# Economics 101 Fall 2017 Answers to Homework 5 Due:12/12/17

Size: px
Start display at page:

Transcription

2 a. How much does each machine (unit of K) cost? a. In the first row, Bob is only employing capital. The total cost for three units of capital is \$30, so each unit of K costs \$10. b. How much does each unit of labor cost? (Assume the wage is constant.) b. From the second row MPL, we know that to produce 2 units of sausage, Bob needs to hire one unit of labor. Moving from row 1 to row 2, output increases from q = 0 to q = 4, so Bob must have hired two units of labor. Now the MC column tells us that when we moved to this row and produced 4 additional units, Bob s cost is \$7.5 per unit. Total costs therefore must have increased by \$30. Bob did not employ any additional capital, so this \$30 increase in total costs must have come from the cost of hiring the two units of labor. The cost per unit of labor is therefore \$15. c. Fill out all the other missing pieces of information in the table. Do calculations to three places past the decimal where necessary. c. K L q FC VC TC AFC AVC ATC MC MPL \$30 \$0 \$ \$30 \$30 \$ \$7.5/unit of output 2 units of output/unit of labor \$30 \$45 \$ \$30 \$60 \$ \$30 \$90 \$ \$30 \$105 \$ \$30 \$135 \$ \$30 \$150 \$ d. As Bob hires more workers, does the marginal product of those workers increase? Does the marginal product of labor begin to diminish at some point? d. As Bob hires more workers, the MPL initially increases, until it reaches MPL = 8 units of output per unit of labor for the third worker. Then as Bob continues to hire more labor (labor greater than four workers) the MPL begins to diminish. 2

3 e. Can we tell whether Bob s business will be operating in the short run? What about in the long run? What piece of information do we still need to learn to know for sure about the answers to these two questions? e. We can t tell whether Bob will be able to stay in the business unless we know what price he can sell sausages for. In order to operate in the short run, the price of sausages needs to be above the minimum point of the AVC. The minimum point on the AVC occurs at that quantity where AVC = MC. In the long run in order to operate Bob will need to be able to cover all of his costs so the price must be equal to or greater than the minimum of the ATC. The minimum of the ATC occurs at that quantity where ATC = MC. We also know that entry of firms will occur in this industry in the long run until profits are equal to zero: this means that Bob will produce at quantity where ATC = MC = price. f. What is the Shutdown price for Bob? f. The Shutdown price is the price at the minimum of AVC. Here the shutdown price is P = \$3.75. g. What is the Breakeven Price for Bob? g. The Breakeven Price is the price at the minimum of ATC. To stay in business in the long run, Bob needs to earn at least P= \$6. Part II: Perfect Competition 2) The figure below depicts the cost structure of a t-shirts company in a competitive market. a. What is the fixed cost for this company? a. When quantity is 15, ATC is \$5.5 per unit of output and AVC is \$4 per unit of output, so total cost is 15*\$5.5= \$ Total variable cost is 15*\$4 =\$60, so the fixed cost is total cost - total variable cost = \$ \$60 = \$

4 b. When the price level is \$7, what is the profit for this profit-maximizing firm? b. When the price level is \$7, the optimal quantity to produce for the firm is 15 units of output. This is because when the quantity is less than 15 units, the marginal cost of producing the last unit is lower than the price level, and when the quantity is greater than 15 units, the marginal cost of producing the last unit is higher than the price level. So when the quantity is 15 units, the firm is maximizing profit. When the quantity is 15 units, the average total cost (ATC) for the firm is \$5.50 per unit of output, so the total profit is (7-5.50) *15 = \$ c. What are the Breakeven and Shutdown prices for this firm? c. The Breakeven-price for the firm is the price at the minimum of ATC, which is the intersection point of MC and ATC, so for this firm the Breakeven price is \$5. The Shutdown price is the price at the minimum of AVC, which is the intersection point of MC and AVC, so for this firm the Shutdown price is \$3. d. Assume there are many t-shirts companies in the market that are identical to one another and the market is perfectly competitive. Given this information, what is the long run equilibrium price in this market, and how many t-shirts will each firm produce in the long run? d. In the long run equilibrium, firms will be making zero profits, so the equilibrium price must be the breakeven price, which is \$5. When the price is \$5, it is optimal for firms to set the quantity level such that MC = 5. Each firm in this market in the long run will therefore produce 12 t-shirts. Part III: Short-Run and Long-Run 3) Consider a perfectly competitive market with a market demand curve given by equation P = Q where P is the price per unit and Q is the total quantity in the market. Each firm in the market has the same total cost given by TC = q + 2q 2 where q is the quantity produced by a representative firm. The Marginal Cost for the representative firm is given by the equation MC = q. Consider the Short-Run first. Suppose you know that the current short run price in the market is \$200 per unit. a. What is the market quantity given this short run price? a. Plug the short run price into the Market Demand equation: 200 = Q Q=1900 units of output b. What is the representative firm s level of production in this market? b. To find the short-run level of production recognize first that the market price is the price the firm takes since it is a price-taking firm. The firm's Marginal Revenue curve is given by MR = 200. To find the firm's level of production you need to equate the firm's MR to the firm's MC. Thus, MR = q or 200 = q and therefore q = 18 units of output. 4

5 c. What is the representative firm's level of profits in the short-run given this market price? c. The firm's TR = (\$200 per unit)(18 units) = \$3600. The firm's TC = (18) +2(18) 2. Or, the firm's TC = \$3194. The firm's profits are therefore equal to \$406. d. Describe the difference between short run and long run economic profits for the firm and give an explanation for why there is a difference between these two economic profits. d. In the long run the perfectly competitive firm must earn zero economic profits while in the short run it is possible for the firm to earn positive, negative, or zero economic profits. When a perfectly competitive firm earns positive economic profits in the short run this results in entry of firms in the long run until that point where the equilibrium price decreases to the level that leaves the firm earning zero economic profits. When a perfectly competitive firm earns negative economic profits in the short run this results in the exiting of firms in the long run until that point where the equilibrium price increases to the level that leaves the remaining firms earning zero economic profits. e. Rounding to the nearest whole number, how many firms are operating in the short-run in this market? e. The total amount produced is Q = 1900 units of output. The amount each firm produces is q = 18 units of output. Therefore, the number of firms is 1900/18 is 106 firms (rounded to the nearest whole number). Suppose now the market is operating in the Long Run. Assume the market demand stays at its initial level. f. What is the break-even price in the long-run for a representative firm in this industry? f. ATC = TC/q = ( q+2q 2 )/q To find the break-even price, set MC = ATC q = ( q + 2q 2 )/q. q = 11. Now, plug in this quantity into the MC equation to find the break-even price. MC = *11 = 172. So, the price of \$172 is the break-even price. g. What is the long-run market quantity in this market? g. To find this quantity use the market demand curve and the break-even price you have just calculated. Thus, P = Q or 172 = Q or Q = 1914 units of output. h. How many firms will be in this industry in the long-run? h. The number of firms in the industry is equal to 1914/11 or 174 firms. 5

