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Chapter 8: Q11 (page 211)

A single firm in a perfectly competitive market is relatively small compared to the rest of the market. What does this mean? How “small” is “small”?

Short Answer

Expert verified

Single firm in perfect competition is small in regards to possessing insignificant share of market supply, price etc.

Step by step solution

01

Definition 

It is a market where large number of buyers and sellers exchange homogenous goods at uniform prices, with perfect information.

02

Explanation 

As the number of sellers are very large, they have small ie insignificant share in total market supply. So, they are small (insignificant) in regards to controlling price & have to take market price only.

Buyers have perfect information about similarity of goods. So, they are also indifferent among all sellers' goods. So, no firm can charge higher price and just sell as a small part under the huge market umbrella.

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Most popular questions from this chapter

1. A computer company produces affordable, easy-to-use home computer systems and has fixed costs of \(250. The marginal cost of producing computers is \)700 for the first computer, \(250 for the second, \)300 for the third, \(350 for the fourth, \)400 for the fifth, \(450 for the sixth, and \)500 for the seventh.

a. Create a table that shows the company’s output, total cost, marginal cost, average cost, variable cost, and average variable cost.

b. At what price is the zero-profit point? At what price is the shutdown point?

c. If the company sells the computers for \(500, is it making a profit or a loss? How big is the profit or loss? Sketch a graph with AC, MC, and AVC curves to illustrate your answer and show the profit or loss.

d. If the firm sells the computers for \)300, is it making a profit or a loss? How big is the profit or loss? Sketch a graph with AC, MC, and AVC curves to illustrate your answer and show the profit or loss.

A market in perfect competition is in long-run equilibrium. What happens to the market if labor unions are able to increase wages for workers?

How does a perfectly competitive firm calculate total revenue?

Explain in words why a profit-maximizing firm will not choose to produce at a quantity where marginal cost exceeds marginal revenue.

Productive efficiency and allocative efficiency are two concepts achieved in the long run in a perfectly competitive market. These are the two reasons why we call them “perfect.” How would you use these two concepts to analyze other market structures and label them “imperfect?”
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