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Unformatted text preview: d) If, at present output level, price exceeds marginal cost, the purely competitive firm should reduce output to maximize its profits. 7) What does the term Market Power mean? 8) Assume that a price searcher was selling 5 units of output at a price of $10.00 a unit. If price must be lowered to $9.00 to sell 6 units, what is the marginal revenue associated with the 6 th unit? 9) Under conditions of pure competition, if the firms are earning short-run economic profits graphically illustrate what will happen to the industry supply curve in the long run. (LABEL ALL PARTS OF YOUR GRAPH) 10) Using supply-demand diagrams, illustrate the effect of a law requiring copper producers to install pollution control devices on their smoke stacks. (LABEL ALL PARTS OF YOUR GRAPH) 11) Explain why profits are said to be maximized where Marginal Revenue equals Marginal Cost. 12) Why are purely competitive firms called price takers?...
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- Fall '07
- Public Good