6 Part IV: Monopoly 4) Suppose there is a monopolist in the market for cheese curds. The monopolist s marginal cost equation is given by MC = 2 + 2Q where Q is the quantity of units of cheese curds. The demand curve is given by P = 10 - Q where P is the price per unit of cheese curds. a. What is the monopolistic price and quantity in the cheese curd market? Show how you found your answer. Find the monopolist s total revenue. Calculate the value of consumer surplus in this market. a. The profit maximizing quantity for the monopolist is that quantity where MC = MR. The marginal revenue curve for the monopolist has the same y-intercept as the demand curve and a slope that is twice as steep as the demand curve's slope. Hence, MR = 10-2Q. Therefore, to find the profit maximizing quantity we have: 10-2Q = 2 + 2Q So Q = 2 units of cheese curds. To find the profit maximizing price, plug 2 into the demand curve function as the optimal quantity and you find that P = \$8 per unit of cheese curds. Total revenue at this profit maximizing price and quantity = 8*2 = \$16. Consumer surplus = (10-8)*2/2 = \$2. b. Suppose the monopoly acted as a competitive firm. Find the price and quantity it would sell. Calculate the value of consumer surplus and the value of producer surplus. Note: these numbers are a trifle "ugly": do the math with fractions and it is okay for you to have improper fractions in your answers. b. For a competitive market, P = MC. So: 2 + 2Q = 10 - Q Or, Q =8/3 units of cheese curves and P = \$22/3 per unit of cheese curds. Consumer surplus = (10-22/3)*8/3*1/2 = 4/3*8/3 = \$32/9. Producer surplus = (22/3-2)*8/3*1/2 = 8/3*8/3 = \$64/9. c. Suppose this monopolist implements a first degree price discrimination to increase the monopolist's profits. Calculate the profit when this monopolist practices first degree price discrimination. Again, the numbers are a trifle ugly here: stick with fractions but remember to include your units of measurement! c. When monopolist practices first degree price discrimination, it captures total surplus as its profit. Profit = 32/9 + 64/9 = 96/9 = \$32/3. 5) Consider a monopolist that sells its product to two different types of buyers. Assume initially that the monopolist is unable to distinguish whether a particular buyer belongs to group A or group B (the two types of buyers). The monopolist knows the following information where P is the price per unit of output, Qa is the quantity provided to group A, and Qb is the quantity provided to group B. Demand for product from group A: P = Qa Demand for product from group B: P = 50 - (1/2) Qb Marginal Cost = MC = \$10 per unit of output: MC = 10 The average total cost of producing a unit of output is \$10 per unit and constant. There are no fixed costs. 6

7 a. Find the market demand curve for this monopolist. This market demand curve will be the horizontal summation of the two group demand curves. Provide all equations and ranges needed to describe this market demand curve. Draw an image that include three horizontally oriented graphs: the first graph the demand of group A, the second graph the demand of group B, and the third graph the market demand curve. a. Here are the graphs: There are two segments to the market demand: for quantities between 0 and 50, the market demand is P = Q; for quantities between 50 and 200, the market demand is P = (200/3) - (1/3)Q b. If this firm acts as a single price monopolist, what price will the monopolist charge and how many units will the monopolist produce? What will be the monopolist's profit? Show how you found your answer. The numbers here may not be pretty: it is okay to use improper fractions and I would encourage you to do the work with fractions rather than with decimals! b. The single price monopolist selects the profit maximizing quantity by producing that quantity where MR = MC and then goes to the demand curve to find the price it will charge per unit of the good. In this problem, there are actually two marginal revenue curves, so we will need to evaluate which MR is the relevant one to use. For the top segment of the market demand curve the MR curve is given by the equation: MR = 100-2Q. Setting this equal to MC we get: MR = MC 100-2Q = = 2Q, Q = 45 units of output P = Q = = \$55 per unit of output Profit = TR - TC = (45)(55) - (45)(10) = \$2025 For the bottom segment of the market demand curve the MR curve is given by the equation MR = (200/3) - (2/3)Q. Setting this equal to MC we get: MR = MC (200/3) - (2/3)Q = Q = = 2Q, Q= 85 units of the good 7

8 P = (200/3) - (1/3)(85) = 115/3 = \$115/3 per unit of output = approximately \$38.33 per unit of output. Profit = TR - TC = (85)(115/3) - (85)(10) = \$7225/3 = approximately \$ It clearly is far more profitable for this firm to produce Q = 85 units of the good and sell it for \$38.33 per unit of the good. c. Now, suppose this monopolist can distinguish whether a particular buyer is in group A or group B. That is, this monopolist decides to practice third degree price discrimination. How many units in all will this monopolist produce now? What price will buyers in group A pay and how many units will group A get? What price will buyers in group B pay and how many units will group B get? What will be the value of profits for the firm from group A? What will be the value of profits for the firm from group B? What will be the total value of profits for the third-degree price discriminator? Show your work, but enter your findings in the following table. Price for group A Quantity for group A Price for group B Quantity for group B Profit from sales to group A Profit from sales to group B Total profit for third degree price discriminators c. We already know the total amount of the good the third-degree monopolist will produce: 85 units. The monopolist reasons that this is the profit maximizing amount given the total market demand curve, its MR curve, and its MC curve. The third-degree monopolist must just decide how many of these units are sold to group A and how many are sold to group B. Let's start with group A: we know that the monopolist perceives its MC as MC = 10. The firm also knows that group A's MR curve is MR = 100-2Qa (the firm gets this MR curve the same way every monopolist we have studied gets their MR curve: the same y-intercept and twice the slope of the demand curve). Equating MR = MC: 100-2Qa = 10 Qa = 45 units of output To find the price for group A use the demand curve for group A: P = Qa Pa = = \$55 per unit of the good Profit from group A = TRa - TCa = (45)(55) - (45)(10) = \$2025 Now for group B: we know that the monopolist perceives its MC as MC = 10. The firm also knows that group B's MR curve is MR = 50 - Qb (the firm gets this MR curve the same way every monopolist we have studied gets their MR curve: the same y-intercept and twice the slope of the demand curve). Equating MR = MC: 50 - Qb = 10 Qb = 40 units of output Note: that Qa + Qb = = 85 units of output! To find the price for group B use the demand curve for group B: P = 50 - (1/2)Qb Pb = 50 - (1/2)(40) = \$30 per unit of the good Profit from group B = TRa - TCa = (40)(30) - (40)(10) = \$800 8

