Mora, Johnsen Paul G.
1-7 BSBA MM
[Link] true or false opposite each number:
True 1. Buyers and sellers are price takers in pure competition.
False 2. A single buyer can influence the market price.
False 3. Pure competition is characterized by a single seller in the market.
False 4. A single seller can influence the market price.
False 5. The firm’s demand curve is the industry demand curve for pure competition.
False 6. At zero output, TC equals TVC.
False 7. When TR > TC, the firm is incurring losses.
True 8. When P = AC, the firm must continue producing in the short-run.
False 9. When profit is equal to zero, the firm should stop production.
True 10. When MR = MC, the firm is producing the most profitable output.
Q P TR TC FC VC ∆/loss MC MR AC AR AVC Per unit ∆
1 40 40 59 35 24 -19 - - 59 40 24 59
2 40 80 75 35 40 5 16 40 37.5 40 20 37.5
3 40 120 95 35 60 25 20 40 31. 67 40 20 31. 67
4 40 160 120 35 85 40 25 40 30 40 21.25 30
5 40 200 150 35 115 50 30 40 30 40 23 30
6 40 240 190 35 155 50 40 40 31. 67 40 25.83 31. 67
7 40 280 245 35 210 35 55 40 35 40 30 35
II. Given a short-run schedule of a competitive firm. Complete the table.
Fill in the blanks by referring to the schedule above:
a. The most profitable output is at 6 units.
b. At the MPO:
a. TR is 240.
b. TC is 190.
c. FC is 35. TFC= 210
c. At the MPO:
a. Per unit cost is 31.67.
b. Per unit revenue is 40.
d. The firm incurs a loss at 1 units.
e. The firm earns profit from 2 to 7 units of output.
f. Profit is maximized at the level of output where Marginal Cost equals to Marginal
Revenue.
III. Essay: Write your answers clearly and legibly.
Discuss the characteristics of pure competition, pure monopoly, monopolistic competition,
and oligopoly. Give examples. Why is the equality of marginal revenue and marginal cost
essential for profits maximization in all market structures?
▪ Pure competitionconsists of a vast number of companies that manufacture generic
goods and have no control over retail pricing. There are price takers because there are
no barriers to entry or departure. New companies can join easily, and existing firms can
exit freely without incurring substantial losses. Farm markets like wheat is one example.
▪ Pure monopoly one company emerges that produces a one-of-a-kind commodity with
no near alternative, allowing the firm to set product prices. One example is Meralco that
provides electricity.
▪ Monopolistic competition consists of differentiated products. Entering and leaving a
monopolistically competitive market is reasonably simple in this model, which employs
the nonprice competition technique. Restaurants is example of monopolistic
competition.
▪ Oligopoly This business is much more difficult to join and uses the nonprice
competitive approach and product differentiation. It consists of a few vendors who sell
standardized or differentiated goods. Nissan Motor Philippines is one example of this
market structure.
If the marginal revenue from selling a u nit of output is greater than the marginal cost
(MR>MC) of producing that unit of output, the firm will make a profit on that unit of
output. Since price remains constant regardless of quantity demanded, and marginal
revenue equals price. As a result, in the MR=MC, price can be substituted for marginal
revenue.