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If you sell a product in a perfectly competitive market, but you are not happy with its price, would you raise the price, even by a cent?
Explain in words why a profit-maximizing firm will not choose to produce at a quantity where marginal cost exceeds marginal revenue.
A firm's marginal cost curve above the average variable cost curve is equal. What happens to the firm's individual supply curve if marginal costs increase?
If new technology in a perfectly competitive market brings about a substantial reduction in costs of production, how will this affect the market?
A market in perfect competition is in long-run equilibrium. What happens to the market if labor unions are able to increase wages for workers?
These are the two reasons why we call them perfect. How would you use these two concepts to analyze other market structures and label them imperfect?
Explain how the profit-maximizing rule of setting P = MC leads a perfectly competitive market to be allocatively efficient.
A single firm in a perfectly competitive market is relatively small compared to the rest of the market. What does this mean? How small is small?
What are the four basic assumptions of perfect competition? Explain in words what they imply for a perfectly competitive firm.
What prevents a perfectly competitive firm from seeking higher profits by increasing the price that it charges?
What two rules does a perfectly competitive firm apply to determine its profit-maximizing quantity of output?
Think about how this market works and some of its characteristics, such as search costs. Would you consider it a perfectly competitive market?
You have been told that advertising can help you increase your sales in the short run. Would you create an aggressive advertising campaign for your product?
Since a perfectly competitive firm can sell as much as it wishes at the market price, why can the firm not simply increase its profits by selling high quantity?
Many firms in the United States file for bankruptcy every year, yet they still continue operating. Why would they do this instead of completely shutting down?
Assuming that the market for cigarettes is in perfect competition, what does allocative and productive efficiency imply in this case? What does it not imply?
Why can you think of some social costs or issues that are not included in the marginal cost to the firm?
Create a table that shows the company's output, total cost, marginal cost, average cost, variable cost, and average variable cost.
Suppose the local electrical utility, a legal monopoly based on economies of scale, was split into four firms. What do you anticipate would happen to prices?
If Congress reduced the period of patent protection from 20 years to 10 years, what would likely happen to the amount of private research and development?
Why do you think that average and marginal cost curves have the same general shape?
What does the average fixed cost curve look like? Use your response to explain what spreading the overhead means.
Why will firms in most markets be located at or close to the bottom of the long-run average cost curve?
What shape of a long-run average cost curve illustrates economies of scale, constant returns to scale, and diseconomies of scale?
What shapes would you generally expect each of the following cost curves to have: fixed costs, variable costs, marginal costs and average total costs.