What Does It Mean To Say That A Perfectly Competitive Firm Is A Price Taker: Economics Homework, UCC, Ireland

Question One

1. What does it mean to say that a perfectly competitive firm is a price taker? Can’t a firm set any price it chooses?

2. Why would a firm choose to remain in an industry in which it makes an economic profit of zero?

3. You manage a loss-making firm. You wish to determine whether to shut down operations. Your firm uses 70 workers to produce 300 units of output per day. The daily wage (per worker) is €100, and the per-unit price of the firm’s output is €30. The cost of other variable inputs is €500 per day. While you don’t know the firm’s fixed cost, you know that it is high enough that the firm’s total costs exceed its total revenue. You know that the marginal cost of the last unit is $30. Should the firm continue to operate at a loss? Carefully explain your answer.

Question Two

The exchange rate is the price of one country’s currency in terms of another country’s currency. Companies can protect themselves from the risk involved with potential loss from a currency fluctuation by hedging.

1. Outline at least four examples of methods companies can use to hedge funds and suggest when each is more suitable/appropriate for a company.

2. Offer your view as to whether it is better for a country to have higher or lower exchange rates, and what are the risks with both.

1. How long is the “short-run” time period in the economic analysis of the market?

a) three months or one business quarter.

b) one month or less.

c) time long enough to all a firm can change any, but not all factors of production.

d) time long enough to allow a firm to change all the factors of production.

2. In the short run if there is a surplus in the market for a product, the rationing function of price can be expected to cause:

a) an increasing shift in the demand for the product.

b) a decreasing shift in the supply of the product.

c) an increase in the market price of the product.

d) a decrease in the market price of the product.

3. In the long run, if there is a shortage in the market for a product, the guiding function of price can be expected to cause:

a) an increasing shift in the demand for the product.

b) a decreasing shift in the demand for the product.

c) an increasing shift in the supply of the product.

d) a decreasing shift in the supply of the product.

a) people will buy things that they enjoy.

b) if incomes rise, people will buy more.

c) a rise in price will cause shortages.

d) a fall in price will increase the quantity demanded.

5. A movement along a demand curve may be caused by a change in:

a) the non-price determinants of demand.

b) the change in consumer expectations.

c) the change in demand.

d) the change in price

6. All of the following are non-price determinants of demand except:

a) technology.

b) tastes and preferences.

c) income.

d) future expectations.

7. Which of the following will result in a decrease in demand for residential housing in the short run?

a) a decrease in the price of lumber.

b) an increase in the wages of carpenters.

c) a decrease in real household incomes.

d) a decrease in the prices of residential housing.

8. Which of the following would cause a decrease in the demand for fish?

a) The price of red meat increases.

b) The price of fish increases.

c) The price of chicken decreases.

d) The number of fishing boats decreases.

9. Which of the following refers to a shift in the demand curve?

a) “This new advertising campaign should really increase our demand.”

b) “Let’s drop our price to increase our demand.”

c) “We dare not raise our price because our demand will drop.”

d) “If new sellers enter the market, the demand for the product is bound to increase.”

10. Two goods are ________ if the quantity consumed of one increases when the price of the other decreases.

a) superior

b) complementary

c) substitute

d) normal