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CHAPTER —PERFECT COMPETITION

MULTIPLE CHOICE

1. If P = $8 and MC = $5 + 0. 2Q, the competitive firm' profit!ma"imi#in %eve% of o&tp&t ia. 5 (. 0.2

c. 8d. 15

)*

2. In the %on r&n, firm -i%% offer &pp% at the point -here P = M/ = MC ifa. MC i riin. (. MC i fa%%in.c. MC i contant.d. P )C

)*

. raphica%%, competitive mar3et &pp% i mea&red ( thea. vertica% difference of competitor demand c&rve. (. vertica% &m of competitor demand c&rve.c. hori#onta% difference of competitor MC c&rve.d. hori#onta% &m of competitor MC c&rve.

)*

4. or a firm in perfect% competitive mar3et e6&i%i(ri&ma. M/ 7 )/ (. P )Cc. P M/ d. P = MC

)*

5. Competition tend to (e %iht -hena. potentia% entrant are fe-. (. capita% re6&irement are nomina%.c. tandard for 3i%%ed %a(or and other inp&t are modet.d. re&%ator (arrier are modet.

)* )

. 9 ite%f, a red&ction in import tariff :ta"e; -i%%

a. red&ce 6&antit demanded. (. enhance dometic competition.c. enhance the profit of dometic competitor.d. red&ce import competition.

)* 9

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(. decreae in cot that are &ccef&%% anticipated.c. increae in prod&ctivit that are &ccef&%% anticipated.d. %&c3.

)*

8. In a perfect% competitive mar3eta. e%%er and (&er have perfect information. (. entr and e"it are diffic&%t.

c. e%%er prod&ce imi%ar, (&t not identica% prod&ct.d. each e%%er can affect the mar3et price ( chanin o&tp&t.

)* )

. >he firm demand c&rve in a competitive mar3et ia. &p-ard %opin. (. do-n-ard %opin.c. hori#onta%.d. vertica%.

)* C

10. ) firm -i%% earn norma% profit -hen pricea. e6&a% averae tota% cot. (. e6&a% averae varia(%e cot.c. e6&a% marina% cot.d. e"ceed minim&m averae tota% cot.

)* )

11. In the hort r&n, a perfect% competitive firm -i%% h&t do-n and prod&ce nothin ifa. e"ce profit e6&a% #ero. (. tota% cot e"ceed tota% reven&e.c. tota% varia(%e cot e"ceed tota% reven&e.

d. the mar3et price fa%% (e%o- the minim&m averae tota% cot.)* C

12. In the %on r&n, firm -i%% e"it a perfect% competitive ind&tr ifa. e"ce profit e"ceed #ero. (. e"ce profit are %e than #ero.c. tota% profit e6&a% #ero.d. e"ce profit e6&a% #ero.

)* 9

1. Perfect competition a%-a prevai% in mar3et -ith

a. fe- (&er and e%%er. (. man (&er and e%%er.c. an even (a%ance of po-er (et-een e%%er and (&er.d. a in%e (&er.

)* C

14. In perfect% competitive mar3et, profit are ma"imi#ed -hena. MC = )C

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(. P )Cc. M/ = MCd. M/ = P

)* C

15. ?conomic profita. cannot (e neative. (. can e"ceed the ri3!ad@&ted norma% rate of ret&rn.

c. i %e than the ri3!ad@&ted norma% rate of ret&rn.d. doe not ref%ect the cot of o-ner!&pp%ied inp&t.

)* 9

1. Mar3et tr&ct&re i not tpica%% characteri#ed on the (ai ofa. the n&m(er and i#e ditri(&tion of active (&er and e%%er. (. potentia% entrant.c. e"it (arrier.d. overnment re&%ation.

)*

1he rate of ret&rn necear to attract and retain capita% invetment i ca%%ed

a. /A?. (. economic %oe.c. norma% profit.d. economic profit.

)* C

21. In competitive mar3et e6&i%i(ri&m, the firm'a. M/ = MC and P )/

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(. M/ = MC and P )Cc. )/ = )C and M/ MCd. P = M/ = )/ = )C = MC

)*

22. )t the point of minim&m )BCa. MC i fa%%in. (. MC i contant.

c. MC i riin.d. MC = )BC.

)*

2. o %on a P )BC, the competitive firm' hort!r&n &pp% c&rve i e6&a% toa. )BC (. Pc. MCd. none of thee.

)* C

24. hen profit are ma"imi#ed in a competitive mar3et, averae cot i a%-aa. riin. (. fa%%in.c. contant.d. none of thee.

