8/3/2019 Micro Ch14 ICA Comp Mkt

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Name: _______________________________________________________ Economics Dr. Katie Sauer

Competitive Firms (ch 14)

1. Refer to the graph.

a. At a market price of P4, how much does this firm produce? How much are its profits or losses?

b. At a market price of P3, how much does this firm produce? How much are its profits or losses?

c. At a market price of P2, how much does this firm produce? How much are its profits or losses?

d. At a market price of P1, how much does this firm produce? How much are its profits or losses?

2. The Following table contains information for a firm in a competitive market.Quantity Total

Revenue

Total

Cost

Marginal

Revenue

Marginal

Cost

0 $0 $10

1 $9 $14

2 $18 $19

3 $27 $25

4 $36 $32

5 $45 $40

6 $54 $49

7 $63 $59

8 $72 $709 $81 $82

a. What is the profit-maximizing level of output for this firm?

b. What price will this firm charge?

MC

ATC

AVCP4

P1

P3

Q1 Q3 Q5

P2

Q2 Q4 Quantity

Price

8/3/2019 Micro Ch14 ICA Comp Mkt

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Economics Dr. Katie Sauer

3. The graph on the left illustrates the market for landscaping rocks in the short and long run. Thegraph on the right is the cost structure for a competitive firm in this industry.

a. Illustrate equilibrium in the market and the firms profit maximizing level of output.

b. Is the firm earning a profit or a loss? So what will happen in this industry in the long run?

c. Suppose that due to a water conservation movement, many homeowners are opting forlandscaping rocks instead of grass lawns.

-Illustrate the short run effect this would have in the market.

-Now illustrate the short run effect it has on the firm.

d. Is the firm earning a profit or a loss? So what will happen in this industry in the long run?

e. Illustrate the long run effect in the market and for the firm.

P

Q q

SSR

SLR

D

MC

ATC

P