Summarize the characteristics of a perfectly competitive market.
97) What assumptions in the perfect competition model ensure that economic profit is zero in the long run? Explain.
98) Explain why a firm maximizes its profits by producing the level of output at which marginal revenue equals marginal costs.
99) Explain why a firm should continue to operate in the short run so long as market price is greater the the firm's average variable cost at the profit-maximizing level of output.
100) Assume the market for a good produced by perfectly competitive firms is currently in equilibrium (economic profit = 0). Now assume there is a decrease in market demand for the good. Analyze the short-run effects of the decrease in demand on equilibrium market price and output. What has happened to the profits of each of the firms in the industry? Over time, what will happen to the number of firms in the industry? Why?
101) Assume a perfectly competitive firm is currently producing 5,000 units of output and is earning $15,000 in total revenue. The marginal cost of the 5,000th unit of output is $3. The corresponding average total cost is $3.50 and total fixed costs equal $1250. Based on this information, should this firm continue to operate in the short run? Why or why not?
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