Essay Econ: Economics and Supply Curve

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1. (Demand Under Perfect Competition) what type of demand curve does a perfectly competitive firm face? Why?

A horizontal or a perfectly elastic, demand curve. A perfectly competitive firm is called a price taker because that firm must “take,” or accept, the market price- as in “take it or leave it.”

2. Explain the different options a firm has to minimize losses in the short run.

A firm in perfect competition has no control over the market place. Sometimes that price may be so low that a firm loses money no matter how much it produces. Such a firm can either continue to produce at a loss or temporarily shut down.

3. (The Short-Run Firm Supply Curve) Each of the following situations could exist for a firm in the short …show more content…
The reason is that oil companies are an oligarchy, a few in the market. They are almost a monopoly. They set the price across the board. No one company can dominates the market each simply follows the establish price. There are no barriers into entry other than having the capital to get in. Also, they do not collude to establish any uniform price levels they simply set the price in what they individually believe the price should be.

8. (The Short-Run Firm Supply Curve) An individual competitive firm’s short-run supply curve is the portion of its marginal cost curve that equals or rises above the average variable cost. Explain why.

A perfectly competitive firm's supply curve is that portion of its marginal cost curve that lies above the minimum of the average variable cost curve. A perfectly competitive firm maximizes profit by producing the quantity of output that equates price and marginal cost. As such, the firm moves along its positively-sloped marginal cost curve in response to changing prices.

9. What are the major characteristics of perfectly competitive market?

A perfectly competitive market is characterized by (1) many buyers and sellers, so many that each buys or sells only a tiny fraction of the total amount in the market; (2) firms sell a commodity, which is a standardized product, such as a bushel of wheat, an ounce of gold, or a share of Google stock. (3) buyers
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