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# A firm in a perfectly competitive industry

A firm in a perfectly competitive industry.

1) Consider a firm in a perfectly competitive industry using data in this spreadsheet . The firm has just built a plant that cost \$1,500. Each unit of output requires \$5 worth of materials. Each worker costs \$3 per hour.
Graph your results using Excel and insert the graph into this document.

2) Using your results from your spreadsheet, if the market price is \$12.50, how many units of output will the firm produce?

3) At that price, what is your firm’s profit or loss? (Profit should be a positive number, loss a negative number.)

4) Will the firm continue to produce in the short run? Carefully explain your answer.

5) Pitt Pit sells in two geographically divided markets, the East and the West. Marginal cost is constant at \$50 in both markets. Demand and marginal revenue in each market are as follows:

QEast = 900 – 2*PEast
MREast = 450 – QEast
QWest = 700 – PWest
MRWest = 700 – 2*QWest
Find the profit-maximizing price and quantity in each market (show the work)

6) What is the economic profit in each market?

7) In which market is demand more elastic? Explain your reasoning.

8) Graph your results. (Either by Excel or by hand.) Upload an image (photograph of a hand drawn graph is okay) of your work.

9) In the textbook, The Applied Theory of Price, D. N. McCloskey refers to the equation MR = MC as the rule of rational life. What types of firms follow this rule? (Pick which one of the following four choices that you think best answers this question.)

a) Only competitive firms follow this rule.

b) Only monopolies follow this rule.

c) All types of firms follow this rule.

d) The decision of whether to follow this rule depends on the shape of a firm’s cost curves.

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A firm in a perfectly competitive industry

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