Problem 1:
XYZ Corporation operates in a perfectly competitive market. Due to robust economic growth XYZ corporation made above normal profits. Taking into account the characteristics of this market, explain what will happen to
- The number of firms in the market
- The market supply curve
- The market price and output level of products
- The profits of the firm
- The output produced by the firm
Problem 2:
XYZ Corporation operates in a market that produces a homogeneous good. The firm is a price taker and the market price of the product is $14. The firm is currently producing 52 units of output, marginal cost is $17, average total cost is $15 and average variable cost is $9.
a) Do you consider that the firm made a profit-maximizing decision? Explain why or why not.
b) If you answered no in question a, what operational decision should the manager of the firm make? Justify your answer.