Chapter 23: Q. 1CT (page 528)
Why would a number of plastic-recycling firms continue to operate even though the market clearing price of recycled plastic is lower than their break-even price?
It obtain packing recovery enabling effective producer responsibility laws.
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Consider a market for online movie rentals. The market supply curve slopes upward, the market demand curve slopes downward, and the equilibrium rental price equals . Consider each of the following events, and discuss the effects they will have on the market clearing price and on the demand curve faced by the individual online rental firm.
a. Peoples tastes change in favor of going to see more movies at cinemas with their friends and Family members.
b. More online movie-rental firms enter the market.
c. There is a significant increase in the price to consumers of Purchasing movies online.
Two years ago, a large number of firms entered a market in which existing firms had been earning positive economic profits. By the end of last year, the typical firm in this industry had begun earning negative economic profits. No other events occurred in this market during the past two years.
a. Explain the adjustment process that occurred last year.
b. Predict what adjustments will take place in this market beginning this year, other things being equal.
Discuss how a perfectly competitive firm decides how much output to produce
The table nearby represents the hourly output and cost structure for a local pizza shop. The market is perfectly competitive, and the market price of a pizza in the area is . Total costs include all opportunity costs. Fixed costs equal zero.
a. Calculate the total revenue and total economic profit for this pizza shop at each rate of output.
b. Assuming that the pizza shop always produces and sells at least one pizza per hour, does this appear to be a situation of short-run or long-run equilibrium?
c. Calculate the pizza shop's marginal cost and marginal revenue at each rate of output. Based on marginal analysis, what is the profit maximizing rate of output for the pizza shop?
d. Draw a diagram depicting the short-run marginal revenue and marginal cost curves for this pizza shop, and illustrate the determination of its profit-maximizing output rate.
Explain why each of the following examples is not a perfectly competitive industry.
a. One firm produces a large portion of the industry's total output, but there are many firms in the industry, and their products are indistinguishable. Firms can easily exit and enter the industry.
b. There are many buyers and sellers in the industry. Consumers have equal information about the prices of firms' products, which differ moderately in quality from firm to firm.
c. Many taxicabs compete in a city. The city's government requires all taxicabs to provide identical services. Taxicabs are nearly identical, and all drivers must wear a designated uniform. The government also enforces a binding limit on the number of taxicab companies that can operate within the city's boundaries.
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