9 Total profit for the third-degree price discrimination= =\$2825 Price for group A \$55 Quantity for group A 45 units Price for group B \$30 Quantity for group B 40 units Profit from sales to group A \$2025 Profit from sales to group B \$800 Total profit for third degree price discrimination \$2825 d. Does this firm benefit from practicing third degree price discrimination? Write a short paragraph and offer an argument pro or con with respect to this question. Use data to support your position. d. The third-degree monopolist earns greater profits by selling the good at two different prices than at a single price. As a single price monopolist, the profits are equal to \$ and as a third-degree monopolist with two different prices the monopolist earns \$2825. Part V: Natural Monopoly 6) There is a natural monopoly in the market for minions driven by Doctor Gru. The marginal cost is constant and equals \$10 per unit of output. The Demand in the market is given by the equation P = Q where P is the price per unit and Q is the market quantity. The marginal revenue equation for this natural monopoly is given by the equation MR = 100-2Q (pause and see if you understand why this is the equation for the marginal revenue curve for this firm). Average total cost equals \$25 per unit of output at a quantity of 45 units of output and the average total cost curve intersects the Demand curve at the quantity of 80 units of output and a ATC value of \$20 per unit of output. a. Suppose the natural monopoly is not regulated. Find the price, total output and profit for this natural monopoly when it is not regulated. a. If the monopolist is not regulated, it produces where MR = MC Q = 10, or Q = 45 units of output. Inserting this quantity into the demand curve, the unregulated price is P = = \$55 per unit of output. To calculate the profit, calculate the Total Revenue first: TR = 55*45 = \$2475. Now, calculate the TC: TC = ATC*Q = 25*45 = \$1125. Profit is then equal to = \$1350. b. Suppose now that the monopoly is regulated so that it breaks even. Find the price, total output and profit of the natural monopoly. b. If the monopolist is regulated so that it breaks even it will produce where ATC = Demand. This occurs at the quantity = 80 units of output. The monopolist will be regulated to charge a price of \$20 per unit of output. Then, the Total Revenue = 20*80 = \$1600 The Total Cost = ATC*Q = 20*80 = \$1600 So, the profit = \$0 because the monopolist is regulated so that it breaks even. 9

10 Part VI: Game Theory 7) Consider the following two-player game. Bart and Liza, who are good friends, are each choosing whether they want to go to the doughnut store or the ice-cream store. Each will make their choice based upon which choice gives them the greatest utility. a. Find the dominant strategies in the following game. Bart s utility is listed first and Liza s second in each cell of the payoff matrix. Bart Liza Ice-Cream Store Doughnut Store Ice-cream Store 3,3 4,6 Doughnut Store 8,2 0,8 a. Bart has no dominant strategy. Liza s dominant strategy is going to the Doughnut Store. For Liza, no matter what strategy Bart chooses, she will always prefer the Doughnut Store. For Bart, if Liza chooses the ice-cream store, then he prefers the doughnut store; if Liza chooses the doughnut store, then he prefers the ice-cream store. b. Find the dominant strategies for each player in the following game. Bart's utility is listed first and Liza's second in each cell of the payoff matrix. Liza Ice-Cream Store Doughnut Store Bart Ice-cream Store 10,3 4,6 Doughnut Store 8,2 0,0 b. Bart s dominant strategy is going to the ice-cream store. Liza has no dominant strategy: if Bart is assumed to choose the ice-cream store, then Liza prefers the doughnut store; if Bart is assumed to choose the doughnut store, then Liza prefers the ice-cream store. c. Find the dominant strategies for each player in the following game. Bart's utility is listed first and Liza's second in each cell of the payoff matrix. Liza Ice-Cream Store Doughnut Store Bart Ice-cream Store 3,8 2,3 Doughnut Store 8,2 0,8 c. Neither Bart or Liza have a dominant strategy in this game. 10

11 d. Find the dominant strategies for each player in the following game. Bart's utility is listed first and Liza's second in each cell of the payoff matrix. There is now a third option for both Bart and Liza: they can go to the Apple Store. Bart Liza Ice-cream Store Doughnut Store Apple Store Ice-cream Store 6,1 40,9 5,10 Doughnut Store 3,15 35,17 0,19 Apple Store 0,10 7,12 3,14 d. Bart s dominant strategy is go to the ice-cream store. Liza s dominant strategy is go to the Apple Store. Part VII: Externality 8) a. Consider the first year PhD office. It is shared by 25 first-year PhD candidates. The office has a big ping-pong table. There is a Ping-Pong tournament going on in the office. Describe the positive and negative externalities related to the situation in the first year PhD office. a. The negative externality is the noise that distracts from studying in the office. The positive externality is getting exercise and training your eyes after 12 hour day in the office with no windows, making new friendships through sharing an activity, stress relief for the whole group, creating happy memories. There are a lot of potential answers you might have here: the negative externality includes the aspects of this activity that create costs or negative benefits to others; the positive externality includes the aspects of this activity that create positive benefits to others. b. Suppose the UW Stadium holds games every weekend. Since matches are between different teams from different universities across the country, the number of people coming to see the game is large. Describe the externalities (positive and negative) related to holding the games in Madison. b. The negative externality is the congestion on roads and the traffic due to the increased number of visitors. Also, parking lots for all the apartment buildings get rented so that people who live there cannot park their cars. The city of Madison reaps lots of positive benefits from this influx of people to see the games: restaurants and hotels have added business, the local governments may collect taxes and fees from visitors, people may visit Madison and decide it is a beautiful place to live and work. There are many potential answers to this question. 9) Consider a market where a good is produced in such a way that it generates significant pollution. Currently the companies producing the good do not pay the cost of this pollution that they create: for example, imagine that the companies create really toxic water that they simply discharge into the economy's water supply. This market can be described by the following equations: Marginal Social Benefit Curve (MSB): P = Q Marginal Private Cost Curve (MPC): P = Q 11

