Exam (elaborations)
ECS1501 Assignment 9 2024 | Due 7 October 2024
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ECS1501 Assignment 9 Semester 2 2024
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Started on Monday, 23 September 2024, 11:17 PMState Finished
Completed on Monday, 23 September 2024, 11:31 PM
Time taken 13 mins 31 secs
Marks 11.00/11.00
Grade 100.00 out of 100.00
Question 1
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that this assessment will be my own individual work;
that I will not communicate with anyone else in any way during the completion of this assessment;
that I will not cheat in any way in completing and submitting this assessment.
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Question 2
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In a perfectly competitive market,
government intervention is needed to ensure that prices are fair for consumers.
there can be few or many buyers and sellers.
the price can be driven upward by suppliers holding back on goods and services.
each participant is too small to affect the market price.
Feedback
,In a perfectly competitive market, there are many buyers and sellers, all of whom are small relative to
the size of the market. This market structure is characterised by several key features:
1. Many Buyers and Sellers: There are numerous buyers and sellers in
the market, and no single buyer or seller has the power to influence the
market price. Each buyer and seller is a price taker, meaning they
accept the market price as given and cannot change it.
2. Homogeneous Products: The products or services sold in a perfectly
competitive market are homogeneous (meaning they are identical and
indistinguishable from one another).
3. Perfect Information: All buyers and sellers in a perfectly competitive
market have access to perfect information. T
4. Free Entry and Exit: There are no barriers to entry or exit in the
market.
5. Firms are Price Takers: Each firm in a perfectly competitive market
is so small compared to the overall market that its actions cannot affect
the market price. Therefore, each firm accepts the market price as
given and adjusts its quantity of output to maximise profits at that
price.
6. Profit Maximisation: Firms in a perfectly competitive market aim to
maximise profits.
7. No government intervention: The market answers the questions
What? How? and For whom?
Question 3
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In the short run, when should a firm continue with production according to the shut down rule.
average revenue (AR) is equal to, or greater than, average variable cost (AVC).
average revenue (AR) is greater than average cost (AC).
average revenue (AR) is less than average cost (AC), and average cost (AC) is less than average
variable cost (AVC).
marginal revenue (MR) is greater than marginal cost (MC).
Feedback
The shutdown rule can be expressed in terms of average revenue (AR) and average variable cost
(AVC). The shutdown rule states that a firm should continue production in the short run if the price
, or average revenue (AR) it receives for its product is greater than or equal to the average variable
cost (AVC) at the profit-maximising level of output (P= AR = MC).
If AR ≥ AVC, the firm should continue production. This means the
firm can cover both its variable costs and make a contribution towards
its fixed costs. While the firm may not be covering all its costs
(including fixed costs), it is minimising its losses by covering the
variable costs.
If AR < AVC, the firm should shut down production. In this situation,
the firm cannot even cover its variable costs with the price it receives
for its product. Continuing to produce would mean incurring losses
greater than the fixed costs alone. By shutting down, the firm avoids
variable costs and limits its losses to its fixed costs.
The shut-down rule does not only indicate when a firm should stop production, it also indicates that a
firm will continue with production as long as the AR = P is equal to or greater than the average
variable cost (AVC). The rising part of the firm MC curve, above the minimum of AVC, can thus be
regarded as the firm’s supply curve.
Question 4
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Use the diagram below which diagram shows the short-run conditions of a firm in a perfectly
competitive market to answer the question.
In the long run, ____ firms will ____ the industry so that the market supply curve shifts to the _____,
until prices ______ sufficiently so that all firms make a normal profit only.
new firms; enter; left; increase.
new firms; enter; right; decrease.
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