1) Suppose that the demand curve faced by a particular firm is given by q = 300 – 5P. Could this be a perfectly competitive firm?
2) The market for wall clocks is perfectly competitive, and the current market price of a wall clock is $24. A particular firm has a short run marginal cost of production of MC = 0.75q, where q is the number of clocks that it produces.
a. If it is optimal for the firm to produce a positive amount of output in the short run, how much should it produce?
b. Suppose that the firm has fixed costs of $3,000, and its average variable cost when producing the number of clocks found in part (a) is $20. Should the firm produce the amount that you found in part (a) or shut down (produce q = 0)?
c. Suppose instead (for this and all subsequent questions) that the firm has fixed costs of $240, and its variable cost when producing the number of clocks found in part (a) is $400. What is the firm’s profit if it produces this amount of output?
d. Under the conditions described in part (c), if this is a constant-cost industry and the demand curve does not change over time, will firms enter this market in the long run or will firms exit this market in the long run?