Questions on pure competition

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OPEN QUESTIONS • For a firm in a pure competitive market, the marginal revenue MR is equal to price, why? • Why is a firm in pure competition a price taker? • In pure competition, what is the elasticity of the demand for the firm’s output? • What triggers entry in a competitive market? Describe the process that ends further entry. REASONING QUESTIONS • In a pure competitive market, it is experienced a permanent decrease in demand. What happens to output, price, and economic profit • Describe the course of events in a competitive market following the adoption of a new technology. What happens to output, price, and economic profit? EXCERSISES In a pure competitive market there are 1,000 firms that produce paper. The first table sets out the market demand schedule for paper. Each producer of paper has the costs in the second table. . What is the market price, and the market quantity at equilibrium? Does each firms makes a profit or a loss? In this case, do firm have an incentive to enter the market? What is the number of firms in the long run? TIP: The market price is the price at which the quantity demanded equals the quantity supplied. The firm’s supply curve is the same as its marginal cost curve at prices above minimum average variable cost. Average variable cost is at its minimum when marginal cost equals average variable cost. Marginal cost equals average variable cost at the quantity 250 boxes a week. So the firm’s supply curve is the same as the marginal cost curve for the outputs equal to 250 boxes or more. When the price is $8.40 a box, each firm produces 350 boxes and the quantity supplied by the 1,000 firms is 350,000 boxes a week. The quantity demanded at $8.40 is 350,000 a week. TABLE 1 TABLE 2