problem set answers 11

problem set answers 11 - Dr. Seiji Steimetz ECON 101...

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Dr. Seiji Steimetz ECON 101 Department of Economics California State University, Long Beach Page 1 of 11 A NSWERS FOR P ROBLEM S ET 9 Chapter 11 LEARNING OBJECTIVE LEARNING OBJECTIVE 11.1: Define perfectly competitive market and explain why a perfect competitor faces a horizontal demand curve. Review Questions 1.1 Perfectly competitive markets are marked by 1) many buyers and sellers, 2) all firms selling identical products, and 3) no barriers to firms entering the market. 1.2 A price taker is buyer or seller that is unable to affect the market price. Because a firm in a perfectly competitive market is very small relative to the market, and because it is selling exactly the same product as every other firm, it can sell as much as it wants without having to lower its price. If the firm raises its price, the firm will sell nothing. 1.3 The graph will look like Figure 11-2 on page 371. The graph on the left shows the market supply and demand curve for corn. The graph on the right shows the demand for corn produced by one corn farmer. Problems and Applications 1.4 a. is perfectly competitive; b. is not perfectly competitive because the goods being sold are not identical, c. is not perfectly competitive because there are not enough sellers, the products being sold are not identical, and there are barriers to new firms entering the market, and d. is not perfectly competitive because there are not enough sellers, the products are not identical, and there are barriers to new firms entering the market.
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Dr. Seiji Steimetz ECON 101 Department of Economics California State University, Long Beach Page 2 of 11 1.5 Most consumers are too small relative to the market to affect the price. Most firms, on the other hand, are large enough relative to their markets that they are able to affect the price. 1.6 The remark confuses the market demand for wheat with the demand facing one farmer selling wheat. Remember that the units used in drawing the market demand curve are much greater than the units used in drawing the individual farmer’s demand curve. 1.7 The company is a price taker because it is in a very competitive industry. The company should charge the market price (i.e. whatever price its competitors are charging). LEARNING OBJECTIVE LEARNING OBJECTIVE 11.2: Explain how a firm maximizes profits in a perfectly competitive market. Review Questions 2.1 A firm in a perfectly competitive market is a price taker and can sell as many units as it wishes at the market price P . By selling an additional unit, it receives extra (or marginal) revenue of P . As each unit is sold at P the average revenue will also equal P and we get P = MR = AR . 2.2 In a perfectly competitive market, MR = P , making these two conditions equivalent. Problems and Applications
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This note was uploaded on 02/11/2010 for the course ECON 101 taught by Professor Steimetz during the Fall '08 term at CSU Long Beach.

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problem set answers 11 - Dr. Seiji Steimetz ECON 101...

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