Economics and Firm Essay Example
Economics 247 Assignment 2 Version A
This assignment has a maximum total of 100 marks and is worth 10% of your total grade for this course. You should complete it after completing your course work for Units 6 through 10. Answer each question clearly and concisely.
1. In perfect competition, one result of the model was that there were no economic profits in the long run. In a monopoly, the firm typically earns a positive economic profit. Why is there this difference? The lack of barriers to entry will allow competitors to enter the market unil economic profit is zero. These firms are price takers, and they cannot affect prices because their demand curve is horizontal. (4 marks)
2. Assume that a single firm in a pure competitive industry has a fixed cost of $6500 and variable costs as indicated in the table below.
a. Calculate the TC, AFC, AVC, ATC, and MC columns for this firm. (5 marks)
Total Output
TVC
TC
AFC
AVC
ATC
MC
00
0
600
70,000
1000
76000
1400
81000
1800
87000
2200
90000
2600
93000
2800
96000
3000
100000
3100
110000
b.
Explain the concepts of economies and diseconomies of scale, and describe the underlying reasons why both occur. (4 marks)
3. At its current level of production, a profit-maximizing firm in a competitive market receives $12.50 for each unit it produces, and it faces an average total cost of $10. At the market price of $12.50 per unit, the firm's marginal cost curve crosses the marginal revenue curve at an output level of 1000 units. What is the firm's current profit? What is likely to occur in this market and why? (4 marks)
P=12.5
TR=P*Q = 12.5 * 1'000 = 12'500
TC=ATC*Q = 10 * 1'000 = 10'000
Profit=TR-TC = 12'500 - 10'000 = +2'500
Profit is positive, but for perfectly competitive markets there will be no profits at all in the long-run, so in this markets new firms will enter market
This assignment has a maximum total of 100 marks and is worth 10% of your total grade for this course. You should complete it after completing your course work for Units 6 through 10. Answer each question clearly and concisely.
1. In perfect competition, one result of the model was that there were no economic profits in the long run. In a monopoly, the firm typically earns a positive economic profit. Why is there this difference? The lack of barriers to entry will allow competitors to enter the market unil economic profit is zero. These firms are price takers, and they cannot affect prices because their demand curve is horizontal. (4 marks)
2. Assume that a single firm in a pure competitive industry has a fixed cost of $6500 and variable costs as indicated in the table below.
a. Calculate the TC, AFC, AVC, ATC, and MC columns for this firm. (5 marks)
Total Output
TVC
TC
AFC
AVC
ATC
MC
00
0
600
70,000
1000
76000
1400
81000
1800
87000
2200
90000
2600
93000
2800
96000
3000
100000
3100
110000
b.
Explain the concepts of economies and diseconomies of scale, and describe the underlying reasons why both occur. (4 marks)
3. At its current level of production, a profit-maximizing firm in a competitive market receives $12.50 for each unit it produces, and it faces an average total cost of $10. At the market price of $12.50 per unit, the firm's marginal cost curve crosses the marginal revenue curve at an output level of 1000 units. What is the firm's current profit? What is likely to occur in this market and why? (4 marks)
P=12.5
TR=P*Q = 12.5 * 1'000 = 12'500
TC=ATC*Q = 10 * 1'000 = 10'000
Profit=TR-TC = 12'500 - 10'000 = +2'500
Profit is positive, but for perfectly competitive markets there will be no profits at all in the long-run, so in this markets new firms will enter market