Chapter 8: Q2 (page 210)
Would independent trucking fit the characteristics of a perfectly competitive industry?
Yes, Independent trucking fits the characteristics of perfect competition.
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How does a perfectly competitive firm calculate total revenue?
In the argument for why perfect competition is allocatively efficient, the price that people are willing to pay represents the gains to society and the marginal cost to the firm represents the costs to society. Can you think of some social costs or issues that are not included in the marginal cost to the firm? Or some social gains that are not included in what people pay for a good?
Why will profits for firms in a perfectly competitive industry tend to vanish in the long run?
The AAA Aquarium Co. sells aquariums for \(20 each. Fixed costs of production are \)20. The total variable costs are \(20 for one aquarium, \)25 for two units, \(35 for the three units, \)50 for four units, and $80 for five units. In the form of a table, calculate total revenue, marginal revenue, total cost, and marginal cost for each output level (one to five units). What is the profit-maximizing quantity of output? On one diagram, sketch the total revenue and total cost curves. On another diagram, sketch the marginal revenue and marginal cost curves.
Productive efficiency and allocative efficiency are two concepts achieved in the long run in a perfectly competitive market. 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?”
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