8.1 Briefly
state the basic characteristics of pure competition, pure monopoly,
monopolistic competition, and oligopoly. Under which of these market
classifications does each of the following most accurately fit? (a) a
supermarket in your hometown; (b) the steel industry; (c) a Kansas wheat
farm; (d) the commercial bank in which you or your family has an
account; (e) the automobile industry. In each case, justify your
classification.
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8.2 Strictly speaking, pure competition is relatively rare. Then why study it?
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8.3
Use the following demand schedule to determine total revenue and
marginal revenue for each possible level of sales:...a. What can you
conclude about the structure of the industry in which this firm is
operating? Explain.
b. Graph the demand, total-revenue, and marginal-revenue curves for this firm.
c. Why do the demand and marginal-revenue curves coincide?
d.
“Marginal revenue is the change in total revenue associated with
additional units of output.” Explain verbally and graphically, using the
data in the table.
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8.4 “Even
if a firm is losing money, it may be better to stay in business in the
short run.” Is this statement ever true? Under what condition (s)?
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8.5 Consider
a firm that has no fixed costs and which is currently losing money. Are
there any situations in which it would want to stay open for business
in the short run? If a firm has no fixed costs, is it sensible to speak
of the firm distinguishing between the short run and the long run?
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8.6 Why
is the equality of marginal revenue and marginal cost essential for
profit maximization in all market structures? Explain why price can be
substituted for marginal revenue in the MR = MC rule when an industry is
purely competitive.
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8.7 “That
segment of a competitive firm’s marginal-cose curve that lies above its
average-variable-cost curve constitutes the short-run supply curve for
the firm.” Explain using a graph and words.
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8.8 LAST WORD
If a firm’s current revenues are less than its current variable costs,
when should it shut down? If the firm decides to shut down, should we
expect that decision to be final? Explain using an example that is not
in the book.
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