12 Externality Cost per unit of the good produced = \$100 per unit a. Given the above information, how much of this good will be produced in this market and what price will the good sell for? What is the total cost of the externality generated by this good to this economy? Show your work. a. To find the market quantity and market price, we equate MSB = MPC: Q = Q Q = 180 units of the good P = Q = (180) = \$460 per unit of the good Cost of the externality = (180 units of the good)(\$100 per unit of the good) = \$1800 b. If this market were regulated so that the externality was internalized, that is, if the companies had to cover all of their costs of production including pollution, how many units of the good would be produced (the socially optimal amount of the good)? What price would the product sell for under these circumstances? b. To find the socially optimal amount of the good, we equate MSB = MSC: Q = Q Qsociallyoptimal = 160 units of the good Psociallyoptimal = (160) = \$520 per unit of the good. c. If the government levied an excise tax in order to internalize this externality, what would be the optimal amount per unit for this excise tax? c. If the excise tax per unit equaled the size of the externality cost per unit the market would produce the socially optimal amount of the good. That is, the excise tax should be \$100 per unit of the good. d. Quantity the deadweight loss (DWL) to society from having this market fail to correct the externality. Show your work. d. DWL = (1/2)*b*h = (1/2)( )( ) = (1/2)(100)(20) = \$ ) Consider a market composed of two individuals: Bob and Sue. They both enjoy public parks and recognize that public parks are a good example of a public good. You have the following information about Bob and Sue's demands for this good and the cost of providing this good: Bob's demand for public parks: P = 100-2Q Sue's demand for public parks: P = 60-2Q Marginal Social Cost (MSC) of providing public parks: MSC = \$20 per park a. What does it mean for a good to be non-rival? Use your own words and provide at least one example of a good that is non-rival. a. A good is non-rival if another person can consume the same unit at the same time without a reduction in benefits to either of the consumers. For instance, you and I are non-rivals with regard to radio signals: you can listen to the radio signal at the same time as I do and neither of us is impacted by the other one's consumption of the good. We are non-rivals. 12

13 b. What does it mean for a good to be non-excludable? Use your own words and provide at least one example of a good that is non-excludable. b. A good is non-excludable if you can enjoy consuming the good even if you do not pay for it. I can enjoy the benefits of a tornado siren even if I did not contribute to paying for the siren. I may be visiting a community when the siren goes off: I still get the benefits of the siren even though I did not pay for it. c. Find the market demand curve (the Marginal Social Benefit, MSB) and the marginal social cost (MSC) for the public good. For the MSB curve, this will require you to vertically sum the two individual demand curves. Draw a diagram with a graph of Bob's demand curve, another graph directly below this for Sue's demand curve, and a third graph directly below this for the market demand curve. For each quantity of the public parks add together the price that Bob is willing to pay and the price that Sue is willing to pay. Once you have gotten the graphs done, then write the equation or equations for the MSB. Provide the relevant ranges if there are multiple equations. c. Here's the set of graphs: The MSB curve is composed of two linear segments. The top segment for quantities less than or equal to 30 units is given by the equation: MSB = 160-4Q. The lower segment for quantities between 30 units and 50 units if given by the equation: MSB = 100-2Q. d. Find the socially optimal amount (where MSB = MSC) of public parks. Then determine the price that Bob will pay per park and the price that Sue will pay per park. Show your work. d. The socially optimal amount occurs where MSB = MSC. Thus, 13

14 100-2Q = 20 Qsocialoptimal = 40 public parks When Q = 40, Sue is unwilling to pay anything. That's too many parks for her! So Psue = \$0 per public park. When Q = 40, Bob is willing to pay Pbob = 100-2Q = 100-2(40) = \$20 per public park, which is exactly what the marginal social cost of providing a public park is! e. Suppose that the MSC changes to MSC' = \$48 per public park. What is the new social optimal amount of public parks? What price will Bob pay per park and what price will Sue pay per park? Show your work. e. The socially optimal amount occurs where MSB = MSC'. Notice that we now have to use the top segment of the MSB curve. Thus, 160-4Q = 48 4Q = 112 Qsociallyoptimal = 28 public parks Psue= 60-2Q = 60-2(28) = \$4 per public park Pbob = 100-2Q = 100-2(28) = \$44 per public park Note: Bob is going to pay more per public park because Bob values public parks more than does Sue. Notice also that the sum of what Bob pays per park and what Sue pays per park is equal to the marginal cost of providing the public park. 14

### Economics 101 Fall 2017 Homework 5 Due:12/12/17

Economics 101 Fall 2017 Homework 5 Due:12/12/17 Directions: The homework will be collected in a box before the lecture. Please place your name, TA name, and section number on top of the homework (legibly).

### a. Find MG&E s marginal revenue function. That is, write an equation for MG&E's MR function.

Economics 101 Spring 2015 Answers to Homework #5 Due Thursday, May 7, 2015 Directions: The homework will be collected in a box before the lecture. Please place your name on top of the homework (legibly).

### Economics 101 Fall 2013 Answers to Homework #6 Due Tuesday, Dec 10, 2013

Economics 101 Fall 2013 Answers to Homework #6 Due Tuesday, Dec 10, 2013 Directions: The homework will be collected in a box before the lecture. Please place your name, TA name and section number on top

### ECON 2100 (Summer 2014 Sections 08 & 09) Exam #3D

ECON 21 (Summer 214 Sections 8 & 9) Exam #3D Multiple Choice Questions: (3 points each) 1. I am taking of the exam. D. Version D 2. If a firm is currently operating at a point where costs of production

### ECON 102 Kagundu Final Exam (New Material) Practice Exam Solutions

www.liontutors.com ECON 102 Kagundu Final Exam (New Material) Practice Exam Solutions 1. A A large number of firms will be able to operate in the industry because you only need to produce a small amount

### 23 Perfect Competition

23 Perfect Competition Learning Objectives After you have studied this chapter, you should be able to 1. define price taker, total revenues, marginal revenue, short-run shutdown price, short-run breakeven

