1. For each of the following market structure characteristics, insert the correct Market Type(s). There may be more than one. Use these abbreviations: PC – perfect competition; MC – monopolistic competition; and M – monopoly.
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Market Structure Characteristic |
Market Type |
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Advertising is not effective for the individual firm. |
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MR<D |
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The seller is a price-taker. |
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Neither an individual buyer nor seller can affect the market demand and supply curves. |
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Long-run economic profits are possible. |
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In long run equilibrium, each supplier produces where SRATC and LRATC are at a minimum. |
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Advertising is used extensively. |
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In equilibrium, P = MR = MC. |
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Profits are maximized at the output where MR = MC |
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P>MR |
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Product is unique. |
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In equilibrium, products cannot be produced at a lower cost or sold at lower price. |
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Economies of scale are often a barrier to entry. |
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Products have many close substitutes. |
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2. A firm sells its product in a perfectly competitive market where other firms charge a price of $80 per unit. The firm’s costs are C(Q) = 40 + 8Q + 2Q2. Show your computations.
a. How much output should the firm produce in the short-run?
b. What price should the firm charge in the short-run?
c. What are the firm’s short-run profits?
d. What adjustments should be anticipated in the long-run?
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