Assignment 2: Market Forms For This Assignment You Wi 369282

Assignment 2 Market Formsfor This Assignment You Will Do A Significan

Assignment 2: Market Forms

For this assignment, you will perform a significant portion of work using MS Excel to analyze data related to firms facing different market structures and export your findings into an MS Word document. You are provided with a table (Table 1) containing data on output levels, costs, and revenues. Your task is to complete this table, analyze the data to determine profit-maximizing or loss-minimizing output levels, and interpret the economic implications regarding profits and market structures.

Specifically, you will:

• Complete Table 1 with derived calculations such as total revenue, marginal revenue, and other relevant metrics.
• Summarize your calculations clearly, noting how each value is obtained.
• Prepare a graph illustrating Average Fixed Costs, Average Variable Costs, Average Total Costs, Marginal Revenue, and Marginal Costs.
• Using the table and the graph, identify the profit-maximizing or loss-minimizing level of output. Explain your reasoning.
• Define normal profit and economic profit, then analyze whether the firm in the example earns either type of profit.
• Discuss the likely market structure based on the data provided, considering whether it pertains to a short-run or long-run scenario, and justify your answer.

Paper For Above instruction

The data presented in Table 1 offers a valuable window into the economic performance of a firm operating in a non-pure competition market structure. To analyze whether the firm is maximizing profits or minimizing losses, it is crucial to accurately complete the table, incorporate relevant calculations, and interpret the results in light of microeconomic theory.

Completing Table 1

Beginning with the provided data, the initial step involves computing the total revenue (TR) and marginal revenue (MR). Total revenue is derived by multiplying the output level (Q) by the corresponding price (P). For example, at zero output, TR is zero. At an output of 60 units, TR = 60 x $249 = $14,940. The change in TR between successive output levels yields MR, which is particularly important for determining profit-maximizing output, especially in imperfect markets where MR does not equal P.

Similarly, deriving the total fixed cost (TFC) can be straightforward when the average fixed cost (AFC) is known. Since AFC = TFC / Q, then TFC = AFC x Q. At an output of 0 units, the average fixed cost is $345, implying an initial TFC of $345. Even as output increases, TFC remains constant since fixed costs do not vary with output.

Average variable cost (AVC) and average total cost (ATC) are calculated by dividing total variable costs (TVC) and total costs (TC) by output respectively, where:

• TVC = AVC x Q
• TC = TFC + TVC

For instance, at an output of 60 units, with AVC = $120, TVC = 120 x 60 = $7,200; TFC remains at $345, thus TC = $345 + $7,200 = $7,545.

Graphical Analysis

Plotting the calculated values for AFC, AVC, ATC, MR, and MC against output provides visual insight into cost structures and revenue behavior. Typically, AFC declines as output increases due to fixed costs being spread over larger outputs. AVC and ATC typically rise after a certain point due to diminishing returns. MC intersects AVC and ATC at their minimum points, which indicates the most efficient level of production.

Marginal revenue, in imperfect competition, decreases as output increases, reflecting the firm's market power, whereas in perfect competition, MR remains constant and equal to price. The intersection points of MC with MR guide the firm toward the profit-maximizing output level, where MR = MC.

Profit Maximization and Profitability Analysis

The profit-maximizing output is determined where MR equals MC. In the dataset, MR declines from $127.50 at low output to $99 at higher output levels. By comparing MR and MC at various output levels, the firm should produce where MR just exceeds or equals MC. For example, at an output of 60 units, MR is $126 and MC is $165, so MR

Furthermore, calculating profit at each output involves subtracting total costs from total revenue. When total revenue exceeds total costs, the firm earns an economic profit; if not, it incurs a loss. The analysis reveals that at certain output levels, the firm may operate at or near breakeven, with normal profits, or incur losses depending on where TR and TC intersect.

Normal versus Economic Profit

A normal profit occurs when total revenue equals total costs (including implicit costs), representing a situation where the firm's resources are earning just enough to cover all costs, with no excess for economic profit. Economic profit, on the other hand, occurs when total revenue exceeds total costs, indicating surplus earnings beyond just covering opportunity costs.

In this example, the provided data suggest that the firm might not be earning economic profits if total costs are close to or exceeding total revenue in most output scenarios. The presence or absence of economic profit depends on the specific calculations of TR and TC at each output level.

Market Structure Implications

Based on the data characteristics—such as the downward-sloping MR curve, the ability to set prices above marginal cost, and the presence of fixed costs—the firm likely operates within an imperfectly competitive market structure, such as monopolistic competition or an oligopoly, in the short run. The declining MR curve suggests some market power, which is typical outside of perfect competition.

If these conditions persist in the long run, entry and exit dynamics tend to eliminate economic profits, leading firms to operate at the point where ATC equals price, resulting in normal profits. The firm’s costs and revenue structure imply it could be a monopolistically competitive firm in the long run, where deviations from perfect competition allow for some degree of pricing power but zero economic profit in equilibrium.

In summary, the data suggest that the firm is in a market with some market power, making it unlikely to be a perfectly competitive firm. It may be a monopolistic competitor or an oligopoly with differentiated products, operating near break-even in the long run and earning normal profits.

Conclusion

In conclusion, the analysis of the provided data indicates that the firm's profit-maximizing output occurs where marginal revenue equals marginal cost, with optimal points around certain output levels based on the intersection of these curves. The calculation of total revenue and costs confirms whether the firm earns economic profit or just normal profit. The market structure inferred from the data points towards an imperfectly competitive environment, with the potential for these conditions to persist in the long run if barriers to entry are significant. Ultimately, evaluating such data is fundamental in understanding firm behavior, market dynamics, and economic efficiency.

References

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• Varian, H. R. (2014). Intermediate Microeconomics: A Modern Approach. W. W. Norton & Company.
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• Mankiw, N. G. (2021). Principles of Economics (8th ed.). Cengage Learning.
• Frank, R. H., & Bernanke, B. S. (2019). Principles of Economics. McGraw-Hill Education.
• Perloff, J. M. (2019). Microeconomics: Theory & Applications with Calculus. Pearson.
• Baumol, W. J., & Blinder, A. S. (2015). Microeconomics: Principles and Policy. Cengage Learning.
• Samuelson, P. A., & Nordhaus, W. D. (2010). Economics. McGraw-Hill Education.
• Stiglitz, J. E., & Greenwald, B. (2014). Creating a Learning Society: A New Approach to Growth, Development, and Social Progress. Columbia University Press.
• Ross, S. A., Westerfield, R., & Jordan, B. D. (2019). Essentials of Corporate Finance. McGraw-Hill Education.