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Ebook Microeconomics and behavior (9th edition): Part 2

(BQ) Part 2 book "Microeconomics and behavior" has contents: Perfect competition, monopoly, a game theoretic approach to strategic behavior, oligopoly and monopolistic competition, labor, labor, externalities, property rights, and the coase theorem, general equilibrium and market efficiency, government. | CHAPTER 10 LEARNING OBJECTIVES After reading this chapter, Perfect Competition you should be able to: LO1 Distinguish between the three different profit types. LO2 List the four conditions that are often said to characterize perfectly competitive markets. magine yourself a member of the Colorado state legislature. You have been asked to vote for a bill whose purpose is to alleviate poverty among farmers in a rural county. Farmers in that county rent their farmland from landowners and are allowed to keep the proceeds from the sale of the crops they grow. Because of limited rainfall, their crops are usually meager, resulting in very low incomes for the average worker. The bill under consideration would authorize public funds to construct an irrigation system that would double the crop yields on the land in the county. You strongly favor the objective of the bill and are about to vote in favor of it when you meet with your legislative aide, an intern who majored in economics in college. She urges you in the strongest possible terms not to vote for the bill. She concedes that the project would double crop yields, and she too is sympathetic to the goal of providing improved conditions for farmers. Even so, she insists that the bill would have little or no long-run effect on the earnings of farmers. Your aide has given you sound advice on similar matters in the past, and you decide to hear her out. I LO3 Explain why a competitive firm maximizes its profits in the short run by producing at an output level for which short-run marginal cost is equal to product price. LO4 Show how to aggregate individual competitive firm supply curves to form the corresponding industry supply curve. In this chapter we’ll develop the analytical tools necessary for our hypothetical state legislator to assess his aide’s advice, including a model of price and output determination in perfectly competitive markets. Our first step will be to characterize the competitive firm’s objective