Solution of Chapter 4. The Theory of the Firm under Perfect Competition (Introductory Microeconomics Book)

What are the characteristics of a perfectly competitive market?

How are the total revenue of a firm, market price, and the quantity sold by the firm related to each other?

What is the ‘price line’?

Why is the total revenue curve of a price-taking firm an upward-sloping straight line? Why does the curve pass through the origin?

What is the relation between market price and average revenue of a price taking firm?

What is the relation between market price and marginal revenue of a price taking firm?

What conditions must hold if a profit-maximising firm produces positive output in a competitive market?

Can there be a positive level of output that a profit-maximising firm produces in a competitive market at which market price is not equal to marginal cost? Give an explanation.

Will a profit-maximising firm in a competitive market ever produce a positive level of output in the range where the marginal cost is falling? Give an explanation.

Will a profit-maximising firm in a competitive market produce a positive level of output in the short run if the market price is less than the minimum of AVC? Give an explanation.

Will a profit-maximising firm in a competitive market produce a positive level of output in the long run if the market price is less than the minimum of AC? Give an explanation.

What is the supply curve of a firm in the short run?

What is the supply curve of a firm in the long run?

How does technological progress affect the supply curve of a firm?

How does the imposition of a unit tax affect the supply curve of a firm?

How does an increase in the price of an input affect the supply curve of a firm?

How does an increase in the number of firms in a market affect the market supply curve?

What does the price elasticity of supply mean? How do we measure it?

Compute the total revenue, marginal revenue and average revenue schedules in the following table. Market price of each unit of the good is Rs 10.

The following table shows the total revenue and total cost schedules of a competitive firm. Calculate the profit at each output level. Determine also the market price of the good.

The following table shows the total cost schedule of a competitive firm. It is given that the price of the good is Rs 10. Calculate the profit at each output level. Find the profit maximising level of output.

Consider a market with two firms. The following table shows the supply schedules of the two firms: the SS1 column gives the supply schedule of firm 1 and the SS2 column gives the supply schedule of firm 2. Compute the market supply schedule.

Consider a market with two firms. In the following table, columns labelled as SS1 and SS2 give the supply schedules of firm 1 and firm 2 respectively. Compute the market supply schedule.

There are three identical firms in a market. The following table shows the supply schedule of firm 1. Compute the market supply schedule.

A firm earns a revenue of Rs 50 when the market price of a good is Rs 10. The market price increases to Rs 15 and the firm now earns a revenue of Rs 150. What is the price elasticity of the firm’s supply curve?

The market price of good changes from Rs 5 to Rs 20. As a result, the quantity supplied by a firm increases by 15 units. The price elasticity of the firm’s supply curve is 0.5. Find the initial and final output levels of the firm.

At the market price of Rs 10, a firm supplies 4 units of output. The market price increases to Rs 30. The price elasticity of the firm’s supply is 1.25. What quantity will the firm supply at the new price?