Posted: September 14th, 2017

perfectly competitive, the ceaseless search for maximum profits

perfectly competitive, the ceaseless search for maximum profits

4) “In a world in which all markets were perfectly competitive, the ceaseless search for maximum profits will drive all prices down to the level of minimum average cost in the long run” Agree or disagree with this statement and explain your reasoning.

5) Do you think that the long run market supply schedule of artichokes is similar in shape to the long run supply schedule of snow shovels? Explain your answer and illustrate it graphically.

6) In the above diagrams assume the following: MC intersects AVC @ P= $8, Q=40 and MC intersects ATC @ P= $12, Q = 50. (Min MC =$ 4). In the market demand schedule on the right, at a price of $16, the quantity demanded = 6000, and at a price of $12 the quantity demanded rise to 7000.

a) What is the output of a typical firm when the market price is $16?

b) What is the lowest price at which the typical firm will stay in business in the short run?

c) If there are currently 100 firms in this industry. Draw the short run market supply curve

d) Is $16 the long run equilibrium price? Explain why if your answer is yes. If your answer is no, then identify the long run equilibrium price and explain what happens in the transition from the short to the long run. (Assume no shift in the market demand schedule)

e) If the prices of real estate on which firms had their production facilities located rose, which of the firm’s cost schedules would shift and in which direction? Suppose unions in the industry negotiated a wage increase. Which cost curves would shift and in which direction?

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