d. What is causing profit to decrease beyond the profit maximizing level of output? _____________________________________________________ ____________________ _____________________________________________________ ____________________
- 9. P Q P Q Market Firm S D S = MC PM QM D = MR = P ATC QC $12
- 10. PM QM P Q D S $12 QF P Q P = D = MR S = MC FirmMarket ATC 2. Use the graphs below to answer the following questions
- 11. a. Is the firm pictured above experiencing positive or negative profits? _______________ b. Draw and label the profit/loss rectangle on the graph of the firm. c. Explain the process of returning to zero economic profits works. _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________ d. Illustrate the process you explained in part c on the graphs above 3. Use the graphs below to answer the following questions
- 12. P = MR Output Total Revenue Fixed Cost Variable Cost Total Cost Marginal Cost Average Total Cost Profit 50 0 150 - - 1 35 2 30 3 105
- 13. 4 150 305 5 365 6 280 a. Is the firm pictured above experiencing positive or negative profits? _______________ b. Draw and label the profit/loss rectangle on the graph of the firm. c. Explain the process of returning to zero economic profits works. _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________ d. Illustrate the process you explained in part c on the graphs above 4. Complete the table below and answer the corresponding questions.
- 14. a. What is the profit maximizing level of production? _____________ b. What is the profit at the level of production in part a? _________________ c. Explain why this firm would choose to produce the level in part a rather than shutting down and not producing even though they will be losing money? _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________
- 15. D S = MC MR ATC $60 $40 $30 $25 10 20 22 P Q Market for iPods 5. Use the graph below to answer the following questions.
- 16. a. How many iPods would a perfectly competitive market produce? ________________ b. What price would the perfectly competitive market charge? ________________ c. How much profit would the perfectly competitive market make? ________________ d. How many iPods would a monopolistic market produce? ________________ e. What price would a monopolistic market charge? ________________ f. How much profit will the monopolistic market make? ________________ Assignment #10 Market Structures 1: Perfect Competition and Monopoly (10 Points) Define the following terms: Barriers to Entry: _____________________________________________________
- 17. _________________ _____________________________________________________ ________________________________ _____________________________________________________ ________________________________ Long-run Competitive Equilibrium: _____________________________________________________ ___ _____________________________________________________ ________________________________ _____________________________________________________ ________________________________ Marginal Cost: _____________________________________________________ ___________________ _____________________________________________________ ________________________________ _____________________________________________________ ________________________________ Marginal Revenue: _____________________________________________________ ________________ _____________________________________________________ ________________________________ _____________________________________________________ ________________________________ Market Power: _____________________________________________________ ___________________ _____________________________________________________ ________________________________ _____________________________________________________
- 18. ________________________________ Market Share: _____________________________________________________ ___________________ _____________________________________________________ ________________________________ _____________________________________________________ ________________________________ Market Structure: _____________________________________________________ ________________ _____________________________________________________ ________________________________ _____________________________________________________ ________________________________ Monopoly: _____________________________________________________ ______________________ _____________________________________________________ ________________________________ _____________________________________________________ ________________________________ Normal Profit: _____________________________________________________ ___________________ _____________________________________________________ ________________________________ _____________________________________________________ ________________________________
- 19. Short Answer Questions: 1. What are the six defining characteristics of a perfectly competitive market? I. ______________________________ II. _____________________________ III. ____________________________ IV. ____________________________ V. ____________________________ VI. ____________________________ 2. Explain the shutdown decision? (When do firms decide not to produce?) _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________ 3. Why do firms in a competitive market earn zero profits in the long run? _____________
- 20. _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________ 4. Why do firms in a competitive industry have a perfectly elastic (horizontal) demand curve? _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________ 5. Explain why a perfectly competitive firm will still earn a positive accounting profit even though they earn zero economic profit? _____________________________________________________ _________________________
- 21. _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________ 6. What factors are necessary for a monopoly to exist? _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________ P = MC Output Total Revenue Fixed Costs Vatiable
- 22. Costs Total Costs Marginal Coss Average Total Costs Profit 20 0 50 - - 1 15 2 75 3 5 4 2 5 13 6 47 7 112 8 25
- 23. 9 18 10 3 7. What gives the monopolist the ability to earn positive economic profits when the firm facing perfect competition can only earn zero economic profits in the long-run _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________ Problems and Exercises: 1. Complete the table below and answer the corresponding questions.
