Chapter 8: Q.8 (page 211)
A market in perfect competition is in long-run equilibrium. What happens to the market if labor unions are able to increase wages for workers?
Supply in the market falls and hence price rises.
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If new technology in a perfectly competitive market brings about a substantial reduction in costs of production, how will this affect the market?
Why will losses for firms in a perfectly competitive industry tend to vanish in the long run?
Why will profits for firms in a perfectly competitive industry tend to vanish in the long run?
1. A computer company produces affordable, easy-to-use home computer systems and has fixed costs of \(250. The marginal cost of producing computers is \)700 for the first computer, \(250 for the second, \)300 for the third, \(350 for the fourth, \)400 for the fifth, \(450 for the sixth, and \)500 for the seventh.
a. Create a table that shows the company’s output, total cost, marginal cost, average cost, variable cost, and average variable cost.
b. At what price is the zero-profit point? At what price is the shutdown point?
c. If the company sells the computers for \(500, is it making a profit or a loss? How big is the profit or loss? Sketch a graph with AC, MC, and AVC curves to illustrate your answer and show the profit or loss.
d. If the firm sells the computers for \)300, is it making a profit or a loss? How big is the profit or loss? Sketch a graph with AC, MC, and AVC curves to illustrate your answer and show the profit or loss.
What two rules does a perfectly competitive firm apply to determine its profit-maximizing quantity of output?
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