)*

25. >he fo%%o-in mar3et cannot (e decri(ed a perfect% competitivea. the &n3i%%ed %a(or mar3et. (. the mi%3 mar3et.c. dico&nt retai%in.

d. the aric&%t&ra% rain mar3et.)* 9

PROBLEM

1. Competitive Markets. Indicate -hether each of the fo%%o-in tatement i tr&e or fa%e and -h.

). In %on!r&n e6&i%i(ri&m, ever firm in a perfect% competitive ind&tr earn an economic profit.

9. P&re competition e"it in a mar3et -hen firm are price ma3er a oppoed to price ta3er.

C. ) nat&ra% monopo% re&%t -hen the profit!ma"imi#in o&tp&t %eve% occ&r at a point -here%on!r&n averae cot are decreain.

. o-n-ard!%opin ind&tr demand c&rve characteri#e monopo% mar3etD hori#onta%demand c&rve characteri#e perfect% competitive mar3et.

?. ) decreae in the price e%aticit of demand -o&%d fo%%o- an increae in monopo% po-er.

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)*

). a%e. In %on!r&n e6&i%i(ri&m, ever firm in a perfect% competitive ind&tr earn #eroe"ce profit. o%%o-in a decreae in ind&tr price, hih cot prod&cer -i%% (e forced toe"it. Eo-ever, the firm that remain -i%% contin&e to operate and earn a norma% rate of ret&rnon invetment.

9. a%e. P&re competition e"it in a mar3et -hen individ&a% firm have no inf%&ence over price. &ch firm ta3e ind&tr price a a iven.

C. a%e. ) nat&ra% monopo% occ&r in a mar3et -hen the mar3et c%earin price, or price -hereemand :Price; = &pp% :Marina% Cot;, occ&r at an o&tp&t %eve% -here %on!r&n averaecot are dec%inin.

. a%e. o-n-ard %opin demand c&rve fo%%o- from the %a- of diminihin marina% &ti%itand characteri#e (oth perfect% competitive and monopo% mar3et tr&ct&re. Eori#onta%demand c&rve characteri#e perfect% competitive firm.

?. >r&e. ) decreae in the price e%aticit of demand -o&%d re&%t fo%%o-in an increae inmonopo% po-er.

2. Market Structure. pecif -hether each of the fo%%o-in tatement i tr&e or fa%e and demontrate-h.

). ) mar3et i confined to a%% firm and individ&a% -i%%in and a(%e to (& or e%% a partic&%ar prod&ct at a iven time and p%ace.

9. >he more even the (a%ance of po-er (et-een e%%er and (&er, the more %i3e% it i that thecompetitive proce -i%% ie%d ma"im&m (enefit.

C. ) c%oe %in3 (et-een the n&m(er of mar3et participant and the vior of price competitioni a%-a evident.

. Mar3et tr&ct&re decri(e the competitive environment in the mar3et for an ood orervice.

?. Competitor often (enefit from the effect of potentia% entrant in ind&trie -ith on% ahandf&% of via(%e firm.

)*

). a%e. ) mar3et conit of a%% firm and individ&a% -i%%in and a(%e to (& or e%% a partic&%ar prod&ct at a iven time and p%ace. >hi inc%&de individ&a% and firm c&rrent%enaed in (&in and e%%in a partic&%ar prod&ct, a -e%% a potentia% entrant.

9. >r&e. >he more even the (a%ance of po-er (et-een e%%er and (&er, the more %i3e% it ithat the competitive proce -i%% ie%d ma"im&m (enefit.

C. a%e. ) c%oe %in3 (et-een the n&m(er of mar3et participant and the vior of pricecompetition doe not a%-a ho%d tr&e. or e"amp%e, there are %itera%% tho&and of prod&cer in mot ma@or mi%3 mar3et. Price competition i none"itent, ho-ever, iven anind&tr carte% that i &tained ( a federa% proram of mi%3 price &pport. *everthe%e,there are fe- (arrier to entr, and individ&a% mi%3 prod&cer tr&%e to earn a norma%

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ret&rn.

. >r&e. Mar3et tr&ct&re i tpica%% characteri#ed on the (ai of fo&r important ind&trcharacteritic the n&m(er and i#e ditri(&tion of active (&er and e%%er and potentia%entrant, the deree to -hich prod&ct are imi%ar or diimi%ar, the amo&nt and cot ofinformation a(o&t prod&ct price and 6&a%it, and condition of entr and e"it.