### ECON 2100 (Summer 2016 Sections 10 & 11) Exam #3C

ECON 21 (Summer 216 Sections 1 & 11) Exam #3C Multiple Choice Questions: (3 points each) 1. I am taking of the exam. C. Version C 2. is a market structure in which there is one single seller of a unique

### Part I: PPF, Opportunity Cost, Trading prices, Comparative and Absolute Advantage

Economics 101 Spring 2018 Homework #2 Due Thursday, February 22, 2018 Directions: The homework will be collected in a box before the lecture. Please place your name, TA name, and section number on top

### Micro Semester Review Name:

Micro Semester Review Name: The following review is set up to emphasize certain concepts, graphs and terms. It is the responsibility of the individual teachers to emphasize and review the analysis aspects

### Economics 102 Summer 2015 Answers to Homework #2 Due Tuesday, June 30, 2015

Economics 102 Summer 2015 Answers to Homework #2 Due Tuesday, June 30, 2015 Directions: The homework will be collected in a box before the lecture. Please place your name on top of the homework (legibly).

### 2007 Thomson South-Western

WHAT IS A COMPETITIVE MARKET? A competitive market has many buyers and sellers trading identical products so that each buyer and seller is a price taker. Buyers and sellers must accept the price determined

### Practice Exam 3: S201 Walker Fall with answers to MC

Practice Exam 3: S201 Walker Fall 2007 - with answers to MC Print Your Name: I. Multiple Choice (3 points each) 1. If marginal utility is falling then A. total utility must be falling. B. marginal utility

### 2014 \$1.75 \$10.00 \$ \$1.50 \$10.50 \$ \$1.65 \$11.00 \$ \$2.00 \$11.50 \$150

Economics 101 Fall Homework #4 Due Tuesday, November 14, Directions: The homework will be collected in a box before the lecture. Please place your name, TA name, and section number on top of the homework

### PICK ONLY ONE BEST ANSWER FOR EACH BINARY CHOICE OR MULTIPLE CHOICE QUESTION.

Econ 101 Summer 2015 Answers to Second Mid-term Date: June 15, 2015 Student Name Version 1 READ THESE INSTRUCTIONS CAREFULLY. DO NOT BEGIN WORKING UNTIL THE PROCTOR TELLS YOU TO DO SO You have 75 minutes

### COST OF PRODUCTION & THEORY OF THE FIRM

MICROECONOMICS: UNIT III COST OF PRODUCTION & THEORY OF THE FIRM One of the concepts mentioned in both Units I and II was and its components, total cost and total revenue. In this unit, costs and revenue

### Principles of Microeconomics Module 5.1. Understanding Profit

Principles of Microeconomics Module 5.1 Understanding Profit 180 Production Choices of Firms All firms have one goal in mind: MAX PROFITS PROFITS = TOTAL REVENUE TOTAL COST Two ways to reach this goal:

### 1. Fill in the missing blanks ( XXXXXXXXXXX means that there is nothing to fill in this spot):

1. Fill in the missing blanks ( XXXXXXXXXXX means that there is nothing to fill in this spot): Quantity Total utility Marginal utility 0 0 XXXXXXXXXXX XXXXXXXXXXX XXXXXXXXXXX 200 0 = 200 1 200 XXXXXXXXXXX

### ECON 2100 Principles of Microeconomics (Summer 2016) Monopoly

ECON 21 Principles of Microeconomics (Summer 216) Monopoly Relevant readings from the textbook: Mankiw, Ch. 15 Monopoly Suggested problems from the textbook: Chapter 15 Questions for Review (Page 323):

### ECON 2100 (Summer 2015 Sections 07 & 08) Exam #3A

ECON 2100 (Summer 2015 Sections 07 & 08) Exam #3A Multiple Choice Questions: (3 points each) 1. I am taking of the exam. A. Version A 2. For a firm with market power Marginal Revenue, while for a firm

### 2. What is Taylor s marginal utility per dollar spent on the 2 nd race? a. 2 b. 3 c. 4 d. 5

ECON 251 Practice questions based on Spring 2013 Exam 2 Taylor has \$100 to spend on playing golf and running in races. The price of a round of golf is \$20 and the price of running a race is \$10. The total

### AP Microeconomics Review Session #3 Key Terms & Concepts

The Firm, Profit, and the Costs of Production 1. Explicit vs. implicit costs 2. Short-run vs. long-run decisions 3. Fixed inputs vs. variable inputs 4. Short-run production measures: be able to calculate/graph

### Microeconomics. More Tutorial at

Microeconomics 1. Suppose a firm in a perfectly competitive market produces and sells 8 units of output and has a marginal revenue of \$8.00. What would be the firm s total revenue if it instead produced

### Syllabus item: 42 Weight: 3

1.5 Theory of the firm and its market structures - Production and costs Syllabus item: 42 Weight: 3 Definition: Total product (TP): The total output that a firm produces, using its fixed and variable factors

### Supply in a Competitive Market

Supply in a Competitive Market 8 Introduction 8 Chapter Outline 8.1 Market Structures and Perfect Competition in the Short Run 8.2 Profit Maximization in a Perfectly Competitive Market 8.3 Perfect Competition

### I enjoy teaching this class. Good luck and have a nice Holiday!!

ECON 202-501 Fall 2008 Xiaoyong Cao Final Exam Form A Instructions: The exam consists of 2 parts. Part I has 35 multiple choice problems. You need to fill the answers in the table given in Part II of the

### Practice Exam 3: S201 Walker Fall 2004

Practice Exam 3: S201 Walker Fall 2004 I. Multiple Choice (3 points each) 1. Which of the following statements about the short-run is false? A. The marginal product of labor may increase or decrease. B.

