4.
Illustrate the
SRATC, AVC, MC,
and
MR
curves for a perfectly competitive firm that is operating at a
loss. What is the output level that minimizes losses? Why is it more profitable to continue producing in the
short run rather than shut down?
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5. Industry councils promote the consumption of particular types of farm products. These groups urge us
to “Drink Milk” or “Eat Apples.”
Very little advertising is done by individual farmers. Using your
understanding of the perfectly competitive market, explain this advertising strategy.
6.
Complete the following table and identify the profit-maximizing output.
a.
Total
Marginal
Marginal
Total
Quantity
Price
Revenue
Revenue
Cost
Profit
10
$12
$120
$12
$ 8
$25
11
12
______
______
9
______
12
12
______
______
11
______
13
12
______
______
12
______
14
12
______
______
14
______
b.What is true about marginal revenue and marginal costs when profit is maximized?
c. What would be the profit-maximizing level of output if price fell to $9?
