28 Total Product-ost0000 Average e Fixed Average Variable Average Totd Cost- $17

Question

28 Total Product-ost0000 Average e Fixed Average Variable Average Totd Cost- $17.0 Cost $117.00 66.0 48.3 39.2 34.0 30.6 30.0 30.0 33.3 25.0 20.0 16.6 14.2 4.0 15.71 17.5 19.4 21.6 24.0 26.6 12.5 10.0 9.0 8.33 1.6 33.0 35.0 56 The accompanying table gives cost data for a firm that is selling in a purely competitive market.I the market price for the frm's product is $32, the competitive firm will p a) 6 units at an economic profit of $7.98. b)7 units at an economic profit of $41.50. c) 10 units at an economic profit of S4. d) 8 units at an economic profit of $16. titive firm will produce 29. If a purely competitive firm is producing at the MR - MC output level and earning an economic profit, then a) there must be price fixing by the industry's firms. b) the selling price for this firm is above the market equilibrium price. c) some existing firms in this market will leave. d) new firms will enter this market. 30. Long-run adjustments in purely competitive markets primarily take the form of a) evolution of the market from a constant-cost to an increasing-cost industry b) product differentiation c) variations in the cost curves of different firms in the market. d) entry or exit of firms in the market.

Explanation / Answer

28) Option d is correct

P = $32

Last quantity where MR > = MC (profit maximization condition) is 8 units (P = $32 > MC = $30)

Economic profit = P x Q - ATC x Q = 32 x 8 - 30 x 8 = $16

29) Option d is correct (New firms will enter the market seeing an opportunity to earn profits)

30) Option d is correct (In the long run, only entry or exit of firms in the market takes place in pure competition)

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