DeVry University, Chicago

ECON ECON312

chapter 10

1)What are some examples of the four different market structures?

2. What are four characteristics of pure competition?

3. How would you describe the demand curve for the purely competitive firm? For the industry?

4. What is the difference between average, total, and marginal revenue? What is the shape of the total and marginal revenue curves for the individual competitive firm?

5. Why does price equal marginal revenue for the purely competitive firm? What is the relationship to the demand curve for the firm?

6. What conditions are necessary to determine if the purely competitive firm should produce in the short run? State the marginal revenue and marginal cost conditions and the total revenue and total cost conditions.

7. What quantity should the purely competitive firm produce to maximize profits? Analyze from a total revenue and total cost perspective and a marginal revenue and marginal cost perspective.

8. An airline is flying between two cities. The airline has the following costs associated with the flight:

9. What is the relationship between marginal cost and the supply curve for the purely competitive firm?

10. How will the marginal and average cost

curves of the typical pure competitor shift or change as a result of the following events: (a) an increase in wages of all labor; (b) an increase in the rental payments on office machinery; (c) a technological advance;

1. an increase in sales taxes; (e) an increase in property taxes; and (f) a decline in the price of a basic raw material?

11. The agricultural market for corn can be characterized as a purely competitive industry. How might the following events affect the short-run cost curves and output for a firm in the industry?

• • • • A reduction in the cost of fertilizer that is sold to corn farmers.

The Internal Revenue Service (IRS) changes tax laws which increase the amount of depreciation that farmers can deduct for equipment.

The market price of corn falls.

12. Consider the two diagrams below. Diagram A represents a typical firm in a purely competitive industry. Diagram B represents the supply and demand conditions in that industry.

• • Describe the price, output, and profit situation for the individual firm in the short run.

• • 
    Describe what will

happen to the individual firm and the industry in the long run. Show the changes on diagrams A and B.

13.  Describe the graph for a long-run supply curve in an increasing-cost industry. Why does it have this slope?

14.  What economic conditions are necessary to achieve productive and allocative efficiency under pure competition?

15.  How does the “invisible hand” work in a competitive market system?