Micro essay

There is a paper/essay due this week and it includes material from the last module as well as the following questions:

• Competition: While there are few markets that fit the competitive market model description (agricultural and commodity markets and some financial markets are the best examples), it does form a basis from which all other market structures can be compared. Discuss the characteristics required to produce a competitive market structure. Discuss the difference between economic profit, normal profit, and accounting profit. Discuss why normal profits are the status quo in a competitive market in the long run; use the competitive market response to changes in demand for a commodity to illustrate aspects of your discussion. What does it mean to say that firms face perfectly elastic demand or that they are price takers? Clearly discuss why in a competitive (free) market the market sets price and not individual firms. 
• Explain the concept of economic rent and how it differs from economic profit.  There is a restaurant in Pensacola  () that commands a price well over other restaurants in the area serving similar food. The executive chef, Irv Miller is a local author and his cookbook Panhandle to Pan contains a mix of Florida Panhandle culinary history and recipies that take advantage of the bounty that the Gulf of Mexico offers. He has recently become involved in helping eradicate Lionfish from the local Gulf by creating several menu meals at Jackson’s with a Lionfish theme. Using Jackson’s as an example explain economic rent and what it might imply about the  economic profitability of the restaurant.  
• What are price ceilings and floors?  Describe the consumer surplus effects of each using a specific example (for one use the introduction of a $15 minimum wage) in your discussion.

          Material from the last module:

• Production and cost are the same only one is in physical terms and the other is in financial terms. Discuss how an individual firm supply curve can be developed using a firms production function and costs (be sure to note that a firm’s supply curve is its marginal cost curve above average variable cost). Then discuss how market supply is determined. The most important description of a firm is its short run cost structure. Discuss the components  that make up that structure and the relationships between them.
• Carefully watch an episode (usually Friday nights for the newest but you can catch reruns of earlier programs at many different times, check the schedule…note that there are also many YouTube videos of the show and segments) of “How it’s Made”    ) and choose one of the several products being featured. Using the concepts in the chapter describe the production process that is portrayed (how technology, labor, capital, raw materials, etc. come together to produce that product for supply to a market). What is diminishing returns in production?
• Profit Maximization: Firms make the most profit by setting their output (or price if they have market power) where marginal cost (mc) equals marginal revenue (mr). Explain why profits are largest when mc=mr and not when mr>mc. Is there a difference between sales revenue maximizing and profit maximizing?