ECON 301 Lecture Notes - Lecture 16: Marginal Cost, Economic Surplus

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pucemouse830

10 Apr 2016

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However, deinition of proit is diferent in short and long term. Fixed costs are sunk in the short run, but not in the long run. Short term supply curve = marginal cost above the avc line and 0 below the avc line. Long term supply curve = marginal cost above atc line and 0 below the. Long run shut down price is the minimum of atc. Short run shut down price is the minimum of avc. Short run maximizes producer surplus (because ixed costs are ignored) Long run maximizes proits (where ixed costs are included) Firms will continue to enter if economic proits are positive; stop or quit if economic proits are negative: constant cost industry. Long run supply = horizontal line at minimum average cost of production: increasing cost industry. Note: supply curves are marginal cost curves in essence, so if increasing production increases mc curves, supply curves are going to increase as well: decreasing cost industry.

Related Questions

Your firm is one of 100 identical firms operating in the short-run in a perfectly competitive market. Your total cost function (short-run and long-run) is C = 500 + 20 q + q², and your marginal cost function is MC = 20 + 2q. The (short-run and long-run) market demand curve is given by Q = 4,500 - 5P.

a. Find the supply curve for your firm. Then, find the short-run market supply curve. Show work.

b. Find equilibrium price, P*, and quantity, Q*, in the market in the short-run. Show work.

c. Find your firm's total revenue, total cost, and profit in the short-run. Show work.

d. Find the minimum efficient scale (MES) for your firm. Show work. Find the long-run equilibrium price in the market after entry or exit has occurred. Show work.

aquamarinecrow33

10-When marginal cost is greater than average total cost,
A. Average total cost must be increasing with output
B. Average variable cost must be decreasing with output
C. Average fixed cost must be increasing with output
D. Marginal cost must be increasing with output

11-If a firm's demand curve falls below its AVC curve, then the firm should
A. Shut down now
B. Operate in the short run but not the long run
C. Set price = marginal cost
D. Shutdown in the long-run

12- The demand curve facing a perfectly competitive firm is
A. Upward sloping
B. Perfectly inelastic
C. Downward sloping
D. Perfectly elastic

13-If the demand curve falls below the ATC curve but lies above AVC, then the firm should
A. Should shut down
B. Operate in the short run but not the long run
C. Set price = marginal cost
D. Operate in the short run and the long run

14-At the output where MC = ATC = P, the perfectly competitive firm
A. Should shutdown
B. Has no economic profit
C. Is not profit maximizing
D. Should raise output

ivorybee159

Question 13 (1 point)

A firm that has not shut down in the short run will not shut down in response to a decrease in the marginal costs.

Question 13 options:

	1) True
	2) False

Question 14 (1 point)

Saved

A firm earns a positive economic profit when the market price exceeds its marginal cost.

Question 14 options:

	1) True
	2) False

Question 15 (1 point)

For prices greater than the minimum value of average variable cost, the firm's short-run supply curve coincides with its short-run marginal cost curve.

Question 15 options:

	1) True
	2) False

Question 16 (1 point)

Saved

The number of firms in an industry is fixed in the short run.

Question 16 options:

	1) True
	2) False

Question 17 (1 point)

When a competitive firm earns zero profit, the market price is equal to both the firm's average and marginal costs.

Question 17 options:

	1) True
	2) False

Question 18 (1 point)

Saved

If the market price is currently above the shut-down price, the firm will be making positive profits.

Question 18 options:

	1) True
	2) False

Question 19 (1 point)

A competitive firm's supply curve is identical to its marginal cost curve.

Question 19 options:

	1) True
	2) False

Question 20 (1 point)

Saved

There is no reason for a competitive firm to stay in business if it is making zero profits.

Question 20 options:

	1) True
	2) False

tanfish913

ECON 301 Lecture Notes - Lecture 16: Marginal Cost, Economic Surplus

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