ASS 4 KEY - ECONOMICS 2010 * ASSIGNMENT 4 (Covers chapters...

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ECONOMICS 2010 ** ASSIGNMENT 4 (Covers chapters 14 & 15) 1. DEFINE A PERFECTLY COMPETITIVE MARKET. A PERFECTLY COMPETITIVE MARKET IS A MARKET WITH MANY BUYERS AND SELLERS TRADING IDENTICAL PRODUCTS SO THAT EACH BUYER AND SELLER IS A PRICE-TAKER. 2. LONDONDERRY CHOCOLATE, A SMALL COMPETITIVE BUSINESS IN SURREY, ENGLAND PRODUCES CHOCOLATE CANDIES IN VARIOUS NUMBERS OF VATS FOR WHOLESALE SHIPMENTS TO CONFECTIONARY STORES. THE TABLE BELOW GIVES INFORMATION ON THE NUMBERS OF VATS AND THE PRICE PER VAT. COMPLETE THE TABLE FOR TOTAL REVENUE , AVERAGE REVENUE , AND MARGINAL REVENUE. NUMBER OF VATS PRICE PER VAT TOTAL REVENUE AVERAGE REVENUE MARGINAL REVENUE 1 £3,400 3,400 3,400 2 £3,400 6,800 3,400 3,400 3 £3,400 10,200 3,400 3,400 4 £3,400 13,600 3,400 3,400 5 £3,400 17,000 3,400 3,400 6 £3,400 20,400 3,400 3,400 7 £3,400 23,800 3,400 3,400 8 £3,400 27,200 3,400 3,400 3. DEFINE THE 3 GENERAL RULES FOR PROFIT MAXIMIZATION FOR A FIRM OPERATING IN A COMPETITIVE MARKET. IF MARGINAL REVENUE IS GREATER THAN MARGINAL COST, THE FIRM SHOULD INCREASE ITS OUTPUT IF MARGINAL COST IS GREATER THAN MARGINAL REVENUE, THE FIRM SHOULD DECREASE ITS OUTPUT AT THE PROFIT –MAXIMIZING LEVEL OF OUTPUT, MARGINAL REVENUE AND MARGINAL COST ARE EXACTLY EQUAL
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4. GIVEN THE GRAPH BELOW OF COSTS, REVENUES AND OUTPUT QUANTITY FOR A PARTICULAR FIRM , DETERMINE OR MARK THE OUTPUT THAT MAXIMIZES PROFIT FOR THIS FIRM. Marginal cost Costs & revenue average total cost Price = marginal revenue Average variable cost Output quantity MARGINAL COST = PRICE = MARGINAL REVENUE 5. IF THE PRICE FOR A CERTAIN PRODUCT IN THE MARKET IS LOWER THAN THE AVERAGE VARIABLE COST, SHOULD THE FIRM STAY IN BUSINESS AND KEEP ON PRODUCING IN THE SHORT RUN IN HOPES THAT PRICE WILL RISE? EXPLAIN. IN THE SHORT RUN, THE FIRM SHOULD SHUT DOWN IF P < AVC ---
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This note was uploaded on 08/22/2011 for the course ECON 3170 taught by Professor Oaisd during the Spring '11 term at Utah State University.

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ASS 4 KEY - ECONOMICS 2010 * ASSIGNMENT 4 (Covers chapters...

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