Explain allocative and productive efficiency in competitive
Not what you're looking for?
A perfectly competitive firm is operating in a market where price is given as $20 and the cost of production is as shown on the table below:
Q P TR MR FC VC TC MC AFC AVC P/L
0 20 10 10
1 20 10 18
2 20 10 25
3 20 10 35
4 20 10 55
5 20 10 90__________________________________
a. Find the values of TR, MR, VC, TC, MC, AFC, AVC, P/L
b. Is this firm a profit max., loss min., or a close-down case.
c. Show your answers graphically using the TR/TC or MR/MC approach.
d. Would the situation in '2' above change if the price was as given below:
a. $ 7
b. $10
c. $15
What would be the decision of the firm in each case? (Closing down, loss minimizing, profit maximizing)
Construct a table showing short-term supply for the firm at the different competitive prices given in '4' above?
Construct a table assuming ten identical firms (same cost) in the market (also called industry in macroeconomics)
a) What is the relationship between the MC and short-run supply curve.
b) Why is the profit for the competitive firm zero in the long- run?
c) Explain the shapes of the long-run supply curve for:-
i. Increasing cost industry
ii. Constant cost industry
iii. Decreasing cost industry
d) Why is the consumer better off with a competitive firm than with a monopoly in the long-run? Explain the answer in terms of ATC, MC, and Prices?
e) Explain allocative and productive efficiencies for the purely competitive firm.
Purchase this Solution
Solution Summary
Solves a comprehensive problem on production function. The solution contains both text and Excel file so that you can learn and see the formulas in Excel file.
Solution Preview
See the attached file for complete solution. The text here may not be copied exactly as some of the symbols / tables may not print. Thanks
A perfectly competitive firm is operating in a market where price is given as $20 and the cost of production is as shown on the table below:
Q P TR MR FC VC TC MC AFC AVC P/L
- 20.00 - 10.00 10.00 20.00
1.00 20.00 20.00 20.00 10.00 18.00 28.00 8.00 10.00 18.00 (8.00)
2.00 20.00 40.00 20.00 10.00 25.00 35.00 7.00 5.00 12.50 5.00
3.00 20.00 60.00 20.00 10.00 35.00 45.00 10.00 3.33 11.67 15.00
4.00 20.00 80.00 20.00 10.00 55.00 65.00 20.00 2.50 13.75 15.00
5.00 20.00 100.00 20.00 10.00 90.00 100.00 35.00 2.00 18.00 -
a. Find the values of TR, MR, VC, TC, MC, AFC, AVC, P/L
See the above table
b. Is this firm a profit max., loss min., or a close-down case.
Since firm is able to make positive profits, it is a profit max case
c. Show your answers graphically using the TR/TC or MR/MC approach.
d. Would the situation in '2' above change if the price was as given below: What would be the decision of the firm in each case? (Closing down, loss minimizing, profit maximizing)
a $7
Q P TR MR FC VC TC MC AFC AVC P/L
- 7.00 - 10.00 10.00 20.00
1.00 7.00 7.00 7.00 10.00 18.00 28.00 8.00 10.00 18.00 (21.00)
2.00 7.00 14.00 7.00 10.00 25.00 35.00 7.00 5.00 12.50 (21.00)
3.00 7.00 21.00 7.00 10.00 35.00 ...
Purchase this Solution
Free BrainMass Quizzes
Economics, Basic Concepts, Demand-Supply-Equilibrium
The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.
Economic Issues and Concepts
This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.
Basics of Economics
Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.
Elementary Microeconomics
This quiz reviews the basic concept of supply and demand analysis.
Pricing Strategies
Discussion about various pricing techniques of profit-seeking firms.