Question

What does it mean that firms in perfectly competitive industries are price takers? What assumptions are needed for a firm to be a price taker?

How do firms in perfectly competitive industries determine profit maximizing output? Include the profit maximizing rule in your response.

Answer #1

Firms under perfect competition are price takers in the sense that there are a large number of firms that do not have enough power to individually set the prices for their products. Thus, the industry prices are determined by the market demand and supply curves and the firms take this price as given.

The following assumptions are necessary for the firm to be a price taker:

(i) Large number of firms in the industry

(ii) Homogeneous commodities.

Profit-maximizing output under perfect competition is determined at a point where marginal revenue = marginal cost = price.

Profit function = P.Q - C(Q) where P = price, Q= quantity, C = cost

Taking the first derivative with respect to Q we get, MR = MC( = P)

Q3. If perfectly competitive firms are price takers, and
monopolistic, monopolistic competitive, and oligopolistic firms are
price searchers, then it follows that three times as many firms in
the real world are price searchers than are price takers. Do you
agree or disagree? Explain your answer.
Q4. Critically analyze the following statement with views of
your own: “There is no substitute for an airline pilot: Someone has
to fly the plane. Therefore, an increase in the wage of airline
pilots...

Why are perfectly competitive firms classified as price takers?
Why are they not able to charge a different market price?

23. In the perfectly competitive model, what kind of products
are all firms assumed to be producing?
a.
identical products
b.
differentiated products
c.
well-advertised products
d.
unique products
27. Under what circumstance will a firm in a perfectly
competitive industry expand output?
a.
when marginal cost is less than marginal revenue
b.
when marginal revenue is less than average revenue
c.
when marginal revenue is less than average total cost
d.
when marginal cost is less than average total...

Explain your reasoning and write legibly
a. Why are perfectly competitive firms price-takers? Choose
one industry that is likely to be perfectly competitive and
describe why. Which of the characteristics of perfect competition
do you find to be least realistic and why?
b. For the industry that you chose in part A, draw the long
run equilibrium graph for the global market and for an individual
producer and explain the two ways that these graphs are connected.
Why is the...

Monopolies and perfectly competitive firms maximize profits by
producing the output where MR = MC. Since both use the same rule
why is it that in perfect competition, P=MC, at this profit
maximizing output but in monopoly P>MC?

Chapter 8. Suppose a farmer is a price taker (i.e. perfectly
competitive) for soybean sales with a cost function given by
TC=0.1q2 +2q+100 a. Find the marginal cost function. b. What is
this firms supply curve? Hint: Supply curve expresses q (quantity)
as a function of P (price). c. What is the profit maximizing level
of output in the long-run? d. What is the long-run profit for this
firm? f. Suppose the farmer has to purchase a license for $50...

Assume that a monopsony firm and a perfectly competitive
labor market. Contrast the two with respect to (a) wage rate, (b)
employment level, and (c) profit maximization condition. Since both
monopolists and competitive firms follow the MFC = MRC rule in
maximizing profits, how do you account for the different results?
Why might the labor supply of a perfectly competitive firm and
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Explain how a firm determines the price of its product in a
perfectly competitive market. How does a monopolist determine its
price? Which is the “price taker” and “price seeker”?

One of the assumptions of a perfectly competitive market is that
firms within the industry are selling homogenous, or identical,
products. Can you think of an example of an industry (not given
directly in the chapter) where this is a good assumption? How does
this impact competition within this industry?

4) In the perfectly competitive gadget industry there are 10
firms with identical costs given by C = 500 + 20q + q2, none of
which believes it can alter price. Marginal cost is given by the
function MC=20 + 2q.
a. Find the shutdown point of one of these firms. Be sure to
explain what you are doing. (5 points)
b. If price equals $400 what is the profit maximizing level of
output for an individual firm? (5 points)...

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