Hi friend, pls help with my microeconomics assigment. TY for helping?

Question

Question
(a) Explain why if a firm's marginal revenue is less than marginal cost at its current level of output the firm should reduce the level of its output.
(b) List the main assumptions that economists make in defining a perfectly competitive industry.
(c) What are the main factors that influence the price of elasticity of demand for a particular good?
(d) Draw a diagram for a long-run average cost curve that exhibits both increasing and decreasing returns to scale.
(e) Explain how both a perfectly competitive firm and industry would respond to a rise in the demand for its product in:
1) the short-run;
2) the long-run.

Answer 1

I am going to assume you are studying introductory microeconomics instead of intermediate microeconomics, so my answers will reflect that level.

A.) In economics, it is not the total, nor the average that matters most. Always the MARGIN. Simply put, if what you take additionally in (revenue) is less than what you additionally spend to produce output (cost), then you are losing money (i.e. marginal profit is negative).

B.) If you are in college and Economics is your major, I would urge you to take Industrial Organization. If you are not an econ major or you are in high school, the major assumptions economists make for perfectly competitive firms are:

1. The product is homogenous (i.e. identical in nearly every way).

2. There are no barriers to entry and exit.

3. The firm is a price taker (I am going to force you to read your book to understand what I am talking about).

4. No one firm has market power.

C.) Whether the good is a substitute vs. a complement (Again, if you don't know what I'm referring to, crack that book open!)

D.) Skip over

E.) 1. Depends on where it is on the marginal cost curve. Would supply output in tandem with its production function.

2.) Would depend on its production function and its economies of scale: whether increasing, decreasing, or constant.