a) The following table shows the short-run cost data of a perfectly competitive firm. Assume that output can only be increased in batches of 100 units. Using the data appropriately, answer the questions below

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a) The following table shows the short-run cost data of a perfectly competitive firm. Assume that output can only be increased in batches of 100 units. Using the data appropriately, answer the questions below:      (8 marks)

                                Total Cost                             Variable Cost  

Quantity

                                 (dollars)                                  (dollars)

0 $1000 $0
100 1360 360
200 1560 560
300 1960 960
400 2760 1760
500 4000 3000
600 5800 4800

  1. Explain in general terms how a firm would choose the quantity of output to maximise profit in a competitive market. (1 mark)
  2. What is the firm's fixed cost? (1 mark)
  3. Suppose that market price is $8.00. What is the profit maximising level of output? (2 marks)
  4. Suppose that market price is $8.00. What is the firm's profit? (2 marks)
  5. Suppose the fixed cost of production rises by $500 and the price per unit is still $8.00 How will the firm change its level of output (if at all)? (2 marks)

b) Of the following industries, which are perfectly competitive? For those that are not perfectly competitive, explain why. (4 Marks)

  • Restaurants
  • Corn
  • University education
  • Local radio and television

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