I need help with my Econ HW

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Assignment #10 Market Structures 1: Perfect Competition and Monopoly

(10 Points)

Define the following terms:

Barriers to Entry: ______________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ Long-run Competitive Equilibrium: ________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ Marginal Cost: ________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ Marginal Revenue: _____________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ Market Power: ________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ Market Share: ________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ Market Structure: _____________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ Monopoly: ___________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ Normal Profit: ________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________

Short Answer Questions:

1. What are the six defining characteristics of a perfectly competitive market? I. ______________________________ II. _____________________________ III. ____________________________ IV. ____________________________ V. ____________________________ VI. ____________________________

2. Explain the shutdown decision? (When do firms decide not to produce?)

______________________________________________________________________________

3. Why do firms in a competitive market earn zero profits in the long run? _____________

______________________________________________________________________________

4. Why do firms in a competitive industry have a perfectly elastic (horizontal) demand

curve?

______________________________________________________________________________

5. Explain why a perfectly competitive firm will still earn a positive accounting profit even

though they earn zero economic profit?

______________________________________________________________________________

6. What factors are necessary for a monopoly to exist?

______________________________________________________________________________

P = MC Output Total

Revenue

Fixed

Costs

Vatiable

Costs

Total

Costs

Marginal

Coss

Average

Total

Costs

Profit

20 0 50 - -

1 15

2 75

3 5

4 2

5 13

6 47

7 112

8 25

9 18

10 3

7. What gives the monopolist the ability to earn positive economic profits when the firm

facing perfect competition can only earn zero economic profits in the long-run

______________________________________________________________________________

Problems and Exercises:

1. Complete the table below and answer the corresponding questions.

a. According to the table above, is this a perfectly competitive firm or a monopolist?

___________.

b. What is the profit maximizing level of output? ___________________________

c. How much profit does this firm make at the profit maximizing level of output? _______

d. What is causing profit to decrease beyond the profit maximizing level of output? _________________________________________________________________________

_________________________________________________________________________

Market Firm

S = MC

D = MR = P

ATC

$12

S $12

P = D = MR

S = MC

FirmMarket

ATC

2. Use the graphs below to answer the following questions

a. Is the firm pictured above experiencing positive or negative profits? _______________

b. Draw and label the profit/loss rectangle on the graph of the firm.

c. Explain the process of returning to zero economic profits works.

______________________________________________________________________________

d. Illustrate the process you explained in part c on the graphs above

3. Use the graphs below to answer the following questions

P = MR Output

Total

Revenue

Fixed

Cost

Variable

Cost

Total

Cost

Marginal

Cost

Average

Total Cost Profit

50 0 150 - -

1 35

2 30

3 105

4 150 305

5 365

6 280

a. Is the firm pictured above experiencing positive or negative profits? _______________

b. Draw and label the profit/loss rectangle on the graph of the firm.

c. Explain the process of returning to zero economic profits works.

______________________________________________________________________________

d. Illustrate the process you explained in part c on the graphs above

4. Complete the table below and answer the corresponding questions.

a. What is the profit maximizing level of production? _____________

b. What is the profit at the level of production in part a? _________________

c. Explain why this firm would choose to produce the level in part a rather than shutting

down and not producing even though they will be losing money?

______________________________________________________________________________

S = MC

ATC

$60

$40

$30

$25

10 20 22

Market for iPods

5. Use the graph below to answer the following questions.

a. How many iPods would a perfectly competitive market produce? ________________

b. What price would the perfectly competitive market charge? ________________

c. How much profit would the perfectly competitive market make? ________________

d. How many iPods would a monopolistic market produce? ________________

e. What price would a monopolistic market charge? ________________

f. How much profit will the monopolistic market make? ________________