?. a%e. Con&mer, not competitor, often (enefit from the effect of potentia% entrant inind&trie -ith on% a handf&% of via(%e firm. Price competition can (e pirited in aircraft

man&fact&rin, ne-paper, Internet acce, %on!ditance te%ephone ervice, and othermar3et -ith a fe- a t-o competitor. >hi i partic&%ar% tr&e -hen mar3et participantare contrained ( the via(%e threat of potentia% entrant.

. Prouct !i""ere#tiatio#. &et -hether each of the fo%%o-in tatement i tr&e or fa%e andi%%&trate -h.

). o&rce of prod&ct differentiation inc%&de on% phica% difference, not mere% perceiveddifference.

9. Price competition tend to (e mot vioro& for prod&ct -ith man act&a% or perceiveddifference.

C. >he avai%a(i%it of ood &(tit&te decreae the deree of competition.

. Competition tend to (e %e vioro& -hen (&er and e%%er have ea acce to detai%ed priceFprod&ct performance information.

?. >he avai%a(i%it of ood comp%ement increae the deree of competition.

)*

). a%e. /ea% or perceived difference in the 6&a%it of ood and ervice offered tocon&mer %ead to prod&ct differentiation. o&rce of prod&ct differentiation inc%&de phica%

difference, &ch a thoe d&e to &perior reearch and deve%opment, p%& an perceiveddifference d&e to effective advertiin and promotion.

9. a%e. Price competition tend to (e mot vioro& for homoeno& prod&ct -ith fe- act&a%or perceived difference.

C. a%e. >he avai%a(i%it of ood &(tit&te increae the deree of competition.

. a%e. Competition i a%-a mot vioro& -hen (&er and e%%er have ea acce todetai%ed priceFprod&ct performance information.

?. a%e. >he avai%a(i%it of ood &(tit&te increae the deree of competition.

4. E#tr$ a# E%it Co#itio#s. inif -hether each of the fo%%o-in tatement i tr&e or fa%e anddoc&ment -h.

). ) (arrier to mo(i%it i an factor or ind&tr characteritic that create an advantae forinc&m(ent over ne- arriva%.

9. ) (arrier to entr i an factor or ind&tr characteritic that create an advantae for %are

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%eadin firm over ma%%er non%eadin riva%.

C. 9arrier to entr and mo(i%it ometime re&%t in compenatin advantae for con&mer.

. ) (arrier to e"it i an retriction on the a(i%it of inc&m(ent to redep%o aet from oneind&tr or %ine of (&ine to another.

?. overnment action that create (arrier to e"it can have the &nintended effect of retardinind&tria% deve%opment.

)*

). a%e. ) (arrier to entr i an factor or ind&tr characteritic that create an advantae forinc&m(ent over ne- arriva%.

9. a%e. ) (arrier to mo(i%it i an factor or ind&tr characteritic that create an advantaefor %are %eadin firm over ma%%er non!%eadin riva%.

C. >r&e. It i -orth 3eepin in mind that (arrier to entr and mo(i%it can ometime re&%t incompenatin advantae for con&mer. ?ven tho&h patent can %ead to monopo% profitfor inventin firm, the a%o p&r va%&a(%e ne- prod&ct and proce deve%opment. )%tho&h

efficient and innovative %eadin firm ma3e %ife diffic&%t for ma%%er riva%, the can have thefavora(%e effect of %o-erin price and increain prod&ct 6&a%it. >herefore, a comp%eteeva%&ation of the economic effect of entr (arrier invo%ve a conideration of (oth cotand (enefit rea%i#ed ( &pp%ier and c&tomer.

. >r&e. ) (arrier to e"it i an retriction on the a(i%it of inc&m(ent to redep%o aet fromone ind&tr or %ine of (&ine to another. &rin the %ate 180, for e"amp%e, evera% tateovernment initiated %ea% proceedin to impede p%ant c%o&re ( %are emp%oer in thetee%, %a, a&tomo(i%e, and other ind&trie. 9 impoin %are fine or everance ta"e orre6&irin &(tantia% e"pendit&re for -or3er retrainin, the created inificant (arrier toe"it.

?. >r&e. 9 impedin the aet redep%oment that i tpica% of an vioro& competitiveenvironment, (arrier to e"it can dramatica%% increae (oth the cot and ri3 of doin (&ine. ?ven tho&h one can certain% mpathi#e -ith the diffic&%t ad@&tment faced ( (oth -or3er and firm affected ( p%ant c%o&re, overnment action that create (arrier toe"it can have the &nintended effect of retardin ind&tria% deve%opment.

