Business economics Custom Essay

tut. questions —Business economics

1. First, draw a diagram of a perfectly competitive firm earning a positive economic profit.
Label the equilibrium price and output with a subscript ‘o’. Label any curves with the
subscript ‘o’. Shade in the profit rectangle. Then, assume the wages, which the firm pays to
its workers, falls. Assume that all other firms in the industry will be affected similarly.
Illustrate the impact of such an event on the price, output and profits of a firm. If the price
and output levels change, label the new levels with a subscript ‘1’. Label any new curves
with the subscript ‘1’.
2. First, draw a diagram of a perfectly competitive firm earning normal economic profit.
Label the equilibrium price and output with a subscript ‘o’. Label any curves with the
subscript ‘o’. Then, assume the fixed costs fall. Illustrate the impact of such an event on
the price, output and profits of the firm. If the price and output levels change, label the
new levels with a subscript 1. Label any new curves with the subscript 1. Shade in the
profit or loss rectangle if one occurs.
3. Examine the following statement to see whether it is true or false. If it is true, explain why
it is true. If it is false, explain why it is false and then write the statement correctly.
“A profit maximising perfectly competitive firm should select the output level at which the
difference between the marginal revenue and marginal cost is greatest. This is equivalent to
selecting the output where the spread between total revenue and total cost is greatest”.
4. Explain why the marginal revenue of a monopolist is below her demand curve. Please also
indicate on the diagram below where the price elasticity of demand is elastic, unitary
elastic and inelastic. Briefly explain why this is the case.
(the diagram as a attachment)