Competitive Firms

Part 1Uber 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.An interesting podcast on the issue:https://podcasts.google.com/?feed=aHR0cHM6Ly9yc3MuYXJ0MTkuY29tL3RvZGF5LWV4cGxhaW5lZA%3D%3D&episode=Z2lkOi8vYXJ0MTktZXBpc29kZS1sb2NhdG9yL1YwLzNPTDZPc0luVHNpTzZ3cmNmVll6MFNrcTNRQjRxTVNBNjhFUHAtUThIZm8%3DAfter 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 responsePart 2Vocabulary ( Explain by your own words)1. Competitive Market2. Marginal Revenue3. Profit MaximizationQuestions1. 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.

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