(See related pages)
|
|
|
|
Page 112 1a. The café is part of a monopolistically competitive market, since there are many cafés in the area, each providing a slightly different product b. The company operates in a monopoly, since the company is the sole provider of public transit in this area. c. The corporation is in an oligopoly, since a relatively small number of businesses make popular women’s perfumes. d. This share-owner is operating in a perfectly competitive market, since there are many buyers and sellers of BCE shares. 2a. Total revenue is $15 000 [= ($5 x 3000)] at 3000 kgs and $20 000 [= ($5 x 4000)] at 4000 kgs. Dividing this difference by the change in output gives the marginal revenue of $5 [= ($20 000 - $15 000)/(4000 – 3000)]. b. Since the fisherman is a perfect competitor, he faces a constant price (equal to average revenue). In this situation, marginal revenue and price are always the same. c. Yes, the curve is horizontal, as expected. Page 120 1a. This is his profit-maximizing point. Marginal cost, which is rising from $4.95 to $5.05 at the output of 4000 kgs, equals the fisherman’s marginal revenue of $5 at, or close to, 4000 kgs. b. The fisherman’s total loss is (-)$4000 [= ($5 x 4000) – ($6 x 4000) = ($20 000 - $24 000)]. c. Yes. Even though the fisherman is making a loss, his $20 000 in total revenue covers his variable costs of $16 000 [= ($4 x 4000)], with an amount left over to pay some of his fixed costs. d. See graph at 2e. 2a. Yes. The fisherman’s supply curve includes the profit-maximizing points at each possible price, and this is a profit-maximizing point. b. No. The $5.50 price associated with the breakeven point is the fisherman’s lowest possible average cost. At any price below $5.50, therefore, he is necessarily making a loss. c. No. At any price above $5.50, the fisherman can make a higher profit than he does at the breakeven point. This profit is necessarily positive, as long as the fisherman is at a profit-maximizing point. d. The shutdown point is at a price below $5.50. At this point, price equals minimum average variable cost, which is necessarily below the fisherman’s minimum average cost of $5.50 at the breakeven point. e. Page 123 1a. Because price exceeds average cost, businesses in this market are making a positive profit. These profits will attract new businesses to enter the market. As this happens, the market supply curve shifts to the right, putting downward pressure on equilibrium price. This process continues until price and average cost are equal. b. Yes, the minimum-cost pricing rule will be met. This is because new businesses will enter the market as long as price exceeds the lowest possible average cost, and positive profits are being made. Only once price has reached the lowest possible average cost will the influx of new businesses end. c. Yes, the marginal-cost pricing rule will also be met. In any perfectly competitive market, individual businesses face a constant price and average revenue (because they are price takers), which means that average revenue and marginal revenue are the same. Because businesses in this market maximize profits at the point where marginal cost and marginal revenue are equal, they will also be ensuring that price equals marginal cost. |