5. Price&Output !etermi#atio#. Co%d Cae, Inc., prod&ce (everae container &ed ( fat foodfranchie. >hi i a perfect% competitive mar3et. >he fo%%o-in re%ation e"it (et-een the firm' (everae container o&tp&t per ho&r and tota% prod&ction cot

Tota'

Output

Tota'

Cost

0 $ 51,000 852,000 145,000 2154,000 255,000 85,000 485

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). Contr&ct a ta(%e ho-in the marina% cot of paper c&p prod&ction.

9. hat i the minim&m price necear for the compan to &pp% one tho&and c&pG

C. Eo- man c&p -o&%d the compan &pp% at ind&tr price of $he Cop Center pecia%i#e in hih!vo%&me printin and co%or copin for ma%% (&inee. >hi i a fierce% competitive mar3et. >he fo%%o-in re%ation e"it (et-een o&tp&t andtota% prod&ction cot

Tota'

Output

Tota'

Cost

0 $ 50010,000 ,50020,000

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).Tota'

Output

Tota'

Cost

Mar(i#a'

Cost

0 $ 500 !!10,000 ,500 $ ,00020,000

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,000 1,540 4804,000 2,040 5005,000 2,55 525,000 ,115 550herefore, the firm -i%% &pp% o&tp&t o %on a price at %eat cover the marina% cot of prod&ction. )t a price of $510, Q = 4,000 &nit ofo&tp&t can (e @&tified (eca&e P = $510 MCQ = 4,000 = $500. Eo-ever, prod&ction of a fifth&nit i not -arranted (eca&e P = $510 7 MCQ = 5,000 = $525. imi%ar%, Q = ,000 co&%d (e @&tified at a price of $550 (eca&e P = $550 = MCQ = ,000.

8. Firm Supp'$. /etirement P%annin ervice.com i a -ho%ea%e prod&cer of tandardi#ed retirement p%an for hih net -orth individ&a%. >hee p%an are prod&ced and e!mai%ed to financia% p%anner -hoincorporate them in their c%ient preentation. >he fo%%o-in re%ation e"it (et-een the firm' o&tp&tand tota% prod&ction cot in thi hih% price!competitive mar3et

Tota'

Output

Tota'

Cost

0 $ 50100 150200 2

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C. In a perfect% competitive mar3et, P = M/. >herefore, the compan -i%% &pp% o&tp&t o%on a price at %eat cover the marina% cot of prod&ction. )t a price of $180, Q = 400&nit of o&tp&t can (e @&tified (eca&e P = $180 MCQ = 400 = $1

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10. Lo#()ru# Firm Supp'$. >he 9oton retai% mar3et for &n%eaded ao%ine i fierce% price competitive.Conider the it&ation faced ( a tpica% ao%ine retai%er -hen the %oca% mar3et price for &n%eadedao%ine i $1.80 per a%%on and tota% cot :>C; and marina% cot :MC; re%ation are

>C = $400,000 + $1.4Q + $0.0000001Q2

MC = ∂>CF∂Q = $1.4 + $0.0000002Q

and Q i a%%on of ao%ine. >ota% cot inc%&de a norma% profit.

). in the firm' marina% cot c&rve, ca%c&%ate the profit!ma"imi#in %on!r&n &pp% from atpica% retai%er

9. Ca%c&%ate the averae tota% cot c&rve for a tpica% ao%ine retai%er, and verif that averaetota% cot are %e than price at the optima% activit %eve%.

)*

). >he marina% cot c&rve contit&te the %on!r&n &pp% c&rve for firm in perfect%competitive mar3et if price i reater than averae tota% cot. 9eca&e P = M/, the pricenecear to ind&ce firm &pp% in the %on r&n of a iven amo&nt i fo&nd ( ettin P =MC, provided that P )>C

P = $1.4 + $0.0000002Q1.80 = $1.4 + $0.0000002Q0.1 = 0.0000002QQ = 800,000

9. >he averae tota% cot c&rve i determined ( dividin tota% cot ( o&tp&t

)>C = :$400,000 + $1.4Q + $0.0000001Q2;FQ = $400,000FQ + $1.4 + $0.0000001Q)t the Q = 800,000 activit %eve%, averae tota% cot i $2.22 and more than the mar3et price)>C = $400,000F800,000 + $1.4 + $0.0000001:800,000; = $2.22

9eca&e P = M/ = MC -hi%e P 7 )>C at the 800,000 a%%on per ear activit %eve%, thi inot a &taina(%e amo&nt of %on!r&n &pp% from the tpica% ao%ine retai%er. ?conomic%oe (ein &ffered in the ind&tr -i%% ca&e e"it &nti% price rie or cot fa%% &fficient%to en&re that on% a norma% profit i earned ( each competitor in %on!r&n e6&i%i(ri&m.

