A Firm Operating In Perfect Competition Has No Influence Ove ✓ Solved

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A firm operating in perfect competition has no influence over market price. It can sell any amount at the market-clearing price. The only one major decision to make then is about what quantity should be produced. When it decides the quantity to produce, then this quantity—along with the prices prevailing in the market for output and inputs—will determine the firm’s total revenue, total costs, and ultimately, level of profits. For the Costs and Revenue in Perfect Competition Assignment, you will submit an MS Excel spreadsheet and a paper (word document) in Waypoint.

In the Costs and Revenue in Perfect Competition Template Download Costs and Revenue in Perfect Competition Template (MS Excel), fill in the missing values in the given table. Make sure to use the "formula" feature. (The numbers in the table change. So, if you don't use the "formula", your answers will be incorrect because of the changing numbers.) Please refer Excel Formulas and Functions TutorialLinks to an external site. for guidance. Calculate marginal cost (MC), marginal revenue (MR), average fixed cost (AFC), average variable cost (AVC), and average total cost (ATC). Graph all the cost curves and the MR curve.

Find the profit-maximizing price and output. Calculate the profit (or loss). In your paper, based on the readings for the week and your calculations in the worksheet, answer the following question: Explain if the firm should remain open or temporarily shut down when the price drops to $10. Discuss why firms in perfectly and monopolistically competitive markets stay in business despite having zero economic profit in the long run. The Costs and Revenue in Perfect Competition paper must be two to three double-spaced pages in length (not including title and references pages and formatted according to APA Style Links to an external site. as outlined in the Writing Center’s APA Formatting for Microsoft WordLinks to an external site. resource. must include a separate title page with the following in title case: title of paper in bold font Space should appear between the title and the rest of the information on the title page. student’s name name of institution (The University of Arizona Global Campus) course name and number instructor’s name due date must utilize academic voice.

See the Academic Voice Links to an external site. resource for additional guidance. must include an introduction and conclusion paragraph. Your introduction paragraph needs to end with a clear thesis statement that indicates the purpose of your paper. For assistance on writing Introductions & Conclusions Links to an external site. and Writing a Thesis Statement Links to an external site. , refer to the Writing Center resources. must use at least two credible sources in addition to the course text. The Scholarly, Peer-Reviewed, and Other Credible Sources Links to an external site. table offers additional guidance on appropriate source types. If you have questions about whether a specific source is appropriate for this assignment, please contact your instructor.

Sample Paper For Above instruction

Introduction

In perfect competition markets, firms are price takers with no influence over the market price. Their main decision revolves around selecting the optimal output quantity to maximize profits, given prevailing market conditions. This paper explores the essential concepts of costs and revenues—such as marginal cost, marginal revenue, and various average costs—and applies these to determine the profit-maximizing output and price. Further, it discusses strategic decisions when market prices fall to specific levels, such as $10, and analyzes why firms continue operations despite zero economic profit in the long run.

Cost and Revenue Analysis

Utilizing the provided Excel sheet, essential cost curves such as average fixed cost (AFC), average variable cost (AVC), and average total cost (ATC) were graphically represented along with the marginal cost (MC) and marginal revenue (MR) curves. Calculation of these curves through Excel formulas enabled accurate analysis of profit-maximizing levels of output. The intersection point of MR and MC identified the optimal quantity of output, while the corresponding price was derived from the demand curve, confirming the market price at equilibrium.

Profit Maximization and Market Response

At the profit-maximizing output level, the firm was able to determine total revenue, total cost, and overall profit or loss. When the market price drops to $10, the firm faces a strategic decision: whether to continue production or temporarily shut down. Given the cost structure, if the price falls below the average variable cost, the firm should shut down to minimize losses. Conversely, if the price covers variable costs but not total costs, the firm may continue operating in the short run to reduce losses.

Long-Run Market Dynamics

In perfect competition, firms tend to stay in business in the long run despite zero economic profit because of free entry and exit, which stabilizes supply and demand. Firms earn normal profit—covering all opportunity costs—encouraging them to remain operational. Moreover, market signals and expectations about future price movements influence firm behavior, emphasizing the importance of adaptability and efficiency in such competitive environments.

Conclusion

This analysis underscores the significance of cost structures and market signals in perfect competition. It demonstrates that strategic decision-making regarding output and shutdown points depends on various cost metrics. Additionally, understanding the long-run equilibrium condition explains why firms persist despite zero economic profit, maintaining optimal resource allocation in competitive markets.

References

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• Samuelson, P. A., & Nordhaus, W. D. (2010). Economics (19th ed.). McGraw-Hill Education.
• Krugman, P., & Wells, R. (2018). Microeconomics (5th ed.). Worth Publishers.
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• Harvey, D. (2012). The Enigma of Capital and the Crises of Capitalism. Oxford University Press.
• Baumol, W. J., & Blinder, A. S. (2015). Microeconomics: Principles and Policy (13th ed.). Cengage Learning.
• Smith, A. (1776). The Wealth of Nations. Bantam Classics.