2 Price Taking 10 points We assume that competitive firms are price takers

2 price taking 10 points we assume that competitive

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2. Price Taking (10 points) We assume that competitive firms are "price takers." Explain what this means. What is keeping competitive firms from setting prices? Is this a plausible assumption? For which industries is it a likely assumption? For which is it not plausible? 3. Shut-down Point for a Firm (20 points) When will the competitive firm shut down in the short run? When will it incur a loss but continue to produce? Draw a graph showing each scenario and explain. 4. Long-Run Cost Curve, Economies of Scale, and Firm Size (15 points, 5 points each) A. Explain how economies of scale and the long-run cost curve influence firm size and firm concentration. B. Give an example of industries with the following: i. decreasing returns to scale ii. constant returns to scale iii. increasing returns to scale
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C. Give a real life example of economies of scope. 5. Profit Maximization (25 points) The table below summarizes information for a representative firm in a competitive industry that currently has 1,000 such businesses. Current market price is $6. A. Calculate marginal revenue and marginal cost for each output level. Graph them (See Figure 12.3 for guidance). (10 points) B. How much should the firm produce to maximize profit? (Hint: you need to set MR =
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