Competitive markets are scrutinized.
Exercise 1
XYZ Corporation operates in a perfectly competitive market.
Due to robust economic growth XYZ corporation made above normal profits. Taking
into account the characteristics of this market, explain what will happen to
ââ?¬¢ The number of firms in the market
ââ?¬¢ The market supply curve
ââ?¬¢ The market price and output level of products
ââ?¬¢ The profits of the firm
ââ?¬¢ The output produced by the firm
Exercise 2
XYZ Corporation operates in a market that produces a
homogeneous good. The firm is a price taker and the market price of the product
is $14. The firm is currently producing 52 units of output, marginal cost is
$17, average total cost is $15 and average variable cost is $9.
a) Do you consider that the firm made a profit-maximizing
decision? Explain why or why not.
b) If you answered no in question a, what operational
decision should the manager of the firm make? Justify your answer.