11. S*ort)ru# Firm Supp'$. Prod&ce Pride, Inc., &pp%ie -eet corn to cannerie %ocated thro&ho&t theMio&ri /iver Ba%%e. Hi3e man rain and commodit mar3et, the mar3et for -eet corn i perfect%competitive. ith $500,000 in fi"ed cot, the compan' tota% and marina% cot per ton :Q; are

>C = $500,000 + $400Q + $0.04Q2

MC = ∂>CF∂Q = $400 + $0.08Q

). Ca%c&%ate the ind&tr price necear to ind&ce hort!r&n firm &pp% of 5,000, 10,000, and15,000 ton of -eet corn. )&me that MC )BC at ever point a%on the firm' marina%cot c&rve and that tota% cot inc%&de a norma% profit.

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9. Ca%c&%ate hort!r&n firm &pp% at ind&tr price of $400, $1,000, and $2,000 per ton.

)*

). >he marina% cot c&rve contit&te the hort!r&n &pp% c&rve for firm in perfect%competitive ind&trie provided price e"ceed averae varia(%e cot. 9eca&e P = M/, the price necear to ind&ce hort!r&n firm &pp% of a iven amo&nt i fo&nd ( ettin P =MC, a&min P )BC. Eere

MC = ∂>CF∂Q = $400 + $0.08Q

>herefore, at

Q = 5,000 P = MC = $400 + $0.08:5,000; = $800Q = 10,000 P = MC = $400 + $0.08:10,000; = $1,200Q = 15,000 P = MC = $400 + $0.08:15,000; = $1,00

: Note: Baria(%e Cot = $400Q + $0.04Q2, and )BC = $400 + $0.04Q, o MC )BC at each point a%on the firm' hort!r&n &pp% c&rve.;

9. hen 6&antit i e"preed a a f&nction of price, the firm' &pp% c&rve can (e -ritten

P = MC = $400 + $0.08Q0.08Q = !400 + PQ = !5,000 + 12.5P

>herefore, at

P = $400 Q = !5,000 + 12.5:$400; = 0P = $1,000 Q = !5,000 + 12.5:$1,000; =

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P = MC = $1.50 + $0.0005Q0.0005Q = P ! 1.50Q = 2,000P ! ,000

>herefore, at

P = $1.50 Q = 2,000:1.50; ! ,000 = 0

P = $2.25 Q = 2,000:2.25; ! ,000 = 1,500P = $2.herefore, at

P = $15 Q = 10,000:15; ! 150,000 = 0P = $22.50 Q = 10,000:22.50; ! 150,000 =

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-here Q i po&nd of in%e!pane %a.

). Ca%c&%ate the ind&tr price necear for the firm to &pp% 10,000, 20,000, and 0,000 po&nd.

9. Ca%c&%ate the 6&antit &pp%ied ( the firm at ind&tr price of $1.50, $2.50, and $.50 per po&nd.

)*

). >he marina% cot c&rve contit&te the &pp% c&rve for firm in perfect% competitiveind&trie. 9eca&e P = M/, the price necear to ind&ce &pp% of a iven amo&nt i fo&nd ( ettin P = MC. >herefore, at

Q = 10,000 P = MC = $1.00 + $0.0001:10,000; = $2Q = 20,000 P = MC = $1.00 + $0.0001:20,000; = $Q = 0,000 P = MC = $1.00 + $0.0001:0,000; = $4


P = MC = $1.00 + $0.0001Q

0.0001Q = P ! 1.00Q = 10,000P ! 10,000

>herefore, at

P = $1.50 Q = 10,000:1.50; ! 10,000 = 5,000P = $2.50 Q = 10,000:2.50; ! 10,000 = 15,000P = $.50 Q = 10,000:.50; ! 10,000 = 25,000

15. Lo#()ru# Competitive Firm Supp'$. Ca%vin' 9ar(erhop i a pop&%ar%!priced hair c&tter on theo&th ide of Chicao. iven the %are n&m(er of competitor, the fact that (ar(er ro&tine% tai%orervice to meet c&tomer need, and the %ac3 of entr (arrier, it i reaona(%e to a&me that the

mar3et i perfect% competitive and that the averae $15 price e6&a% marina% reven&e, P = M/ = $15.&rthermore, a&me that the (ar(erhop' month% operatin e"pene are tpica% of the 50 (ar(erhop in the %oca% mar3et and can (e e"preed ( the fo%%o-in tota% and marina% cotf&nction

>C = $C i tota% cot per month inc%&din capita% cot, MC i marina% cot, and Q i the n&m(er ofhair c&t provided. >ota% cot inc%&de a norma% profit.

