10/16/2023 0 Comments Perfectly competitive seller of potatoes which curves shift? which do not? why?Is this a perfectly competitive firm? Why or why not?Ĭonsider the following goods and services. Suppose the only way a firm can increase its sales is to lower its price.Explain the difference between marginal revenue, average revenue, and price in perfect competition.If the assumptions of perfect competition are not likely to be met in the real world, how can the model be of any use?.Explain how each of the assumptions of perfect competition contributes to the fact that all decision makers in perfect competition are price takers.The adjustment to the change in the short run is likely to result in economic profits or losses these will be eliminated in the long run by entry or by exit. A long-run equilibrium may be changed by a change in demand or in production cost, which would affect supply. If firms are suffering economic losses, exit by existing firms will continue until price rises to eliminate the losses and economic profits are zero. If firms in an industry are earning economic profit, entry by new firms will drive price down until economic profit achieves its long-run equilibrium value of zero. If price drops below average variable cost, the firm shuts down. This implies that the firm’s marginal cost curve is its short-run supply curve for values greater than average variable cost. For a perfectly competitive firm, marginal revenue equals price and average revenue. Although most firms in real markets have some control over their prices, the model of perfect competition suggests how changes in demand or in production cost will affect price and output in a wide range of real-world cases.Ī firm in perfect competition maximizes profit in the short run by producing an output level at which marginal revenue equals marginal cost, provided marginal revenue is at least as great as the minimum value of average variable cost. The assumptions of the model of perfect competition ensure that every decision maker is a price taker-the interaction of demand and supply in the market determines price.
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