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Marginal Cost

1- Which of the following conditions descriptive a perfectly competitive market?
- Many barriers to entry
- Firms are price takers
-The number of firms is large
- Firms' products are differentiated
- There is complete information
- Firms are profit maximizers

2- Graph marginal costs from the table below and answer the following questions:

OUTPUT MARGINAL COSTS
1 15
2 12
3 20
4 27
5 34
6 40
7 47
a) The firm can sell a helmet for $34 and the firm is producing 6 helmets. Is it maximizing profit ? Why or why not?

b) The firm can sell a helmet for $34 and the firm is producing 4 helmets. Is it maximizing profit ? Why or why not?

c) The firm can sell a helmet for $34 . What is the profit- maximizing level of output?

3- Why doesn't a perfectly competitive firm yield economic profit in the long-run?

Solution Preview

1. The correct answers are:
- Firms are price takers
-The number of firms is large
- There is complete information
- Firms are profit maximizers

Please keep in mind that (3) and (4) are true for pretty much all market structures. For example, all firms are profit maximizers. There is no ...

Solution Summary

The solution does a great job of answering the question. The solution is brief and concise and very easy to follow along. All the steps are clearly shown and Excel formulas are provided so that the student can answer similar questions in the future. It can be easily understood by anyone with a basic understanding of the topic. Overall, an excellent solution.

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