In this Assignment, you will address concepts of cost structure and perfectly competitive markets, including the relationship between a typical firm’s cost functions and its pricing and output decisions.
Submit your responses to the following prompts.
Using the definition and characteristics of perfectly competitive industries, explain why—in the long run—firms earn zero economic profits. Does this mean that competitive firms earn zero accounting profits? Your response should be at least 75–150 words (1–2 paragraphs) in length.
Joe’s Widget Factory operates in a perfectly competitive industry. Joe’s fixed and variable costs are given in the table below. He is a price taker and can sell as many widgets as he produces for $10 each. Complete the table using the provided link and respond to the following questions. Besides referring to your table to support your answers, include references from the course materials on profit-maximizing rules for competitive firms. Your response should be at least 75–150 words (1–2 paragraphs) in length, including table.
What is the profit maximizing (or loss minimizing) level of output in the short run?
What is the profit maximizing level of output in the long run?
What are the shut-down prices in the short run and long run?
What is the firm’s supply curve?
Note: Use this Week 3 Assignment Worksheet to complete the following table. Be sure to incorporate your table into your Assignment submission.
Widgets Produced Fixed Costs Variable Costs Total Costs Average Variable Cost Average Total Cost Marginal Cost Price = MR Profits
0 25 0 10
1 25 8 10
2 25 15 10
3 25 23 10
4 25 32 10
5 25 42 10
6 25 53 10
7 25 65 10
8 25 78 10
9 25 92 10
Based on your answers to the previous set of questions, assuming there are 100 identical firms in the widget industry, construct a table showing the industry supply curve. Then, explain what you expect will happen over time to the number of firms in the industry and the equilibrium industry price of widgets. Your response should be at least 75–150 words (1–2 paragraphs) in length, including the table.
Note: For each prompt, be sure to reference at least one scholarly source to support your answer
