Economics 247 Assignment 2 Version A Essay

Economics 247 Assignment 2 Version AThis assignment has a maximum total of degree Celsius marks and is worth 10% of your total grade for this course. You should complete it later on completing your course work for Units 6 through 10. Answer each question clearly and concisely. 1. In finished competition, one result of the manakin was that at that place were no economic profits in the long run. In a monopoly, the fast typically earns a positive economic profit. why is there this difference? The lack of barriers to entry provide allow competitors to ship the trade unil economic profit is home in. These firms are legal injury takers, and they cannot affect expenditures because their take on curve is horizontal.(4 marks)2. Assume that a single firm in a pure competitive industry has a fixed cost of $6500 and shifting costs as indicated in the table below.a. Calculate the TC, AFC, AVC, ATC, and MC columns for this firm. (5 marks) fall OutputTVCTCAFCAVCATCMC00060070,000100076 00014008100018008700022009000026009300028009600030001000003100110000b. formulate the concepts of economies and diseconomies of scale, and describe the underlying reasons why both occur. (4 marks)3. At its current direct of production, a profit-maximizing firm in a competitive food merchandise receives $12.50 for each unit it produces, and it faces an average total cost of $10. At the merchandise price of $12.50 per unit, the firms peripheral cost curve crosses the marginal revenue curve at an output take of 1000 units. What is the firms current profit? What is likely to occur in this martplace and why?(4 marks) P=12.5TR=P*Q = 12.5 * 1000 = 12500TC=ATC*Q = 10 * 1000 = 10000Profit=TR-TC = 12500 10000 = +2500Profit is positive, but for dead competitive marts there will be no profits at all in the long-run, so in this markets peeled firms will entermarket attracted by profits thus increasing market supply and reducing residuum price till it reaches close to P=$10, consequentl y leading to zero economic profits in long-run. For lower price this firm will be pressed to reduce output a bit for new P=MR=MC equilibrium.4. a.Why would a firm in a perfectly competitive market always choose to mint its price reach to the current market price? If a firm set its price below the current market price, what effect would this have on the market? (4 marks) The assumptions of perfect competition that matter here are that in perfect competition 1 e rattling firm is so small compared to the market so as to have no effect on market price 2 everyone is aware of everybodys price. Now if you set a price lower than the market, you are only cutting your nose to offend your face since you would sell as much as a higher(prenominal) price. (Remember, how much you produce is determined by your MC and the output take you produce at is the stripped-down MC). Cutting the price to sell more(prenominal) also costs more to produce you are worse off.If you set a price higher than m arket, noone will procure from you.Explain how a firm in a competitive market identifies the profit-maximizing level of production. When should the firm raise production, and when should the firm lower production?In a perfectly competitive market, all firms are assumed to be very small compared to the market.Now the price is set at the market level, and as a small firm you take it as given you couldnt sell at a higher price since nobody would buy from you. Now in the long run, you should be at the minimum bloom of your cost curve, ensuring you make just normal profits. The price is your MR and at the minimum point of your AC curve your MC cuts it MC=MR and AC=AR.If the market price is higher than this, new entrants will sniff the opportunity created by superintendent normal profits and the market supply curve shifts serious/up, reducing price until there are no more super ormal profitsto be earned.If market price is lower, then firms are qualification losses, some exit and supp ly curve shifts left driving price up.In equilibrium, each firm is producing at the minmum point of the AC, where MC=MR=P. hence the firm temporarily raises production when Pmin AC and makes supernormal profits until new entrants drive price back down or lowers production temporarily when P