# ECO 365 Answer Guide: Economic Competitive Structures

## ECO 365 Final Exam Answer Guide for Competitive Structures

Economic competitive market structures generally include monopolies at one end and perfect competition at the other end. Economists will always assume that there is a collection of buyers and sellers in the market, therefore, there are different types of competition to consider.

### A perfectly competitive firm sells 10 units of Good X at a price of \$2 per unit

A perfectly competitive firm sells 10 units of Good X at a price of \$2 per unit. It incurs a fixed cost of \$5 and a variable cost of \$40 to produce the good. Which of the following is true?

The firm should shut down

Explanation: The variable costs come out to \$4 per unit, so a selling price of \$2 can never be profitable at any point in this scenario. Therefore, the correct answer is that firm should shut down.

### Mike sells navel oranges in a market where there are a lot of other sellers

Mike sells navel oranges in a market where there are a lot of other sellers and faces a perfectly elastic demand curve for Oranges. He hires 10 Workers in a perfectly competitive market to help him with picking Oranges. Given this information, it can be said that

The demand for workers is a positive function of the prevailing market wage rate.

Explanation: Demand for workers will go up as the wage rate goes down. Competitive firms can only hire to the point at which marginal revenue equals the prevailing labor wage rate.

Moonlife LLC. observed that its total revenue is proportional to the quantity of good sold. It is likely that Moonlife LLC. is a:

Monopoly

Explanation: Monopolistic firms will fix prices to the profit maximization point, this a correlation between quantity sold and revenue would be expected.

### Squeeze Inc. sells orange juice in a market where there are a large number of consumers and sellers

Squeeze Inc. sells orange juice in a market where there are a large number of consumers and sellers. New firms can enter the market easily and also exit whenever they want to. It sells 40 bottles in a month at a price of \$4 per bottle and incurs a cost of \$5 per bottle. The average revenue of the firm

is \$4, which is equal to the marginal revenue

Explanation: Since were only talking about revenue, the cost per bottle can be ignored. No fixed costs were defined and it’s a perfect competition, so the marginal revenue will always be the same as average revenue.

• Student: Sandy Lopez
• Textbook:  Principles of Microeconomics
• Course: ECO 365 Microeconomics 2017 Final Exam

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