Download Economics - cloudfront.net

Economics
Mr. Haubner
Name_____________
Word Problems: Unit III
WP: 5.2 & 7.1
1.
i. Define each of the following:
a. Fixed cost (FC) –
b. Variable cost (VC) –
c. Total Cost (TC) –
d. Marginal Cost (MC) –
e. Average Fixed Cost (AFC) – fixed cost/output
f. Average variable cost (AVC) – variable cost/output
g. Average total cost (ATC) – total cost/output
ii. Consider a firm that has a fixed cost of $60. Complete the following table.
Output(x)
FC
VC
TC
MC(y) AFC AVC(y)
ATC(y)
0
___
0
___
___
___
___
___
1
___
10
___
___
___
___
___
2
___
18
___
___
___
___
___
3
___
30
___
___
___
___
___
4
___
45
___
___
___
___
___
5
___
65
___
___
___
___
___
6
___
90
___
___
___
___
___
7
___
120
___
___
___
___
___
8
___
155
___
___
___
___
___
iii. Using the information from above and the given information for “part a” to construct 3
separate graphs with the same curves representing average total cost (ATC), average variable cost
(AVC), marginal cost (MC) and a different curve representing marginal revenue (MR). Also,
a. Suppose the marginal revenue(s) for this perfectly competitive firm were:
1. $30
2. $25
3. $15
b. In each case, for parts 1-3
1. What would the total profit and average profit for each of the 3 market prices?
Explain.
2. Define shutdown decision and explain which of the three would render a
shutdown decision. Explain.
WP: 7.1 & 7.2
1. Perfect Competition and Monopolies are two very different market structures.
Part A
i.
Explain the four conditions for a perfectly competitive market.
ii.
Explain and demonstrate the relationship between the market price for a perfectly
competitive market and the marginal revenue of the firm in a perfectly competitive
market. Be sure to use two graphs side by side to demonstrate this relationship (refer
to my lecture 1 week ago). Also, don’t forget to include MC, AVC, and ATC curves.
iii.
Third, demonstrate and explain the effects of a rightward shift in market demand for
the market in the previous scenario. Also, be sure to explain and demonstrate the
effects of the change in the market on the marginal revenue and profitability of the
firm.
iv.
Lastly, simply explain how new firms have incentive to enter the market after the
shift in demand for the product and its effect on marginal revenue and therefore
profitability.
Part B
i. Explain the four conditions that exist for a monopolistic firm and market.
ii. Explain and demonstrate why the relationship between the market demand curve and
the marginal revenue curve is different from that relationship in a perfectly competitive
market.
iii. Third, demonstrate and explain how monopolistic firms set prices in this market. Use
numbers on your graphs to explain a specific amount of profit. Also, be sure to include
MC, D, and MR curves in your visual.
iv. Lastly, label and explain the exact amount of the firm’s profit in this scenario based on
the graph.
WP: 7.3
1. The monopolistically competitive market is similar to that of a monopoly with the exception of
more firms entering the market.
i. First, explain the conditions that surround a monopolistically competitive market.
ii. Draw and label a graph demonstrating a firm in a monopoly’s market structure.
iii. Draw and label a graph of a monopolistically competitive market, and explain the
implications of a second firm entering the market on revenues, costs, and profits for firms
that remain profitable. Be sure to base part iii on part ii.
iv.Fourth, demonstrate and explain the effects of a third firm in the market, which result
in a loss for all firms in the market. Once again be sure to explain the graph in terms of
revenues, costs, and profits.
v.Explain why firms would be inclined to enter the market in part i and not in part ii.
2.
The oligopolistic market structure is the most dominant in the economy.
i.
Explain the conditions that surround the oligopolistic market structure.
ii.
Second, draw and label a kinked demand curve illustrating the differences over the
two ranges with at least three different prices.
iii.
Third, explain how this kinked demand curve tends to bring about a stagnant price
level by explaining the benefits or drawbacks of changing prices with the market
demand curve.