All Terrain Thinking

A Compendium of things I think are Important

Economics: It's not just whats' in your wallet

Questions of the Day
Perfect Competition

1. The fishing industry has been an important industry in RI, especially this part of the state.  It is also interesting because it offers us an example of a perfectly competitive industry. But what does that mean about the fishing industry? What would you expect to happen if word got out that an individual with less than a high school education could make $100,00 a year as a commercial fisherman?

2. How do you explain the fact that all the T-shirts sold in NYC by sidewalk vendors are priced the same?

3. A typical firm in a perfectly competitive market made positive economic profits last period. What will happen this period to:

• a. The number of firms in the market.
• b. The market demand curve.
• c. The market supply curve.
• d. Market price.
• e. Market output.
• f. The firm's output.
• g. The firm's profit.

4. Let's return to our local retailer who is experiencing theft problems at its new super store and who has decided to hire security guards. The table below contains the data that you calculated in the last QOTD.  What is new is the final column which provides you with data on the price that you could sell the 'saved' items at.  For example, if 30 items were sold, the 30 items could be sold at a price of $25.  If 36 items were saved, the price that they could be sold at would be $25. What is new about this is that the price does not change as the output (savings) changes.  

a. With these data you are to fill in the information in the remaining columns.  This would include total revenue (TR), marginal revenue (MR), and profit. What is the profit maximizing level of savings? 

b. Construct a graph of profit and a graph of marginal cost and marginal revenue.

c. Redo part a when FC rises to $300.

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