Economics 247 Assignment 2 Version A Essay

political economy 247 Assignment 2 Version AThis appellative has a maximum total of 100 tag and is worth 10% of your total grade for this course. You should shake off do it after completing your course work for Units 6 through 10. Answer each question clearly and concisely. 1. In amend competition, one result of the feign was that in that respect were no economic scratch in the long run. In a monopoly, the hard typic e very(prenominal)(prenominal)y earns a positive economic profit. Why is there this difference? The lack of barriers to entry go forth cede competitors to enter the mart unil economic profit is zero. These star signs ar price takers, and they cannot affect prices because their demand thread is horizontal.(4 marks)2. befool that a single inviolable in a pure free-enterprise(a) industry has a repair personify of $6500 and variable costs as indicated in the table below.a. Calculate the TC, AFC, AVC, ATC, and MC columns for this stanch. (5 marks)Total ta keTVCTCAFCAVCATCMC00060070,000 special K760001400810001800870002200900002600930002800960003000hundred thousand3100110000b.Explain the concepts of economies and diseconomies of scale, and describe the underlying reasons why both(prenominal) occur. (4 marks)3. At its current level of production, a profit-maximizing regular in a competitive merchandise receives $12.50 for each unit it produces, and it lay outs an average total cost of $10. At the commercialise price of $12.50 per unit, the firmlys marginal cost curve crosses the marginal tax income curve at an output level of 1000 units. What is the firms current profit? What is promising to occur in this commercialise and why?(4 marks) P=12.5TR=P*Q = 12.5 * 1000 = 12500TC=ATC*Q = 10 * 1000 = 10000 proceeds=TR-TC = 12500 10000 = +2500Profit is positive, but for perfectly competitive markets there allow for be no profits at all in the long-run, so in this markets recent firms will entermarket attracted by profits frankinc ense increasing market supply and reducing counterweight price till it reaches close to P=$10, hence leading to zero economic profits in long-run. For impose price this firm will be pressed to reduce output a turning for new P=MR=MC equilibrium.4. a.Why would a firm in a perfectly competitive market always choose to set its price pertain to the current market price? If a firm set its price below the current market price, what effect would this have on the market? (4 marks) The assumptions of perfect competition that matter here ar that in perfect competition 1 every firm is so small comp bed to the market so as to have no effect on market price 2 everyone is awargon of everybodys price. directly if you set a price lower than the market, you are only cutting your nose to spite your face since you would merchandise as much as a higher(prenominal) price. (Remember, how much you produce is determined by your MC and the output level you produce at is the token(prenominal) MC). C utting the price to sell to a greater extent also costs more to produce you are worse off.If you set a price higher than market, noone will buy from you.Explain how a firm in a competitive market identifies the profit-maximizing level of production. When should the firm raise production, and when should the firm lower production?In a perfectly competitive market, all firms are assumed to be very small compared to the market.Now the price is set at the market level, and as a small firm you take it as given you couldnt sell at a higher price since aught would buy from you. Now in the long run, you should be at the minimum point of your cost curve, ensuring you make just normal profits. The price is your MR and at the minimum point of your AC curve your MC cuts it MC=MR and AC=AR.If the market price is higher than this, new entrants will sniff the opportunity created by ace normal profits and the market supply curve shifts right/up, reducing price until there are no more super ormal profitsto be earned.If market price is lower, then firms are reservation losses, some exit and supply curve shifts go away driving price up.In equilibrium, each firm is producing at the minmum point of the AC, where MC=MR=P.Hence the firm temporarily raises production when Pmin AC and makes supernormal profits until new entrants drive price back passel or lowers production temporarily when P