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Chapter 8: Q.2 (page 210)
Would independent trucking fit the characteristics of a perfectly competitive industry?
The characteristics of perfect competition are well suited to independent trucking.
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Finding a life partner is a complicated process that may take many years. It is hard to think of this process as being part of a very complex market, with a demand and a supply for partners. Think about how this market works and some of its characteristics, such as search costs. Would you consider it a perfectly competitive market?
Why does exit occur?
Explain in words why a profit-maximizing firm will not choose to produce at a quantity where marginal cost exceeds marginal revenue.
A firm’s marginal cost curve above the average variable cost curve is equal to the firm’s individual supply curve. This means that every time a firm receives a price from the market it will be willing to supply the amount of output where the price equals marginal cost. What happens to the firm’s individual supply curve if marginal costs increase?
If new technology in a perfectly competitive market brings about a substantial reduction in costs of production, how will this affect the market?
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