Draw a graph of the cost curves for a monopolistic ally competitive firm that clearly illustrates the excess capacity that arises in the long run. Explain why this excess capacity arises
What will be an ideal response?
Neither vocative nor productive efficiency is realized in long-run equilibrium in monopolistic competition. Locative efficiency is not realized because price is greater than marginal cost, suggesting that the benefits to society of additional units of output are greater than the costs of additional units. Also, productive efficiency is not achieved because output is not produced at the minimum of average total cost for the firm. By restricting output, firms create excess capacity. Consumers pay a higher price for the product and do not receive all the output they desire at the least possible cost.
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Winnie's Car Wash is a perfectly competitive firm. The table above shows Winnie's total product schedule. If the price of a car wash is $5 and the wage rate is $62.50 per day, how many workers should Winnie employ to maximize his profit?
A) 2 B) 3 C) 4 D) 5
All of the following conditions, except one, are satisfied when a perfectly competitive market is in short-run equilibrium. Which is the exception?
a. No firm is suffering an economic loss. b. Each buyer purchases the quantity he wants at the market price. c. Each seller produces the quantity she wants at the market price. d. Suppliers want to sell the same quantity that buyers want to purchase. e. The market coordinates the independent decisions of all the participants.