1. ExpIain with the heIp of graphs h0w a flrm mlnlmlzes costs in the long run 2.
ID: 1100959 • Letter: 1
Question
1. ExpIain with the heIp of graphs h0w a flrm mlnlmlzes costs in the long run
2. Draw a graph 0f a market for a flrm ln a perfectIy competltive lndustry. lndicate the short run profit maximizing quantity and the profits for the firm. Explain with equations.
3a) ExpIain what the deadwelght Ioss of a non-discriminating monopoIy is with words and graphs.
B) Why is the Iong run equilibrium under perfect competition more effecient than monopoIy?
4)
Quantity
Fixed
Cost
Variable
Cost
Total
Cost
Marginal
Cost
Average
Fixed
Cost
Average
Variable
Cost
Average
Total
Cost
0
$30
$0
$30
0
0
0
0
1
$30
$30
$60
30
30
30
69
2
$30
$48
$78
18
15
24
39
3
$30
$57
$87
9
10
19
29
4
$30
$64
$94
7
7.5
16
23.5
5
$30
$85
$115
21
6
17
23
A) At what point will the MarginaI Cost Curve lntersect the ATC?
B) At what point will the MarginaI Cost Curve lntersect the AVC?
Quantity
Fixed
Cost
Variable
Cost
Total
Cost
Marginal
Cost
Average
Fixed
Cost
Average
Variable
Cost
Average
Total
Cost
0
$30
$0
$30
0
0
0
0
1
$30
$30
$60
30
30
30
69
2
$30
$48
$78
18
15
24
39
3
$30
$57
$87
9
10
19
29
4
$30
$64
$94
7
7.5
16
23.5
5
$30
$85
$115
21
6
17
23
Explanation / Answer
Monopoly- there is only one firm producing the product so the firm is the industry. There are high barriers to entry that stops new firms from entering the industry and maintains the monopoly. As a consequence of barriers to entry the firm can make abnormal profits in the long run.
Perfect competition- the industry is made up of a very large number of firms. Each firm is so small, relative to the size of the industry that it is not capable of altering its own output to have a noticeable effect upon the output of the industry as a whole. Individual firms have o sell at the industry price and are called
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