Graphing Perfect Competition The following firms or industries are all operating in a perfectly competitive market. (A) Illustrate each situation on the graph provided. (B) Label all curves in your answers. (C) Explain the reasoning for your graphs in each situation. 1. A firm experiencing economic profit in the short run. Figure 31.1 Short-Run Economic Profit Industry PRICE QUANTITY Firm PRICE MC P = MR QUANTITY Explanation:
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On each graph label the vertical axis "PRICE" and the horizontal axis "QUANTITY." Show more…
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A) Show the consumer surplus and producer surplus in Graph 3. B) Is the consumer surplus higher or lower than the level that would have existed under perfect competition? Briefly explain why. C) Is the producer surplus higher or lower than the level that would have existed under perfect competition? Briefly explain why. D) Why is a monopolistic market considered inefficient? E) Show the area of the graph that represents the inefficiency. What is this area called? F) Are monopolies always bad for society? Explain how monopolies can benefit society. Graph 3 20 16 Marginal cost 12 Price (P) 8 ATC 4 MR Demand=WTP 20 100 200 Quantity (Q)
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Perfectly Competitive Market Scenario 1 perfectly competitive markets, buyers and sellers must accept the price that the market determines. The market price and output are determined by the intersection of the market supply and demand curves. Consequently, no buyer or seller can influence the market price and they take the market price. They are known as: a) b) Use the graph to the right to illustrate what the Demand Curve would look like at P* for a firm in a competitive market that cannot influence the price. 100 400 QUANTITY
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