Mt445 Unit 4 Economics

Unit 4 Assignment

Student Name:

1. How does the demand curve faced by a perfectly competitive firm differ from the market demand curve in a perfectly competitive market? Explain.

“The demand curve for a good or service produced in a perfectly competitive market is downward sloping, but the demand curve for the output of one firm in a perfectly competitive market is a horizontal line at the market price.” (Hubbard, & O’Brien, 2009, Chapter 11, Page 394) Therefore in a market demand curve the line is horizontal because the price is set at market value. If selling below market price they will lose revenue, above that, no one will buy for consumers will go with other firms that are selling a market price. These firms are called price takers. (Hubbard, & O’Brien, 2009, Chapter 11, Page 369) In the demand curve faced by a perfectly competitive firm it has a normal downward sloping shape which means that if the price goes up the quantity demanded goes down and if the price goes down the quantity goes up. (Hubbard, & O’Brien, 2009, Chapter 11, Page 370)

2. A perfectly competitive firm has the following fixed and variable costs in the short run. The market price for the firm’s product is $140.

Output FC VC TC TR Profit/Loss

0 $90 $ 0 90 _0_ -50

1 90 90 180 140 - 40

2 90 170 260 280 20

3 90 290 380 420 40

4 90 430 520 560 40

5 90 590 680 700 20

6 90 770 860 840 - 20

a. Complete the table.

TC = FC + VC

TR = (Output) (P)

Profit/Loss = TR - TC

b. What level of output should the firm produce to maximize profits? ((Hubbard, & O’Brien, 2009, Chapter 11, Page 373, 376)

|Output |TC |FC |VC |ATC |AVC |MC |

|0 |$ 90 |S 90 |$ 0 |$ 0 |$...