Unit 5

Unit 4 Assignment

  1. How does the demand curve faced by a perfectly competitive firm differ from the market demand curve in a perfectly competitive market?   Explain.

The demand curve is horizontal for a perfectly competitive firm and is driven by its price. When the price goes up, demand goes down. The market demand curve is the total quantity that individuals are willing to buy at any price, this is downward sloping which reflects the law of demand.


  2. A perfectly competitive firm has the following fixed and variable costs in the short run. The market price for the firm’s product is $140.
Output FC VC TC TR Profit/Loss
0 $90 $     0 $90 $0 -$90
          1 90 90 $180 $140 -$40
          2 90 170 $260 $280 $20
          3 90 290 $380 $420 $40
          4 90 430 $520 $560 $40
          5 90 590 $680 $700 $20
          6 90 770 $860 $840 -$20

a. Complete the table.

b. What level of output should the firm produce to maximize profits?

Output at levels 3 and 4 will maximize profits.


  3. How does the demand curve faced by a monopoly differ from the demand curve faced by a perfectly competitive firm?   Explain.


In a perfectly competitive firm the demand curve is perfectly elastic this makes it horizontal whereas a monopoly has a relatively inelastic demand curve which is downward sloping.


  4. The following table provides market share information about the soft-drink industry.


|Company                                                               |Market Share                                                           |
|Coca-Cola                                                             |37%                                                                   |
|Pepsi-Co                                                               |35                                                                     |
|Cadbury Schweppers                                                     |17...