). Ca%c&%ate Ca%vin' profit!ma"imi#in o&tp&t %eve%.

9. Ca%c&%ate the Ca%vin' economic profit at thi activit %eve%. I thi activit %eve% &taina(%ein the %on r&nG

)*

). >he optima% o&tp&t %eve% can (e determined ( ettin marina% reven&e e6&a% to marina%

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cot and o%vin for Q

M/ = MC$15 = $2.50 + $0.01Q$0.01Q = $12.50Q = 1,250 hair c&t per month.

9. 9eca&e the cot of capita% i a%read inc%&ded in the tota% cot f&nction, an e"ce ofreven&e over tota% cot repreent economic profit. )t thi o&tp&t %eve%, ma"im&m

economic profit are

π = >/ ! >C

= $15Q ! $hi mean that the (ar(erhopi @&t a(%e to o(tain a norma% or ri3!ad@&ted rate of ret&rn on invetment (eca&e capita%cot are a%read inc%&ded in the cot f&nction. >he Q = 1,250 o&tp&t %eve% i a%o the point of minim&m averae prod&ction cot :)>C = MC = $15;, and there( contit&te the firm'%on!r&n &taina(%e &pp%. ina%%, -ith 500 identica% firm in the %oca% area, ind&tro&tp&t tota% 2,500 hair c&t per month.

1. S*ort)ru# Market Supp'$. Caro%ina >e"ti%e, Inc., i a ma%% man&fact&rer of cotton %inen that it e%%in a perfect% competitive mar3et. iven $100,000 in fi"ed cot per da, the dai% tota% cot f&nctionfor thi prod&ct i decri(ed (

>C = $100,000 + $2Q + $0.025Q2

MC = ∂>CF∂Q = $2 + $0.125Q

-here Q i &nit of cotton %inen prod&ced per da. )&me that MC )BC at ever point a%on the

firm' marina% cot c&rve, and that tota% cot inc%&de a norma% profit.

). erive the firm' &pp% c&rve, e"prein 6&antit a a f&nction of price.

9. erive the mar3et &pp% c&rve if *orth Caro%ina >e"ti%e i one of 1,000 competitor.

C. Ca%c&%ate mar3et &pp% per da at a mar3et price of $4< per &nit.

)*

). >he perfect% competitive firm -i%% &pp% o&tp&t o %on a it i profita(%e to do o. 9eca&eP = M/ in perfect% competitive mar3et, the firm &pp% c&rve i iven ( the re%ation

P = MC = ∂>CF∂Q = $2 + $0.125Q

-hen 6&antit i e"preed a a f&nction of price, the firm &pp% c&rve i

P = $2 + $0.125Q0.125Q = !2 + PQ = !1 + 8P

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: Note: Baria(%e Cot = $2Q + $0.025Q2, and )BC = $2 + $0.025Q, o MC )BC at each point a%on the firm' hort!r&n &pp% c&rve.;

9. If the compan i one of 1,000 &ch competitor, the ind&tr &pp% c&rve i fo&nd (imp% m&%tip%in the firm &pp% c&rve derived in part ) ( 1,000. >hi i e6&iva%ent to ahori#onta% &mmation of a%% 1,000 individ&a% firm &pp% c&rve. hen 6&antit i e"preeda a f&nction of price

Q = 1,000 × :!1 + 8P;

= !1,000 + 8,000P

hen price i e"preed a a f&nction of 6&antit

Q = !1,000 + 8,000P8,000P = 1,000 + QP = $2 + $0.000125Q

C. Q = !1,000 + 8,000P = !1,000 + 8,000:$4hi i e6&iva%ent to a hori#onta%&mmation of a%% 400 individ&a% firm &pp% c&rve. hen 6&antit i e"preed a af&nction of price -e find

Q = 400:!5,000 + 20P;

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= !2,000,000 + 8,000P


Q = !2,000,000 + 8,000P8,000P = 2,000,000 + QP = $250 + $0.000125Q

C. Q = !2,000,000 + 8,000P

= !2,000,000 + 8,000:$00; = 400,000

18. S*ort)ru# Market Supp'$. Motor Cit M&ic i a %oca% ditri(&tor of m&ica% C feat&rincompi%ation of c%aic roc3 recordin ( vario& artit. Motor Cit' marina% cot of o&tp&t idecri(ed ( the re%ation

MC = $2.50 + $0.00025Q

-here Q i C o%d per ear.


