Worksheet on Perfect Competition for Unit 8:
Welcome to Acme Widgets. The Acme Company manufactures widgets and competes in a Perfectly Competitive market structure. In fact, all widgets are the same, regardless of who made them. The widget industry is huge, with many firms, and Acme, like all the other firms can sell all it wants without affecting the market price. The following table represents the current short-run revenue, costs, and profits for Acme.
INSTRUCTIONS: You should either print this page/table or copy the data into a spreadsheet.
If you wish, you can download these data tables as a .csv file that can be opened in Excel or similar spreadsheets. Download as .csv file.
If these tables do not print when you use the “download as .pdf” button at the top of this page, you can click here to open the data tables as a new webpage and print using your browser.
Then you need to complete the remaining columns using the data given. You can then answer the questions below using the data you have calculated. TIP: For questions that require an answer in money, please do not use dollar signs but use decimals. Ex: if the answer were $9.99 or -$9.99, you should enter either 9.99 or -9.99 respectively. If the amount is less than a dollar, be sure to put a 0 for the dollar amount such as: 0.33
HINT: You are only given data for total costs. It first appears that you don’t know anything about how the total cost is split into fixed cost and variable cost. But, it’s there. It’s hiding. Ask yourself the following questions and you can find out what total fixed costs are. Then you can subtract the Total Fixed Costs from Total Costs to get Total Variable Costs.
- Variable costs vary directly with the quantity you produce. So, if you produce zero units (Q=0), would you have any variable costs?
- Using the answer to this previous question, how much of Total Costs would be Total Fixed Costs when you produce Q=0?
- If Total Fixed Costs are indeed “fixed”, and if you know what total fixed costs are at Q=0, then what would total fixed costs be for all the other quantities?
Questions (you enter your answers in the Learning Management System for your school):
- How much are the total Fixed Costs for this firm?
- What is the average variable cost of the each unit when 14 units are produced?
- At what level of output does the Marginal Revenue = Marginal Cost?
- At what level of output will profits be maximized?
- How much profit (total) will this firm make when it maximizes profit in the short-run?
- Assuming this firm is in perfect competition and all firms in the industry are having similar results, over the long-run would you expect the number of firms in this industry to increase, decrease, or remain the same?
- Let’s assume that market conditions have changed. The new short-run equilibrium market price is now $4.50 each. How many units will this firm choose to produce now?
- How much total profit will this firm make now that the price has risen to $4.50 each?
- Again, assuming this is perfect competition, will the price of $4.50 represent a long-run equilibrium? (yes, no, or can’t tell)
- Again, assuming this is perfect competition, how much total profit will this firm make when the industry and market eventually do achieve long-run equilibrium?