### Do not open this exam until told to do so. Solution

Do not open this exam until told to do so. Department of Economics College of Social and Applied Human Sciences K. Annen, Fall 003 Final (Version): Intermediate Microeconomics (ECON30) Solution Final (Version

### Monopoly. 3 Microeconomics LESSON 5. Introduction and Description. Time Required. Materials

LESSON 5 Monopoly Introduction and Description Lesson 5 extends the theory of the firm to the model of a Students will see that the profit-maximization rules for the monopoly are the same as they were

### Econ 001: Midterm 2 (Dr. Stein) Answer Key Nov 13, 2007

Instructions: Econ 001: Midterm 2 (Dr. Stein) Answer Key Nov 13, 2007 This is a 60-minute examination. Write all answers in the blue books provided. Show all work. Use diagrams where appropriate and label

### a. Sells a product differentiated from that of its competitors d. produces at the minimum of average total cost in the long run

I. From Seminar Slides: 3, 4, 5, 6. 3. For each of the following characteristics, say whether it describes a perfectly competitive firm (PC), a monopolistically competitive firm (MC), both, or neither.

### VERSION 1. Economics 101 Lec 3 Elizabeth Kelly Fall 2000 Midterm #3 / Version #1 December 4, Student Name: ID Number: Section Number: TA Name:

Economics 101 Lec 3 Elizabeth Kelly Fall 2000 Midterm #3 / Version #1 December 4, 2000 VERSION 1 TF+MC roblem Total Student Name: ID Number: Section Number: TA Name: NOTE: This information and the similar

### Ecn Intermediate Microeconomic Theory University of California - Davis December 10, 2009 Instructor: John Parman. Final Exam

Ecn 100 - Intermediate Microeconomic Theory University of California - Davis December 10, 2009 Instructor: John Parman Final Exam You have until 12:30pm to complete this exam. Be certain to put your name,

### 1 of 14 5/1/2014 4:56 PM

1 of 14 5/1/2014 4:56 PM Any point on the budget constraint Gives the consumer the highest level of utility. Represent a combination of two goods that are affordable. Represents combinations of two goods

### Econ 2113: Principles of Microeconomics. Spring 2009 ECU

Econ 2113: Principles of Microeconomics Spring 2009 ECU Chapter 12 Monopoly Market Power Market power is the ability to influence the market, and in particular the market price, by influencing the total

### Perfect Competition CHAPTER 14. Alfred P. Sloan. There s no resting place for an enterprise in a competitive economy. Perfect Competition 14

CHATER 14 erfect Competition There s no resting place for an enterprise in a competitive economy. Alfred. Sloan McGraw-Hill/Irwin Copyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved.

### CONTENTS. Introduction to the Series. 1 Introduction to Economics 5 2 Competitive Markets, Demand and Supply Elasticities 37

CONTENTS Introduction to the Series iv 1 Introduction to Economics 5 2 Competitive Markets, Demand and Supply 17 3 Elasticities 37 4 Government Intervention in Markets 44 5 Market Failure 53 6 Costs of

### # of Problems Written # of Homeworks Corrected Tom 2 26 Yoshi 3 27 Gary 6 15

Economics 101 Spring 2015 Answers to Homework #2 Due Thursday, February 19, 2015 Directions: The homework will be collected in a box before the lecture. Please place your name on top of the homework (legibly).

### 2000 AP Microeconomics Exam Answers

2000 AP Microeconomics Exam Answers 1. B Scarcity is the main economic problem!!! 2. D If the wages of farm workers and movie theater employee increase, the supply of popcorn and movies will decrease (shift

### Principles of Economics Final Exam. Name: Student ID:

Principles of Economics Final Exam Name: Student ID: 1. In the absence of externalities, the "invisible hand" leads a competitive market to maximize (a) producer profit from that market. (b) total benefit

### Refer to the information provided in Figure 12.1 below to answer the questions that follow. Figure 12.1

1) A monopoly is an industry with A) a single firm in which the entry of new firms is blocked. B) a small number of firms each large enough to impact the market price of its output. C) many firms each

### Chapter Summary and Learning Objectives

CHAPTER 11 Firms in Perfectly Competitive Markets Chapter Summary and Learning Objectives 11.1 Perfectly Competitive Markets (pages 369 371) Explain what a perfectly competitive market is and why a perfect

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Sample Test 3 Ch 10-13 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A cost incurred in the production of a good or service and for which

### ECON 200. Introduction to Microeconomics

ECON 200. Introduction to Microeconomics Homework 5 Part II Name: [Multiple Choice] 1. A firm is a natural monopoly if it exhibits the following as its output increases: (d) a. decreasing marginal revenue

### MIDTERM #2. The following defini;ons may be used throughout the exam:

Page 1 of 12 NAME: EC 131 - Principles of Microeconomics Fall 2012 MIDTERM #2 All ques@ons should be answered in the following pages. Nothing here requires a very long answer. Graphs many ;mes help, as

### Chapter 10: Monopoly

Chapter 10: Monopoly Answers to Study Exercise Question 1 a) horizontal; downward sloping b) marginal revenue; marginal cost; equals; is greater than c) greater than d) less than Question 2 a) Total revenue

### The Four Main Market Structures

Competitive Firms and Markets The Four Main Market Structures Market structure: the number of firms in the market, the ease with which firms can enter and leave the market, and the ability of firms to

### NAME: INTERMEDIATE MICROECONOMIC THEORY FALL 2006 ECONOMICS 300/012 Final Exam December 8, 2006

NAME: INTERMEDIATE MICROECONOMIC THEORY FALL 2006 ECONOMICS 300/012 Section I: Multiple Choice (4 points each) Identify the choice that best completes the statement or answers the question. 1. The slope

### Comm295 Midterm Review Package. October, Content:

Managerial Economics Comm295 Midterm Review Package October, 20 2014 Supply and Demand Elasticity Regression Analysis Consumer Choice Production Cost Concepts Profit Maximization Perfect Competition Monopoly

### Section I (20 questions; 1 mark each)

Foundation Course in Managerial Economics- Solution Set- 1 Final Examination Marks- 100 Section I (20 questions; 1 mark each) 1. Which of the following statements is not true? a. Societies face an important

### ECON 251 Practice Exam 2 Questions from Fall 2013 Exams

ECON 251 Practice Exam 2 Questions from Exams Gordon spends all his income on spatulas and mixing bowls. Spatulas cost \$4 and mixing bowls cost \$12. Gordon has \$60 of income and considers both spatulas

### INTERMEDIATE MICROECONOMICS LECTURE 13 - MONOPOLISTIC COMPETITION AND OLIGOPOLY. Monopolistic Competition

13-1 INTERMEDIATE MICROECONOMICS LECTURE 13 - MONOPOLISTIC COMPETITION AND OLIGOPOLY Monopolistic Competition Pure monopoly and perfect competition are rare in the real world. Most real-world industries