9. erive the ind&tr &pp% c&rve if the firm i one of 100 competitor.

C. Ca%c&%ate ind&tr &pp% per ear at a mar3et price of $5 per &nit.

)*


P = MC = $2.50 + $0.00025Q


P = $2.50 + $0.00025Q0.00025Q = P ! 2.50Q = !10,000 + 4,000P

9. If the compan i one of 100 &ch competitor, the ind&tr &pp% c&rve i fo&nd ( imp%m&%tip%in the firm &pp% c&rve derived in part ) ( 100. >hi i e6&iva%ent to a hori#onta%&mmation of a%% 100 individ&a% firm &pp% c&rve. hen 6&antit i e"preed a af&nction of price -e find

Q = 100:!10,000 + 4,000P;

= !1,000,000 + 400,000P


Q = !1,000,000 + 400,000P400,000P = 1,000,000 + QP = $2.50 + $0.0000025Q

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C. Q = !1,000,000 + 400,000P = !1,000,000 + 400,000:$5; = 1,000,000

1. S*ort)ru# Market Supp'$. >he Maa#ine e%iver Compan i a tpica% firm in the perfect%competitive maa#ine de%iver (&ine. >he compan de%iver maa#ine and toc3 maa#ine rac3at convenience tore %ocated thro&ho&t the tate of Jent&c3. Marina% cot of ervice are decri(ed ( the re%ation

MC = $5 + $0.4Q

-here Q i rac3 of maa#ine de%ivered and erviced per -ee3.


9. erive the mar3et &pp% c&rve if the compan i one of 200 competitor.

C. Ca%c&%ate mar3et &pp% per -ee3 at a mar3et price of $25 per rac3 de%ivered and erviced.

)*


P = MC = $5 + $0.4Q


P = $5 + $0.4Q0.4Q = P ! 5Q = !12.5. + 2.5P

9. If the compan i one of 200 &ch competitor, the ind&tr &pp% c&rve i fo&nd ( imp%

m&%tip%in the firm &pp% c&rve derived in part ) ( 200. >hi i e6&iva%ent to a hori#onta%&mmation of a%% 200 individ&a% firm &pp% c&rve. hen 6&antit i e"preed a af&nction of price

Q = 200:!12.5. + 2.5P; = !2,500 + 500P


Q = !2,500 + 500P500P = 2,500 + QP = $5 + $0.002Q

C. Q = !2,500 + 500P = !2,500 + 500:$25; = 10,000 per -ee3

20. Per"ect'$ Competitive E+ui'i,rium. &e% cot have rien harp% d&rin recent ear acon&mption, refinin and prod&ction cot have increaed. emand and &pp% condition in the perfect% competitive dometic cr&de oi% mar3et are

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P = $105 ! 1.5Q :emand;

P = $

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-here P i price per %a-n mo-ed and Q i 6&antit of %a-n mo-ed per da.

). )%e(raica%% determine the e6&i%i(ri&m ind&tr priceFo&tp&t com(ination.

9. Confirm thi ( raphin ind&tr demand and &pp% c&rve.

)*

). )%e(raica%%,

P = P$

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). raph ind&tr &pp% and demand c&rve.

9. etermine (oth raphica%% and a%e(raica%% the e6&i%i(ri&m ind&tr priceFo&tp&tcom(ination.

)*

).

9. rom the raph, it i c%ear that Q = Q = 40:000,000; at a price of $50 per (arre%. >h&,P = $50 and Q = 40:000,000; i the e6&i%i(ri&m priceFo&tp&t com(ination. )%e(raica%%,

Q = Q

0 ! P = !0 + 2P

P = 150

P = $50

9oth demand and &pp% e6&a% 40:000,000; (eca&e

emand Q = 0 ! 1:50; = 40:000,000;&pp% Q = !0 + 2:50; = 40:000,000;

2. Per"ect'$ Competitive E+ui'i,rium. Affice (&i%din maintenance p%an ca%% for the trippin, -a"in,and (&ffin of ceramic f%oor ti%e. >hi -or3 i often contracted o&t to office maintenance firm, and

(oth techno%o and %a(or re6&irement are ver (aic. &pp% and demand condition in thi perfect%competitive ervice mar3et in t. Pa&%, Minneota are

Q = !20 + 2P :&pp%;

Q = 80 ! 2P :emand;

-here Q i tho&and of ho&r of f%oor reconditionin per month, and P i the price per ho&r.

