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"Education is the most powerful weapon which you can use to change the world”
– Nelson Mandela

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M3 Problem Set

M3 Problem Set

Q Question 1 1 / 1 pts Consider the following statements about an individual firm in a perfectly competitive market: (I) The firm's output level is very small relative to market output; therefore, the firm cannot influence the price, but rather takes the market price as given. (II) The firm faces a downward sloping marginal revenue curve. (III) The firm will maximize profit in the short run by setting quantity such that the difference between MR and MC is maximized. Letting "q" denote the number of chips produced per year, what are your total economic costs of production for the coming year, taking into account all of the relevant opportunity costs that you face? Which are true in a perfectly competitive market? Question 2 1 / 1 pts Which of the following is NOT a characteristic of perfectly competitive markets? Question 3 1 / 1 pts The Burn company produces candles in a perfectly competitive industry. Burn's average variable cost at its current output level is $3 per candle. It's average total cost per candle is $6 per candle. If the market price is $4.50: Question 4 1 / 1 pts The figure shows the cost curves for a competitive firm. If the profit-maximizing level of output is 40, price is equal to

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1. (I) but not (II) and (III) 2.It is hard to find a trading partner. For a market to be perfectly competitive, consumers must be able to easily find all potential trading partners. In fact, sellers and buyers in perfectly competitive markets have all relevant information about all trading partners. 3.it should stay in the business in the short-run. Currently, the Burn company is covering all of its variable costs and then some since P > AVC, but only part of its fixed costs (because P < ATC). If it shuts down immediately, revenue is zero and will cover none of its fixed costs, hence losing more money by shutting down than operating. Therefore, Burn should stay open in the short-run. In the long-run, it is possible that the Burn company will shut down, but this goes beyond this question. 4.$15.