Econ: Economics and Supply Curve

Topics: Economics, Perfect competition, Marginal cost Pages: 4 (985 words) Published: December 14, 2013
1.(Demand Under Perfect Competition) what type of demand curve does a perfectly competitive firm face? Why?

A horizontal or a perfectly elastic, demand curve. A perfectly competitive firm is called a price taker because that firm must “take,” or accept, the market price- as in “take it or leave it.”

2.Explain the different options a firm has to minimize losses in the short run.

A firm in perfect competition has no control over the market place. Sometimes that price may be so low that a firm loses money no matter how much it produces. Such a firm can either continue to produce at a loss or temporarily shut down.

3.(The Short-Run Firm Supply Curve) Each of the following situations could exist for a firm in the short run. In each case, indicate whether the firm should produce in the short run or shut down in the short run, or whether additional information is needed to determine what it should do in the short run

a.Total cost exceeds total revenue at all output levels.
Shut down in the shirt run.
b.Total variable cost exceeds total revenue at all output levels. Produce in the short run.

4.(The Long-Run Industry Supply Curve) A normal good is being produced in a constant-cost, perfectly competitive industry. Initially, each firm is in long-run equilibrium. Briefly explain the short-run adjustments for the market and the firm to a decrease in consumer incomes. What happens to output levels, prices, profits, and the number of firms?

There are various variables, among them what kind of business are we talking about; what is the size of the company, what business is it in; what products or services does it provides, what much revenue and personnel does it have all these factor are a calculus to the issue. The point being that all these factors have to be analyzed to determine how the short-run will be affected. There is an economy of scales. As the company stays in business longer and longer it learns how to better produce goods...
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