### Economics 101 Summer 2016 Second Midterm June 13, 2016

Economics 101 Summer 2016 Second Midterm June 13, 2016 Name This exam consists of three parts: I) ten binary choice questions each worth 2 points for a total of 20 points; II) twenty multiple choice questions

### 2) All combinations of capital and labor along a given isoquant cost the same amount.

Micro Problem Set III WCC Fall 2014 A=True / B=False 15 Points 1) If MC is greater than AVC, AVC must be rising. 2) All combinations of capital and labor along a given isoquant cost the same amount. 3)

### Econ 001: Midterm 2 (Dr. Stein) Answer Key March 23, 2011

Instructions: Econ 001: Midterm 2 (Dr. Stein) Answer Key March 23, 2011 This is a 60-minute examination. Write all answers in the blue books provided. Show all work. Use diagrams where appropriate and

### Total revenue Quantity. Price Quantity Quantity

s in Competitive Markets WHAT IS A COMPETITIVE MARKET? A perfectly competitive market has the following characteristics: There are many buyers and sellers in the market. The goods offered by the various

### 1. You are given the following joint PPF for 3 individuals: Sarah, John, and Michael.

Economics 102 Fall 2017 Answers to Homework #2 Due 10/10/17 Directions: The homework will be collected in a box before the lecture. Please place your name, TA name and section number on top of the homework

### Gregory Clark Econ 1A, Fall 2000 FINAL VERSION #1. A total of 100 points are possible. Last Name: First Name:

Gregory Clark Econ 1A, Fall 2000 FINAL VERSION #1 A total of 100 points are possible. Last Name: First Name: Your Student ID Number: - - Part A: Multiple Choice Questions (20 questions, each of which is

### WHAT IS A COMPETITIVE MARKET?

Chapter 14. Firms in Competitive Markets WHAT IS A COMPETITIVE MARKET? A perfectly competitive market has the following characteristics: There are many buyers and sellers in the market. small relative

### A monopoly market structure is one characterized by a single seller of a unique product with no close substitutes.

These notes provided by Laura Lamb are intended to complement class lectures. The notes are based on chapter 12 of Microeconomics and Behaviour 2 nd Canadian Edition by Frank and Parker (2004). Chapter

### Lecture 22. Oligopoly & Monopolistic Competition

Lecture 22. Oligopoly & Monopolistic Competition Course Evaluations on Thursday: Be sure to bring laptop, smartphone, or tablet with browser, so that you can complete your evaluation in class. Oligopoly

What Is Perfect Competition? Perfect competition is an industry in which Many firms sell identical products to many buyers. There are no restrictions to entry into the industry. Established firms have

### ECMC02H Intermediate Microeconomics - Topics in Price Theory

1 ECMC02H Intermediate Microeconomics - Topics in Price Theory Answers to the Term Test June 23, 2010 Version A of the test Your name (Print clearly and underline your last name) Your student number 1.

### What is a Competitive Market?

Firms in Competitive Markets Competitive market (1) Market with many buyers and sellers (e.g., ) (2) Trading identical products (e.g., ) (3) Each buyer and seller is a price taker (no price influence)

### Eco 300 Intermediate Micro

Eco 300 Intermediate Micro Instructor: Amalia Jerison Office Hours: T 12:00-1:00, Th 12:00-1:00, and by appointment BA 127A, aj4575@albany.edu A. Jerison (BA 127A) Eco 300 Spring 2010 1 / 61 Monopoly Market

### Introduction. Learning Objectives. Chapter 24. Perfect Competition

Chapter 24 Perfect Competition Introduction Estimates indicate that since 2003, the total amount of stored digital data on planet Earth has increased from 5 exabytes to more than 200 exabytes. Accompanying

### AGENDA Mon 10/12. Economics in Action Review QOD #21: Competitive Farming HW Review Pure Competition MR = MC HW: Read pp Q #7

AGENDA Mon 10/12 Economics in Action Review QOD #21: Competitive Farming HW Review Pure Competition MR = MC HW: Read pp 173-176 Q #7 QOD #21: Competitive Farming A purely competitive wheat farmer can sell

### Short-Run Costs and Output Decisions

Semester-I Course: 01 (Introductory Microeconomics) Unit IV - The Firm and Perfect Market Structure Lesson: Short-Run Costs and Output Decisions Lesson Developer: Jasmin Jawaharlal Nehru University Institute

### ECON 311 MICROECONOMICS THEORY I

ECON 311 MICROECONOMICS THEORY I Profit Maximisation & Perfect Competition (Short-Run) Dr. F. Kwame Agyire-Tettey Department of Economics Contact Information: fagyire-tettey@ug.edu.gh Session Overview

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which of the following statements is correct? A) Consumers have the ability to buy everything

### UNIVERSITY OF VICTORIA EXAMINATIONS APRIL 2006 ECON 103

UNIVERSITY OF VICTORIA EXAMINATIONS APRIL 2006 ECON 103 NAME: INSTRUCTOR: STUDENT NO: SECTION: DURATION: TWO (2) HOURS TO BE ANSWERED ON THE PAPER AND ON N.C.S. ANSWER SHEETS STUDENTS MUST COUNT THE NUMBER

### JANUARY EXAMINATIONS 2008

No. of Pages: (A) 9 No. of Questions: 38 EC1000A micro 2008 JANUARY EXAMINATIONS 2008 Subject Title of Paper ECONOMICS EC1000 MICROECONOMICS Time Allowed Two Hours (2 Hours) Instructions to candidates

### AP Microeconomics Review With Answers

AP Microeconomics Review With Answers 1. Firm in Perfect Competition (Long-Run Equilibrium) 2. Monopoly Industry with comparison of price & output of a Perfectly Competitive Industry (which means show

### Firms in Competitive Markets

14 Firms in Competitive Markets PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University 1 What is a Competitive Market? Competitive market Perfectly competitive market Market with

### Case: An Increase in the Demand for the Product

1 Appendix to Chapter 22 Connecting Product Markets and Labor Markets It should be obvious that what happens in the product market affects what happens in the labor market. The connection is that the seller

### Practice Final Exam. Write an expression for each of the following cost concepts. [each 5 points]

Practice Final Exam Total : 200 points Exam time: 7:00 9:00. You have 6 questions in 3 pages. Please make your diagrams clear and label it. Good Luck! 1. Amy is currently spending her income to maximize

### Part I: Math Review Remember to show all of your work. Also remember that calculators are not permitted on exams, so you should try these by hand.