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). )%e(raica%% determine the mar3et e6&i%i(ri&m priceFo&tp&t com(ination.

9. e a raph to confirm o&r an-er.

)*

). )%e(raica%%,

Q = Q80 ! 2P = !20 + 2P4P = 100P = $25 per ho&r

9oth demand and &pp% e6&a% 0:000; (eca&e

emand Q = 80 ! 2:$25; = 0:000;

&pp% Q = !20 + 2:$25; = 0:000;

9. rom the raph, ee that Q = Q = 0:000; at a contract price of $25 per ho&r. >h&, P = $25 per ho&r and Q = 0:000; i the e6&i%i(ri&m priceFo&tp&t com(ination.

24. Competitive Market E+ui'i,rium. Eapp Ba%%e &pp%, Inc., provide recc%ed toner cartride for printer. Hi3e it competitor, Eapp Ba%%e m&t meet trict pecification. ) a re&%t, therep%acement toner cartride mar3et can (e rearded a perfect% competitive. >ota% and marina% cot

re%ation per -ee3 are

>C = $4,000 + $5Q + $0.1Q2

MC = ∂>CF∂Q = $5 + $0.2Q

-here Q i the n&m(er of recc%ed toner cartride.

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). Ca%c&%ate Eapp Ba%%e' optima% o&tp&t and profit if price are ta(%e at $55 per tonercartride.

9. Ca%c&%ate Eapp Ba%%e' optima% o&tp&t and profit if price rie to $5 per &nit.

C. If Eapp Ba%%e i tpica% of firm in the ind&tr, ca%c&%ate the firm' e6&i%i(ri&m o&tp&t, price, and profit %eve%.

)*

). 9eca&e the ind&tr i perfect% competitive, P = M/ = $55. et M/ = MC to find the profit!ma"imi#in activit %eve%.

M/ = MC$55 = $5 + $0.2Q0.2Q = 50Q = 100

π = >/ ! >C

= $55:100; ! $4,000 ! $5:100; ! $0.1:1002; = $0

9. )fter a rie in price to $5, the optima% activit %eve% rie to Q = 120 (eca&e

M/ = MC$5 = $5 + $0.2Q0.2Q = 0Q = 120

π = >/ ! >C

= $5:120; ! $4,000 ! $5:120; ! $0.1:1202; = $1,o findthe point of minim&m averae cot -e et

MC = )C = >CFQ$5 + $0.2Q = :$4,000 + $5Q + $0.1Q2;FQ

5 + 0.2Q = + 5 + 0.1Q

0.1Q =

Q == 200

P = )C

= + $5 + $0.1:200; = $45

π = >/ ! >C

= $45:200; ! $4,000 ! $5:200; ! $0.1:2002; = $0

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25. Competitive Market E+ui'i,rium. rac&e Paper &pp%ie printer paper in &ptate *e- Kor3. Hi3ethe o&tp&t of other -ho%ea%e ditri(&tor, rac&e Paper m&t meet trict &ide%ine and the printer paper &pp% ind&tr can (e rearded a perfect% competitive. >ota% and marina% cot re%ation are

>C = $,00 + $5Q + $0.01Q2

MC = ∂>CF∂Q = $5 + $0.02Q

-here Q i cae of printer paper per da.

). Ca%c&%ate the firm' optima% o&tp&t and profit if price are ta(%e at $20 per cae.

9. Ca%c&%ate optima% o&tp&t and profit if price rie to $25 per cae.

C. If rac&e Paper i tpica% of firm in the ind&tr, ca%c&%ate the firm' e6&i%i(ri&m o&tp&t, price, and profit %eve%.

)*

). 9eca&e the ind&tr i perfect% competitive, P = M/ = $20. et M/ = MC to find the profit!ma"imi#in activit %eve%.

M/ = MC$20 = $5 + $0.02Q0.02Q = 15Q = / ! >C

= $20:o find

the point of minim&m averae cot et

MC = )C = >CFQ$5 + $0.02Q = :$,00 + $5Q + $0.01Q2;FQ

5 + 0.02Q = + 5 + 0.01Q

0.01Q =

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Q2 =

Q == 00

P = )C

= + $5 + $0.01:00; = $1<

π = >/ ! >C

= $1

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