Question

Draw a perfectly competitive market model in equilibrium, showing both firm-level and market-level graphs. Label each...

Draw a perfectly competitive market model in equilibrium, showing both firm-level and market-level graphs. Label each axis and curve, then answer the following questions.

  1. What determines the price of a product in this market?
  2. How does a firm choose the quantity they will produce?
  3. What happens in this market when firms are profitable?
  4. What happens in this market when firms are loosing money?
Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Below is a perfectly competitive market model in equilibrium.

  1. Market forces of demand DD and supply SS determine the price P0 of a product in this market. Demand curve and supply curve meet at E which is the market equilibrium that determines the price P0 and quantity Q0.
  2. A firm uses its marginal cost function to choose the quantity it will produce. This implies that firm follows P = MC rule. However P > AVC for firm to continue production
  3. New firms enter in the long run in this market when firms are profitable because new firms desire to earn profits
  4. Existing firms start leaving this market when firms are loosing money because they can turn their losses into zero when they leave the market

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Create a pure monopoly market model in equilibrium and then answer the following questions: A. What...
Create a pure monopoly market model in equilibrium and then answer the following questions: A. What determines the price of a product in this market? B. How does the firm choose the quantity it will produce? C. What happens when the monopoly is profitable? D. What happens when the monopoly is loosing money?
1. Perfectly Competitive Market Model a. Draw a diagram depicting the perfectly competitive market for aspirin....
1. Perfectly Competitive Market Model a. Draw a diagram depicting the perfectly competitive market for aspirin. b. Identify the equilibrium price and quantity. c. Define consumer surplus. Identify the area of consumer surplus of the graph, provide reference points, and label it.
Utilize a market model to draw the demand and supply for loanable fund in equilibrium. Label...
Utilize a market model to draw the demand and supply for loanable fund in equilibrium. Label the demand curve D1 and the supply curve S1. Label the initial interest rate as r1 and quantity of loanable funds as Q1. Shift the correct curve to demonstrate what happens in this market when there is strong economic growth. Be sure to label the new equilibrium interest rate and quantity of loanable funds. Briefly describe what has happened in this market.
Draw a supply and demand diagram showing the market equilibrium price and quantity. Now draw a...
Draw a supply and demand diagram showing the market equilibrium price and quantity. Now draw a diagram showing how a perfectly competitive firm might make a loss at this market price. Identify the firm’s quantity supplied, average total cost, and total losses. Finally, use the market supply and demand diagram to show what would happen to bring this market to long run competitive equilibrium.
Assume that the market for fertilizer is perfectly competitive. Firms in the market are producing output...
Assume that the market for fertilizer is perfectly competitive. Firms in the market are producing output but they are experiencing economic losses. Explain how ATC, AVC and MC are related (Note: the relationship of these cost curves is same whether there is loss or profit). Explain how the price of fertilizer compares to the ATC, AVC and MC of producing fertilizer Draw two graphs side by side illustrating the present situation for the single firm and the entire market. Cleary...
Suppose that you are an analyst of the perfectly competitive market for oranges. The market is...
Suppose that you are an analyst of the perfectly competitive market for oranges. The market is in long-run competitive equilibrium. a.   Draw a graph for one individual firm showing their MC, ATC, and AVC curves. Indicate the quantity they will produce and show profits (if any) on the graph. b.   Now, imagine that a new orange juice diet craze is sweeping the country; the diet recommends that people replace at least one meal a day with a glass of orange...
(a) Draw a figure to scale showing the short-run and long-run equilibrium of the firm on...
(a) Draw a figure to scale showing the short-run and long-run equilibrium of the firm on the assumption that the firm, but not the industry, has transitioned to their long-run equilibrium (that is, after changing their plant size but before entry/exit of other firms). Use the following information to piece it together: P = $30; the least-cost input combination of producing q = 2 costs $60; the minimum efficient scale is at q = 8, with LAC = $12.50 at...
(a) Draw a figure to scale showing the short-run and long-run equilibrium of the firm on...
(a) Draw a figure to scale showing the short-run and long-run equilibrium of the firm on the assumption that the firm, but not the industry, has transitioned to their long-run equilibrium (that is, after changing their plant size but before entry/exit of other firms). Use the following information to piece it together: P = $30; the least-cost input combination of producing q = 2 costs $60; the minimum efficient scale is at q = 8, with LAC = $12.50 at...
1) On graph paper set up starting graphs for a competitive market and competitive firm in...
1) On graph paper set up starting graphs for a competitive market and competitive firm in which the competitive firm is making normal profits. include an average variable cost curve in the competitive firm's graph. a. What happens in the market graph if the price of a substitute good increases? b. How does the change in the market affect the firm's level of production and profits? c. What is likely to happen in the competitive market after the little firms...
Suppose that the market for milk is initially perfectly competitive. a) Draw a supply and demand...
Suppose that the market for milk is initially perfectly competitive. a) Draw a supply and demand diagram showing the equilibrium quantity of milk produced and the market price. Be sure to label all part of your diagram. b) On your diagram from Part (a), label the consumer and producer surplus. c) Suppose that the government permits an industry association to form which issues production quotas to each dairy farmer. If the sum of the quotas are less than competitive market...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT