ASSIGNMENT -5

NAME: VEDIKA DALMIA
DATE: OCTOBER 23, 2012

1. Buyers and sellers are price takers in a perfectly competitive market because there is large number of firms operating in the market all selling the same commodity produced using same technology. No one has an edge over the other so the company. Also the firms can enter and leave the market easily and all buyers and sellers have an access to the market condition. So no sellers are large enough to affect the price. The market determines the price. 2. MC

PRICES MR

ATC

QUANTITY

The firm is not in a long run equilibrium because in a long run equilibrium enter and exit the market and neither economic profits nor economic losses is possible. In the long run the firm makes zero economic profit.

3.

MC
MC
Q
Q
ATC
ATC
MC = MR
MC = MR
Qprofit max
Qprofit max
P
P

MAXIMUM PROFIT

4. The point where MC starts rising (the upward sloping portion) shows the various quantities the firm will supply at the given price. Because the MC tells us how much of a producer good firm will supply at a given price the marginal cost curve is the firms supply curve.

5. New technology lowers firm’s costs and increases their supply. The supply curve shifts rightward, lowering the market price and increasing output.

6. It depends on how much the total profit for each of