1.You can tell a firm is operating in a market that is in long-run competitive e
ID: 1143409 • Letter: 1
Question
1.You can tell a firm is operating in a market that is in long-run competitive equilibrium if
economic profits are negative.
2. A farmers’ market is close to being a perfectly competitive market. Which characteristic of a perfectly competitive market do most farmers’ markets violate?
free exit from the market
3. Use the following scenario to answer the following questions:
Babak owns a sports practice facility called Boston Batting Cages in Boston, Massachusetts. During the first year of operation, Boston Batting Cages incurred many costs. In that year, Babak spent $5,000 on labor, $2,000 on maintenance, and $1,000 on electricity. Babak took out a loan to open his business, in which he would have earned $1,500, and his previous job, which he could get back at any time, paid him $50,000.
If Boston Batting Cages received $80,000 in revenues, what were the economics profits?
$51,500
4. When a monopolist lowers a price from $80 to $70, the quantity that the firm is able to sell increases from 100 to 150. The change in revenue associated with the price effect is equal to
$4,000.
5. A privately owned firm that is regulated by the government is very similar to a firm that the government owns because
economic profits are zero.Explanation / Answer
Q1. Economic profit = Total revenue-(Paid out cost +opportunity cost)
Q2. Option 1, As perfect market sells identical or homogeneous goods
Q3. Option 4
Sl. no
Direct Cost
Opportunity Cost
Total Cost
Total Revenue
Economic Profit
1
5000
1500
2
2000
50000
3
1000
8000
51500
59500
80000
20500
Q4. Option 4
P
Q
TR
Change in revenue
80
100
8000
70
150
10500
-2500
Q5. Option 1. The privately owned firm is regulated by government, it earns accounting profit but not economic profit
Sl. no
Direct Cost
Opportunity Cost
Total Cost
Total Revenue
Economic Profit
1
5000
1500
2
2000
50000
3
1000
8000
51500
59500
80000
20500
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