ECN 104 Lecture Notes - Lecture 10: Average Variable Cost, Marginal Revenue, Root Mean Square

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14 Dec 2016

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Characteristics of perfect competition: price takers, very large numbers, standardized product, easy entry and exit. Pro t maximization in the short run: total revenue - total cost approach, marginal revenue - marginal cost approach, if a rm produces a quantity at which tr > tc ==> pro t; tr = tc ==> break even; Tr < tc ==> loss: if a rm produces a quantity at which p > atc ==> pro t; p < atc ==> loss. > yes if pro t is greater than average total cost (or total revenue is greater than total cost) Entry eliminates economic pro ts: economic pro ts lure new rms into the industry which will be newly created rms or. Rms leaving the industry cause the equilibrium positions to fall. Monopoly: an industry in which one rm is the sole producer or seller of a product or service for which no close substitute exists.

Related Questions

A. A competitive firm

can consider only its location in setting the price.
must base its competitive price on product differentiation.
has the ability to set its own price.
must accept the price determined by the intersection of the market supply and demand curves.
has no supply curve.

B. If a firm is making an economic profit, then

the factors of production are being paid their opportunity costs.
there will be no change in the number of firms if the industry is perfectly competitive.
the factors of production are being paid less than their opportunity costs.
the factors of production are being paid more than their opportunity costs.
the firm will exit the industry

C. Along a downward-sloping monopoly demand curve,

marginal revenue is greater than price.
the elasticity of demand is constant.
marginal revenue decreases when the price decreases.
marginal revenue is equal to zero when the price is equal to zero

D. If, in the short run, a perfectly competitive firm is producing at a point where the total cost is greater than total revenue, then the firm should

shut down because economic profits are negative.
continue to produce as long as P > AVC.
continue to produce because accounting profits are positive.
set a higher price for its output.
set a lower price for its output

E. For a perfectly competitive firm, the demand curve is

the marginal revenue curve.
perfectly inelastic.
always equal to marginal cost.
the same as the market demand curve

F. A firm in a(n) industry will have the most elastic demand curve

monopolistic
oligopolistic
monopolistically competitive
perfectly competitive

G. If the demand curve of a monopolist is in the inelastic range, then

total revenue will fall if the price increases.
total revenue will be unchanged if the price increases.
total revenue will rise if the price increases.
the total supply will increase by an equal amount if demand increases.
the price will be unchanged if total revenue increases

H. Monopolistic competition and oligopoly are examples of

monopoly.
perfect competition.
theories of consumer behavior.
imperfect competition.
the extreme cases on the market structure continuum

I. Under which market structure do firms face the flattest (most elastic) demand curve?

perfect competition
monopolistic competition
oligopoly
monopoly

J. At the point of long-run equilibrium for a perfectly competitive firm,

economic profits are zero.
TR > TC.
TR < TC.
P = AVC.
normal profits are zero.

brownlouse308

Given following Price and Total Cost functions:

P = 120 - 7Q

TC = 40 + 70Q - 10Q² + 0.6Q³

Where P = price, and Q is output.

Fill in the table below and answer the questions below the table.

Q	P	FC	TVC	TC	TR	Profit
0
1
2
3
4
5
6
7
8
9
10

If your company's goal is to maximize profit, answer the following questions below:

What price will you charge for your product?

What quantity will you produce?

And what would be your maximum profit or minimum loss at the price and output you chose?

2. If your company's goal is to maximize total revenue, answer the following questions below:

What price will you charge for your product?

What quantity will you produce?

And what would be your maximum total revenue at the price and output you chose? (3 points)

Question 3

Given a firm with the following cost data, fill in the table below.

Q = OUTPUT TFC = Total Fixed Cost AVC = Average Variable Cost ATC = Average Total Cost TVC = Total Variable Cost MC = Marginal Cost TC = Total Cost

Q	FC	TVC	TC	AVC	ATC	MC
0				---	---	---
1						10
2
3				10		10
4

yellowsea-lion638

1. A firm that is a pure competitor has P > ATC and P > MC on the output (Q) it is presently producing and selling. Is this firm maximizing its profits? If not, which direction should it change its output if it wants to maximize its total profit?

2. Is a pure competitor in short-run or long-run equilibrium if it has P=MC=ATC? Explain.

3. There is free entry in the model of pure competition. Assuming that P > ATC for a vast number of firms producing a standardized product for a given market, what will happen to market supply as the consequence? What will happen to the market price (P) of the product these firms are producing?

4. Firms in the pure competition have horizontal demand functions. (The market determines product price, so firms in this competitive market are price takers.) Do firms in this model have to lower prices if they want to sell more output? Why or why not?

copperporcupine291

ECN 104 Lecture Notes - Lecture 10: Average Variable Cost, Marginal Revenue, Root Mean Square

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