Perfectly Competitive Markets (4 problems)

Answer the following questions with. respect to a firm's operation:

a) Why is maximizing profits the primary objective of a firm? What would happen to a firm that did not pursue this goal?

b) Define opportunity cost and how does it differ from accounting cost?

c) Name 3 constraints that firms face in perfect competition and discuss their impact on the firm's profit.

Rosy's Chicken Wings is a price taker. The costs are:

a) What is Rosy's profit-maximizing output?

b) How much economic profit does Rosy make if the market price per dozen chicken wings is (i)$28 (ii) S21

c) At what price would the chicken wings outlet shut down?

d) At what price would the outlet exit the industry?

Suppose three firms face the same total market demand for their product. This demand is:

Suppose further that all three firms are selling their product for $60 and each has about one-third of the total market. One of the firms, in an attempt to gain market share at the expense of the others, drops its price to $50. The other two quickly follow suit.

a. What impact would this move have on the profits of all three firms? Explain your reasoning.

b. Would these firms have been better off in terms of profit if they all had raised the price to $70? Explain.

A perfectly competitive firm has total revenue and total cost curves given by:

TC = 5,000 + 2Q + 0.2 Q²

a. Find the profit-maximizing output for this firm.

b. What profit does the firm make?