Question 1 (b)

  • Graph for a profit-maximizing firm in a perfectly competitive constant-cost industry earning positive economic profit

    • Label Market and Firm above each graph


  • AR = Price

    For a perfectly competitive firm average revenue is also equal to
marginal revenue. Average revenue for a perfectly competitive firm is
often depicted by a horizontal average revenue curve. Average revenue
is the revenue generated per unit of output sold. 01 2 S 10 Average
revenue for a perfectly competitive - AmosWEB is Economics\,%20perfect%20competition

Question 1 (c)

  • For a company in a perfectly competitive market

    • Raising the price --> Quantity falls to 0 --> Total Revenue falls to 0

    • Because the firm is a price taker / is facing a perfectly elastic demand / losses all of its customers / has no market power

Question 1 (d)

  • Lump sum subsidy has no effect on marginal revenue or marginal cost

  • Only fixed costs will be affected.

  • Positive profits lead to entry of new firms that will increase the industry supply.

Question 3 (e)

i)ud ru\!Gu0 001 aoud ut aiurqo aamiaond puetuap JO papuetuap Kmuenb
  = aogd u\! ajueqo ainu

The price elasticity of demand determines whether the demand curve
  is steep or flat. Note that all percentage changes are calculated
  using the midpoint method 2.... 2.. 2.. 1 FIGURE The Price Elasticity
  of Demand (a) Perfectly Inelastic Demand: Elasticity Equals 0 (b)
  Inelastic Demand: Elasticity Is Less Than 1 Price $5 4 1. An Increase
  n price . 0 Price $5 4 Increase •n price 0 Demand IOO Price $5 4
  Increase In pnce . Quantity 90 IOO Demand Quantity leaves the quantity
  demanded unchanged. .. leads to an 11% decrease in quantity demanded.
  (c) Unit Elastic Demand: Elasticity Equals 1 Price $5 4 Increase In
  price 0 IOO Demand Quantity .. leads to a 22% decrease in quantity
  demanded. 2.. (d) Elastic Demand: Elasticity Is Greater Than 1 50 IOO
  Demand Quantity Price $4 0 (e) Perfectly Elastic Demand: Elasticity
  Equals Infinity . At any price above $4, quantity manded is zero.
  Demand . At exactly $4, consumers will buy any quantity. Quantity ..
  leads to a 67% decrease in quantity demanded. 3. At a price below $4,
  quantity demanded is infinite.

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