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Chapter 9 or 22 Perfect Competition: Pre - Class & In - Class Activities Packet Name/I.D. Number: Section: Date: Part 4. Economic Equations and Graphs 1. Given the following information, state whether the perfectly competitive firm should shut down or continue to operate in the short run. a. Q = 100; P = $10; AFC = $3; AVC = $4: b. Q= 70; P = $5; AFC = $2; AVC = $7: c. Q = 150; P = $7; AFC = $5; AVC = $6: 2. If total revenue increases at a constant rate, what does this condition imply about marginal revenue? 3. Complete the table on the right from letters A - O, what quantity of output should the firm produce to Q TR TC Profit MR=P MC maximize profit or minimize losses? (Hint: use the Rules of Profit Maximization or Loss Minimization) (TR-TC) (ATR/AQ) (ATC/AQ) Explain your answer. 0 SO $0 SO - 0 = $0 MR = P = $100 4. Is the firm in Question 3 a perfectly competitive firm? Explain your answer. 100 50 $100-50=$50 $100-0/1-0=$100 $50-0/1-0=$50 2 200 1 10 A F K 3 300 180 B G L 5. Explain how a market supply curve is derived. 4 400 260 C H M 5 500 360 D Z 600 480 E 0 6. Draw the following in the space provided below: (a) A perfectly competitive firm that earns profits. (b) A perfectly competitive firm that incurs losses (c) A perfectly competitive firm that incurs losses but that will continue operating in the short run. & that will shut down in the short run