Chapter 9 Pure Competition

# Chapter 9 Pure Competition - Chapter 9 Pure Competition 1...

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Chapter 9 Pure Competition 1. Show that marginal revenue is equal to price for a firm in perfect competition Quantity Price Total Revenue Marginal Revenue 1 10 10 10 2 10 20 10 3 10 30 10 4 10 40 10 5 10 50 10 Looking at the table above, a perfectly competitive firm cannot affect the price. First, this means that the demand curve the firm faces is perfectly elastic. Second, total revenue will have a constant slope which is positive. As is shown, when quantity increases with price remaining constant the only thing that changes is total revenue. Since anything that is marginal just measures the additional change, and with the total revenue curve being a straight line, the slope is equal to the marginal revenue. Since marginal revenue remains constant it is a horizontal line which coincides with the demand curve.

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2. In the figure above, what is the profit maximizing price? What is total revenue? What is total cost? What is the profit/loss? Answer: \$28; \$5600; \$4400; \$1200 The profit maximizing price is determined by the demand curve. Total revenue = 28 * 200 = 5600. Total
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Chapter 9 Pure Competition - Chapter 9 Pure Competition 1...

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