Question

Sam’s pasta is identical to the pasta made by dozens of other firms and there is...

Sam’s pasta is identical to the pasta made by dozens of other firms and there is free entry in the pasta. Buyers and sellers are well informed about prices.                     

  1. In what type of market does Sam’s operate?
  2. What determines the price of pasta?
  3. What determines Sam’s marginal revenue of pasta?
  4. If pasta sell for $5 a packet and Sam offers his pasta for sale at $5.50 a packet, how many packets does he sell?
  5. If pasta sell for $5 a packet and Sam offers his pasta for sale at $4.50 a packet, how many packets does he sell?
  6. What is the elasticity of demand for Sam’s pasta and how does it differ from the elasticity of the market demand for pasta?
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Answer #1

A) Perfecfly Competitive market

bcoz identical goods , free entry & exit of firms

b) market price is given to all Firms, no firm can set the price level

markrt price is determined by Intersection of demand & supply Curves

c) MR = price , bcoz demand curve is Horizontal

d) packets sold = zero

bcoz as market price is 5, so if pasta is sold at higher prices, all customers will buy from the cheaper firm

e) pasta sold is infinite

f) as for individual firm, demand curve is Horizontal, so Elasticity of Demand is infinite

while market demand curve is downwards sloping, so Elasticity of Demand is less than infinite & more than zero

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