Diagram a model of a perfectly competitive market and a separate model of a firm experiencing economic profits. Explain and illustrate on your models the changes that take place in the long run. Be sure to explain why any changes take place.
What will be an ideal response?
Additional firms, in pursuit of higher profits, will enter the market, shifting market supply to the right and reducing the market price. As the market price (MR) is reduced, the individual firm will decrease output and suffer reduced profits. This process will continue until the market price reaches the firm's minimum ATC, indicating zero economic profits. See Figure 23.2 in The Economy Today or Figure 9.2 in The Micro Economy Today for the progression of changes in the models.
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Refer to the figure above. If a price control is imposed at $8, what is the deadweight loss?
A) $10 B) $50 C) $65 D) $85
A Big Mac costs $4.79 in the United States and 9.6 zlotys in Poland. If the exchange rate is 3 zlotys per dollar, what is the dollar cost of a Big Mac in Poland?
A) $1.60 B) $2.00 C) $3.20 D) $4.64
Firms engage in explicit collusion when:
A. they predict what the other will do and attempt to undercut them. B. they collude without communicating, sustaining a price above the noncooperative price that would arise in a single competitive interaction. C. they communicate to reach an agreement about the prices they will charge. D. they communicate what type of good they will produce.
The following is not an example of adverse selection
a. you lock your garage when you have expensive workshop tools b. you are less careful when you buy a more expensive car c. Individuals tend to gamble more with their money when the future is certain d. you only go swimming when the lifeguard is on duty