- 24. a. According to the table above, is this a perfectly competitive firm or a monopolist? ___________. b. What is the profit maximizing level of output? ___________________________ c. How much profit does this firm make at the profit maximizing level of output? _______ d. What is causing profit to decrease beyond the profit maximizing level of output? _____________________________________________________ ____________________ _____________________________________________________ ____________________ P Q P
- 25. Q Market Firm S D S = MC PM QM D = MR = P ATC QC $12 PM QM P Q D S $12 QF
- 26. P Q P = D = MR S = MC FirmMarket ATC 2. Use the graphs below to answer the following questions a. Is the firm pictured above experiencing positive or negative profits? _______________ b. Draw and label the profit/loss rectangle on the graph of the firm. c. Explain the process of returning to zero economic profits works. _____________________________________________________ _________________________ _____________________________________________________ _________________________
- 27. _____________________________________________________ _________________________ _____________________________________________________ _________________________ d. Illustrate the process you explained in part c on the graphs above 3. Use the graphs below to answer the following questions P = MR Output Total Revenue Fixed Cost Variable
- 28. Cost Total Cost Marginal Cost Average Total Cost Profit 50 0 150 - - 1 35 2 30 3 105 4 150 305 5 365 6 280 a. Is the firm pictured above experiencing positive or negative profits? _______________ b. Draw and label the profit/loss rectangle on the graph of the firm.
- 29. c. Explain the process of returning to zero economic profits works. _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________ d. Illustrate the process you explained in part c on the graphs above 4. Complete the table below and answer the corresponding questions. a. What is the profit maximizing level of production? _____________ b. What is the profit at the level of production in part a?
- 30. _________________ c. Explain why this firm would choose to produce the level in part a rather than shutting down and not producing even though they will be losing money? _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________ D S = MC MR ATC $60 $40 $30
- 31. $25 10 20 22 P Q Market for iPods 5. Use the graph below to answer the following questions. a. How many iPods would a perfectly competitive market produce? ________________ b. What price would the perfectly competitive market charge? ________________ c. How much profit would the perfectly competitive market make? ________________ d. How many iPods would a monopolistic market produce? ________________
- 32. e. What price would a monopolistic market charge? ________________ f. How much profit will the monopolistic market make? ________________ Assignment #9 Production Costs Part 2 (10 Points) Define the following terms: Diseconomies of Scale Economic Efficiency Economic Profit Economies of Scale Firm Fixed Costs Long-run Marginal Cost
- 33. Marginal Product Minimum Efficient Level of Production Production Short-run Technical Efficiency Variable Costs Short Answer Questions: 1. Briefly explain the Law of diminishing marginal productivity. Give one real world example. 2. Explain the relationship between production and costs. How are the curves related? 3. Give one example of economies of scope and explain how economies of scope reduce average total costs of production 4. Complete the following equations: a. TC = _____ + VC
- 34. b. ______ = AFC + AVC c. ______ = TCn – TCn – 1 d. ATC = ______ ÷ ______ 5. To produce coffee tables, firms can use a combination of labor and capital in its production process. Suppose labor costs $60 per day and the cost of machinery costs $200. Use the following information to calculate the total cost for each firm and determine which firm is technically efficient and economically efficient. a. Firm x can produce 500 coffee tables using 25 workers and 5 machines. Firm y can produce 500 coffee tables using 15 workers and 7 machines. Firm z can produce 500 coffee tables using 20 workers and 4 machines. b. Firm a can produce 1000 coffee tables using 40 workers and 8
- 35. machines. Firm b can produce 1000 coffee tables using 50 workers and 7 machines. Firm c can produce 1000 coffee tables using 45 workers and 7 machines. 6. Suppose a firm produces televisions. It can produce 125,000 TV’s at a total cost of $21,875,000 or it can produce 200,000 TV’s at a total cost of $32,000,000. Is this firm experiencing economies of scale, diseconomies of scale, or constant returns to scale? (Calculate ATC for both levels of production.) 7. The table below represents production costs for building desks. Complete the table below and answer the following questions.
