Tiny Company is facing perfect competition and is producing pins and needles in the market. The market price of a packet of needles is $2.00. Tiny Company finds itself producing 1,000 packets of needles per day and the marginal cost of a packet is $1.00. The average total cost of production at this output level is $1.50 per packet.
Answer the following questions with marginal analysis and profit-maximization decision rule. Provide mathematical work to explain your answer whenever possible.
(1 point) How much is the marginal revenue of selling a packet of needles?
(2 points) At the current quantity of 1,000 needles, is the company maximizing the profit? If not, what should the company do? Apply marginal analysis to answer this question.
(2 points) How much is the farmer's economic profit (or economic loss) at this quantity?
(2 points) Based on the above answers, is the market operating in the short-run or in the long run? Explain why?
(1 point) Can you give another example of perfect competition market that could meet the characteristics of perfect competition?