# Competitive Firms

Part 1

Uber began to trade its stock publicly in early May of 2019. The initial stock price was a bit of a disappointment. Uber had hoped investors would value it at around \$100 billion, but they instead valued it Iat closer to \$80 billion dollars. One of the reasons that investors may have been wary of Uber could because of friction between the company and some of its drivers.

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An interesting podcast on the issue:

After listening to the podcast, think about:

What are drivers’ biggest complaints against Uber?
Do you think Uber is likely to “give-in” to the demands of its drivers? Why or why not?
Do you think Uber operates in a competitive market? Why or why not?

Feel free to use other sources as well in your response

Part 2

Vocabulary ( Explain by your own words)

1. Competitive Market

2. Marginal Revenue

3. Profit Maximization

Questions

1. What are the main characteristics of a competitive market?

2. The goal of this question is to learn how to draw a graph of a representative firm making positive economic profit.

a. Draw a label your axes. Be sure to give the graph a title.

b. Draw the ATC, AVC, and MC cost curves. I recommend you draw them in that order. Label the intersection point of MC with AVC. Label the price P_AVC and the quantity q_AVC. Label the intersection point of MC with ATC. Label the price P_ATC and the quantity q_ATC.

i. Will a competitive firm ever choose to produce less than q_AVC? Why?

ii. Will a competitive firm ever choose to produce less than q_ATC? Why?

c. For a firm to make a positive economic profit it must be charging a price that is higher than P_ATC. Draw in a horizontal line at such a price. This is the firm’s marginal revenue curve. Be sure to indicate on the x-axis of your graph how much this firm will produce at that price.

d. Shade in the rectangle on the graph that represents our competitive firm’s profit.

3. If a competitive firm is making a positive profit in a market, predict what will happen to the number of firms in that market and the price of the good in that market in long run. Explain.https://en.wikipedia.org/wiki/Firm_(disambiguation)