- 36. a. At what range of production is this company experiencing economies of scale? b. At what range of production is this company experiencing constant returns to scale? c. At what range of production is this company experiencing diseconomies of scale? d. What is the minimum efficient level of production? Cost ($) Output
- 37. (Q) 8. The table below represents short-run production costs for a small business. Complete the table below and answer the following questions. a. At what level does diminishing marginal productivity begin? (hint: marginal costs and marginal productivity are inversely related) 9. Use the graph below to answer the following questions a. On the graph above, correctly sketch the following curves: Marginal Cost (MC), Average Fixed Cost (AFC), Average Variable Cost (AVC) and Average Total Cost.
- 38. Cost ($) Output (Q) f. Sketch a graph illustrating your your answer for part d Cost ($) Output (Q) g. Sketch a graph illustrating your your answer for part e b. What gives the marginal cost curve its shape? _____________________________________________________ _____________________________ _____________________________________________________ _____________________________ _____________________________________________________ _____________________________ _____________________________________________________ _____________________________
- 39. _____________________________________________________ _____________________________ c. Where is the average total cost minimized? _____________________________________________________ _____________________________ _____________________________________________________ _____________________________ _____________________________________________________ _____________________________ _____________________________________________________ _____________________________ _____________________________________________________ _____________________________ d. Under what condition would a business decide to shut-down production? _____________________________________________________ _____________________________ _____________________________________________________ _____________________________ _____________________________________________________ _____________________________ _____________________________________________________ _____________________________ _____________________________________________________
- 40. _____________________________ e. Under what condition would a firm continue to produce even though they are losing money? _____________________________________________________ _____________________________ _____________________________________________________ _____________________________ _____________________________________________________ _____________________________ _____________________________________________________ _____________________________ _____________________________________________________ _____________________________ Assignment 8: Production Costs – Part 1 (10 Points) Terms and Definitions: Define the following terms
- 43. Variable Costs: _____________________________________________________ ___________ _____________________________________________________ _________________________ _____________________________________________________ ________________________ Short Answer Problems: 1. Explain why the principle of diminishing marginal productivity only occurs in the short-run _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________ 2. Explain the relationship between the economic concept of diminishing marginal productivity and the principle of increasing marginal costs?
- 44. _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________ 3. Explain the difference between a short-run production decision and a long-run production decision. _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________ _____________________________________________________ _________________________
- 45. Problems and Exercises: 1. Complete the production table below and answer the following questions a. At which level of employment does diminishing marginal productivity begin? b. At which level of employment does diminishing absolute productivity begin? 2. Suppose you are opening up a pizza restaurant. You decide to open up your restaurant at
- 46. the Irvine Spectrum. Before you begin to sell pizza’s, you must first set up your restaurant. To do this you need to purchase the following: Rent: $1,000 per month Insurance: $300 per month Cash Registers (2): $750 each Pizza Oven: $1500 Furniture/Interior Design: $3000 Neon Sign/Billboard: $1000 Number of Workers Output
- 47. (# of Pizzas) Marginal Product Average Product Fixed Cost Variable Cost Total Cost AFC AVC ATC 0 0 1 600 2 1400 3 2400 4 3000 5 3300 6 3400
- 48. 7 3400 8 3100 9 2700 Monthly Cost and Production Summary Table For simplicity purposes, your only variable input is labor, which you will hire for $1,500 per month. (in actuality, any cost that increases as your production increases will be considered variable costs. Other variable costs may include ingredients, electric and gas bills. a. Use the information above to complete the table below for your restaurant
- 49. b. . At what level of output does diminishing marginal productivity begin? ____________ c. At what point to marginal costs begin to increase? ______________________________ d. Suppose you can sell pizzas for $15 each. How much profit would make if you sell 3300 pizzas? ___________________
- 51. 0 - 100 - - - - 1 100 2 80 3 75 4 340 5 5 6 260 7 387 8 43 9 400 10 60 3. Complete the table below and answer the corresponding questions.
- 52. a. Is this a short-run or a long-run cost table? How do you know? _________________ _____________________________________________________ ___________________ _____________________________________________________ ___________________