Perfect Competition and Inelastic Demand Discussion

Perfect Competition and Inelastic Demand Discussion

 
Question Description



I’m studying and need help with a Economics question to help me learn.



This Discussion Board is graded based upon your ability to relate Chapters # 10 and # 11: "Competitive Markets" to the topic(s) under discussion: "4. Perfect Competition and Inelastic Demand: Can the farmer make profit?"and/or "5. Economic Efficiency: What's Price Control?" the level to which you support your point with specific examples and your writing.




Discussion Board # 6 requires that you make two postings to this forum. Click on the website http://www.learner.org/resources/series79.html and watch the video(s): "4. Perfect Competition and Inelastic Demand: Can the farmer make profit?"and/or "5. Economic Efficiency: What's Price Control?" The first video presents the inside story of American farming's crises from the 1920s to the present. The second video discusses rent control in New York City and explains the effect of wage and price controls in a free market economy.

Express your view in a post of at least 100 words and at most 200 words. Then read the postings of other students and select one to respond to (at least 50 words and at most 100 words).



Assignment # 6 - Chapters 10 & 11



(Show all your work!!! * 50 points)




Multiple-Choice Questions (8 points)






     1.   If P = $8 and MC = $5 + 2Q, the competitive firm's profit-maximizing level of output is:







a.
1.5


b.
0.2


c.
8


d.
15









     2.   If a firm faces the demand curve P = 60 – Q and the price is $30, the consumer surplus is:







a.
200


b.
300


c.
450


d.
650









     3.   If the demand curve is P = 60 – Q and the supply curve is Q = P, the market equilibrium output is:







a.
45


b.
30


c.
60


d.
15









     4.   If the demand curve is P = 60 – Q and the supply curve is Q = P, the total revenue of the firm at equilibrium is:







a.
300


b.
500


c.
750


d.
900









B. Qualitative Analysis



Please complete the following questions from Hirschey textbook.



1. Competitive Markets Concepts: (P10.1; pages 403-404; a; b; c; and d; 4 points)  



2. Social Welfare Concepts: (P11.1; page 445; a; b; c; and d; 4 points)  



3. Case Study Analysis: “The Most Profitable S&P 500 Companies”



3.1. Describe the advantages and disadvantages of ROE as a measure of corporate profitability. Which company has the lowest ROE? (4 points)



3.2. Define the profit margin, total asset turnover, and financial leverage factors that contribute to ROE. Which company has the highest total asset turnover? (4 points)



3.3. How do you compute the price-earning ratio? Which company has the highest price-earnings ratio? (4 points)



C. Quantitative Analysis



1. Problem: “Short-Run Market Supply” (10 points)



New England Textiles, Inc., is a medium-sized manufacturer of blue denim that sells in a



 perfectly competitive market.  Given $25,000 in fixed costs, the total cost function for



 this product is described by:



TC = $25,000 + $1Q + $0.000008Q2



MC =  ΔTC/ΔQ = $1 + $0.000016Q



where Q is square yards of blue denim produced per month. Assume that MC > AVC at every point along the firm’s marginal cost curve, and that total costs include a normal profit.



a). Derive the firm's supply curve, expressing quantity as a function of price.



b). Graph the firm's supply curve, expressing price as a function of quantity.



c).Derive the market supply curve if New England Textiles is one of 200 competitors.



d).Calculate market supply per month at a market price of $4 per square yard.



2. Problem: “Deadweight Loss of Taxation” (12 points)



To many upscale homeowners, no other flooring offers the warmth, beauty, and value of wood. New technology in stains and finishes call for regular cleaning that takes little more than sweeping and/or vacuuming, with occasional use of a professional wood floor cleaning product.  Wood floors are also ecologically friendly because wood is both renewable and recyclable.  Buyers looking for traditional oak, rustic pine, trendy mahogany, or bamboo can choose from a wide assortment.



At the wholesale level, wood flooring is a commodity-like product sold with rigid product specifications.  Price competition is ferocious among hundreds of domestic manufacturers and importers.  Assume that market supply and demand conditions for mahogany wood flooring are:



                                QS     =  -10 + 2P                             (Market Supply)



                               QD     =  320 - 4P                             (Market Demand)



where Q is output in square yards of floor covering (000), and P is the market price per square yard.



a).Graph and calculate the equilibrium price/output solution before and after imposition of a $15 per unit tax.



b).Calculate the deadweight loss to taxation caused by imposition of the $15 per unit tax.  How much of this deadweight loss was suffered by consumers versus producers?  Explain.



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