Answers to Questions for Review 1. (Market Structure) Define market structure. What factors are considered in determining the market structure of a particular industry Market structure refers to the important features that determine the level of competition in an industry. These factors include (a) the number of buyers and sellers, (b) the products degree of uniformity, (c) the ease with which new firms enter or old firms exit the market, and (d) the ways in which firms in the industry compete with each othersuch as through prices or advertising. 2. (Demand Under Perfect Competition) What type of demand curve does a perfectly competitive firm face Why The perfectly competitive firm faces a demand curve that is horizontal at the …show more content…
Those with marginal values in excess of 2.00 had a consumer surplus. Those with marginal values below 2.00 did not buy the product (did not engage in a transaction). The sellers had marginal values ranging from 0.75 to 3.25. Those with marginal costs below 2.00 had a producer surplus. Those with marginal costs above 2.00 did not sell their product. Answers to Problems and Exercises (Short-Run Profit Maximization) A perfectly competitive firm has the following fixed and variable costs in the short run. The market price for the firms product is 150. Output FC VC TC TR Profit/Loss 0 100 0 ___ ___ ___ 1 100 100 ___ ___ ___ 2 100 180 ___ ___ ___ 3 100 300 ___ ___ ___ 4 100 440 ___ ___ ___ 5 100 600 ___ ___ ___ 6 100 780 ___ ___ ___ a. Complete the table. b. At what output rate does the firm maximize profit or minimize loss c. What is the firms marginal revenue at each positive level of output Its average revenue d. What can you say about the relationship between marginal revenue and marginal cost for output rates below the profit-maximizing (or loss-minimizing) rate For output rates above the profit-maximizing (or loss-minimizing) rate a. Output FC VC TC TR Profit/Loss 0 100 0 100 0 100 1 100 100 200 150 50 2 100 180 280 300 20 3 100