Please answer both A and B. I’m okay with short answers. A. Why can’t an individual firm raise its price by reducing output or lower its price to increase sales volume in a purely competitive market?
B. Jane quit her job at IBM where she earned $50,000 a year. She cashed in $50,000 in corporate bonds that earned 10% interest annually to buy a mini-bus. Jane has decided to buy the mini-bus and set up a commuter service between Lincoln and Omaha. There are 1000 people who will pay $400 a year each for the commuter service; $280 from each person goes for gas, maintenance, insurance, and depreciation. She estimates that her entrepreneurial skills would have typically yielded a normal profit of $5,000 in another business.
Complete the following questions: (1) What are Jane’s total revenues? (2) What are Jane’s explicit costs? (3) What is her accounting profit? (4) What is Jane’s pure economic profit (loss)?