Economics 101 Fall 2013 Answers to Homework #1 Due Tuesday, September 17, 2013 Directions: The homework will be collected in a box before the lecture. Please place your name, TA name and section number

### MICROECONOMICS CHAPTER 10A/23 PERFECT COMPETITION. Professor Charles Fusi

MICROECONOMICS CHAPTER 10A/23 PERFECT COMPETITION Professor Charles Fusi Learning Objectives Identify the characteristics of a perfectly competitive market structure Discuss the process by which a perfectly

### REDEEMER S UNIVERSITY

REDEEMER S UNIVERSITY Km 46/48 Lagos Ibadan Expressway, Redemption City, Ogun State COLLEGE OF MANAGEMENT SCIENCE DEPARTMENT OF ECONOMICS AND BUSINESS STUDIES COURSE CODE /TITLE ECO 202/Microeconomics

### 8 Perfect Competition

8 Perfect Competition CHAPTER 8 PERFECT COMPETITION 167 Figure 8.1 Depending upon the competition and prices offered, a wheat farmer may choose to grow a different crop. (Credit: modification of work by

### Monopoly. Cost. Average total cost. Quantity of Output

While a competitive firm is a price taker, a monopoly firm is a price maker. A firm is considered a monopoly if... it is the sole seller of its product. its product does not have close substitutes. The

### Economics 101 Midterm Exam #2. April 9, Instructions

Economics 101 Spring 2009 Professor Wallace Economics 101 Midterm Exam #2 April 9, 2009 Instructions Do not open the exam until you are instructed to begin. You will need a #2 lead pencil. If you do not

Commerce 295 Midterm Answers October 27, 2010 PART I MULTIPLE CHOICE QUESTIONS Each question has one correct response. Please circle the letter in front of the correct response for each question. There

### ECON 251 Exam 2 Pink. Fall 2012

ECON 251 Exam 2 Pink Use the table below to answer the following four questions The table below shows Harry s total utility from consuming beer and wine. The price of beer is \$2 per bottle. The price of

### Chapter 7 Consumer/Producers and Market Efficiency

Midterm #2 Exam Study uestions: (A subset of these questions/concepts will be on the exam) Chapter 5 - Elasticity Define rice elasticity of demand. What does it mean to say demand is highly elastic? What

### Oligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry s output.

Topic 8 Chapter 13 Oligopoly and Monopolistic Competition Econ 203 Topic 8 page 1 Oligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry

### Perfect Competition and The Supply Curve

chapter: 13 >> Perfect Competition and The Supply Curve The following materials are taken from Chap. 13, Economics, 2 nd ed., Krugman and Wells(2009), Worth Palgrave MaCmillan. 2009 Worth Publishers 1

### Perfectly Competitive Supply. Chapter 6. Learning Objectives

Perfectly Competitive Supply Chapter 6 McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Learning Objectives 1.Explain how opportunity cost is related to the supply

### not to be republished NCERT Chapter 6 Non-competitive Markets 6.1 SIMPLE MONOPOLY IN THE COMMODITY MARKET

Chapter 6 We recall that perfect competition was theorised as a market structure where both consumers and firms were price takers. The behaviour of the firm in such circumstances was described in the Chapter

### Microeonomics. Firms in Competitive Markets. In this chapter, look for the answers to these questions: Introduction: A Scenario. N.

C H A T E R 14 Firms in Competitive Markets R I N C I L E S O F Microeonomics N. Gregory Mankiw remium oweroint Slides by Ron Cronovich 2009 South-Western, a part of Cengage Learning, all rights reserved

### 6) The mailing must be postmarked by June 15. 7) If you have any questions please me at

Examination Instructions: 1) Answer the examination only after you have read the honesty pledge below. 2) The multiple choice section will be taken in WebCT and a tutorial for using WebCT is to be found

### FINALTERM EXAMINATION FALL 2006

FINALTERM EXAMINATION FALL 2006 QUESTION NO: 1 (MARKS: 1) - PLEASE CHOOSE ONE Compared to the equilibrium price and quantity sold in a competitive market, a monopolist Will charge a price and sell a quantity.

### ECO201: PRINCIPLES OF MICROECONOMICS SECOND MIDTERM EXAMINATION

Name Seat Assignment ECO201: PRINCIPLES OF MICROECONOMICS SECOND MIDTERM EXAMINATION November 17, 2009 FORM 3. Directions 1. FILL IN YOUR SCANTRON WITH YOUR UNIQUE ID AND THE FORM NUMBER LISTED ON THIS

### Econ 300: Intermediate Microeconomics, Spring 2014 Final Exam Study Guide 1

Econ 300: Intermediate Microeconomics, Spring 2014 Final Exam Study Guide 1 Chronological order of topics covered in class (to the best of my memory). Introduction to Microeconomics (Chapter 1) What is

### Chapter 13. Microeconomics. Monopolistic Competition: The Competitive Model in a More Realistic Setting

Microeconomics Modified by: Yun Wang Florida International University Spring, 2018 1 Chapter 13 Monopolistic Competition: The Competitive Model in a More Realistic Setting Chapter Outline 13.1 Demand and

### Lecture on Competition 22 January 2003

Lecture on Competition 22 January 2003 Q: How common is Perfect Competition? A: It s not. It s RARE. I. Characteristics of PERFECT COMPETITION: Price Taker, Homogeneous Good, Perfect Info., No Transactions

### CHAPTER NINE MONOPOLY

CHAPTER NINE MONOPOLY This chapter examines how a market controlled by a single producer behaves. What price will a monopolist charge for his output? How much will he produce? The basic characteristics

### Chapter 11 Technology, Production, and Costs

Economics 6 th edition 1 Chapter 11 Technology, Production, and Costs Modified by Yulin Hou For Principles of Microeconomics Florida International University Fall 2017 Technology: An Economic Definition

### CHAPTER 8 Competitive Firms and Markets

CHAPTER 8 Competitive Firms and Markets CHAPTER OUTLINE 8.1 Competition Price Taking Why the Firm s Demand Curve Is Horizontal Why We Study Competition 8.2 Profit Maximization Profit Two Steps to Maximizing