Problem 1
Briefly state the basic characteristics of pure competition, pure monopoly, monopolistic competition, and oligopoly. Under which of these market classifications does each of the following most accurately fit? (a) a supermarket in your hometown; (b) the steel industry: (c) a Kansas wheat farm; (d) the commercial bank in which you or your family has an account; (e) the automobile industry. In each case, justify your classification.
Problem 1
Carefully evaluate: "The supply and demand for agricultural products are such that small changes in agricultural supply result in drastic changes in prices. However, large changes in agricultural prices have modest effects on agricultural output." (Hint: A brief review of the distinction between supply and quantity supplied may be helpful.) Do exports increase or reduce the instability of demand for farm products? Explain.
Problem 2
What relationship, if any, can you detect between the facts that farmers" fixed costs of production are large and the supply of most agricultural products is generally inelastic? Be specific in your answer.
Problem 2
Strictly speaking, pure competition is relatively rare. Then why study it?
Problem 3
"Even if a firm is losing money, it may be better to stay in business in the short run." Is this statement ever true? Under what condition(s)?
Problem 4
The key to efficient resource allocation is shifting resources from low- productivity to high-productivity uses, In view of the high and expanding physical productivity of agricultural resources, explain why many economists want to divert additional resources away from farming in order to achieve allocative efficiency.
Problem 4
Consider a firm that has no fixed costs and that is currently losing money. Are there any situations in which it would want to stay open for business in the short run? If a firm has no fixed costs, is it sensible to speak of the firm distinguishing between the short run and the long run?
Problem 5
Why is the equality of marginal revenue and marginal cost essential for profit maximization in all market structures? Explain why price can be substituted for marginal revenue in the \(\mathrm{MR}=\mathrm{MCrule}\) when an industry is purely competitive.
Problem 6
"That segment of a competitive firm's marginal-cost curve that lies above its average-variable-cost curve constitutes the shortrun supply curve for the firm." Explain using a graph and words.
Problem 6
"Because consumers as a group must ultimately pay the total income received by farmers, it makes no real difference whether the income is paid through free farm markets or through price supports supplemented by subsidies financed out of tax revenue." Do you agree?
