Perfect Competition (2001 # 1)



This video lesson is from the 2001 AP Microeconomics Exam. This video is designed for students to practice the question to enhance their content knowledge on perfect competition, and as a resource for teachers to use in their classroom. There is no audio in this video lesson, just a continuous video of the questions and answers. The overall objective is for students to pause the video, answer the questions, and play the video to see if they get the questions correct. This is where teachers can explain why the answer is correct to their students if needed. I hope you find this video lesson helpful. This long question tested the students understanding of the competitive market and the behavior of the representative firm. In part (a), students should respond that the firm has a perfectly elastic (or horizontal) marginal revenue curve that is equal to the market price. The firm produces the output level where marginal revenue (and price) equals marginal cost. The economic profit of the firm is the area bounded by the quantity produced multiplied by the difference between price and average total cost (P-ATC) at that output level. With economic profits, new firms will enter the industry. The market supply will shift outward with the entry of firms, and market price will fall. The process continues until a long-run equilibrium is established. At this equilibrium, the market price is equal to the minimum of the long-run average cost of the typical firm. Each firm produces where MR=MC, which is the level of output that corresponds to the minimum of the long-run average cost. The firm makes zero economic profits. A price control below the long-run equilibrium price but above the firm’s average variable cost will result in short-run production. Since the price has fallen, the firm’s marginal revenue falls. The firm’s output level, where MR=MC, will also decrease. Because the firm is producing less output, total cost falls. Since both the firm’s price and quantity have fallen, total revenue falls.

Published by: Chris Thomas
Published at: ۲ years ago
Category: آموزشی