ECON 1100 Lecture Notes - Lecture 20: Demand Curve, Marginal Revenue, Profit Maximization
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Suppose that each firm in a competitive industry has the following costs:
Total Cost: TC=50+1/2 q2
Marginal Cost: MC=q
where q Ā is an individual firm's quantity produced.
The market demand curve for this product is:Ā
Demand QD=140-2P
whereĀ Ā PĀ is the price and QĀ is the total quantity of the good.
Each firm's fixed cost is $__________
Ā
What is each firm's variable cost?
_______ 50+1/2q
_______1/2q
_______q
_______1/2q2
Which of the following represents the equation for each firm's average total cost?
Ā Ā _____ 50/q
_______ 50/q+1/2q
_______1/2q
_______50+1/2q
Complete the following table by computing the marginal cost and average total cost forĀ Ā Ā Ā from 5 to 15.
5 | Ā | Ā |
6 | Ā | Ā |
7 | Ā | Ā |
8 | Ā | Ā |
9 | Ā | Ā |
10 | Ā | Ā |
11 | Ā | Ā |
12 | Ā | Ā |
13 | Ā | Ā |
14 | Ā | Ā |
15 | Ā | Ā |
The average total cost is at its minimum when the quantity each firm produces (q) iquals ________
Which of the following represents the equation for each firm's supply curve in the short run?
_______1/2q2
______q
_____50-q
_____120-1/2q2
In the long run, the firm will remain in the market and produce if________
Currently, there are 8 firms in the market.
In the short run, in which the number of firms is fixed, the equilibrium price is__________Ā In the short run, in which the number of firms is fixed, the equilibrium price is
________units. Each firm produces ________Ā nits. (Hint: Total supply in the market equals the number of firms times the quantity supplied by each firm.)
In this equilibrium, each firm makes a profit of _______Ā . (Note: Enter a negative number if the firm is incurring a loss.)
Firms have an incentive to EXIT/ENTERĀ the market.
In the long run, with free entry and exit, the equilibrium price is _______and the total quantity produced in the market is__________units. There are ________
firms in the market, with each firm producing _________units.
#7
If a monopolist or a perfectly competitive firm is producing at a break-even point, then:
i. average revenue is equal to average variable cost
ii. average revenue is equal to average total cost
iii. total revenue is equal to total variable cost
iv. total revenue is equal to total cost
i |
ii |
iii |
i and iii |
ii and iv |
#8
A natural monopoly, such as a local electricity provider, is the result of:
i. a firm owning or controlling a key input used in the production process
ii. economies of scale existing over a wide range of output
iii. long-run average total costs declining continuously as output increases
iv. long-run total costs declining continuously as output increases
i |
ii |
iii |
iv |
ii and iii |
ii and iv |
ii, iii, and iv |
#9
What do economies of scale, the exclusive ownership of essential raw materials used in the production process, and patents have in common?
they are all barriers to entry |
they all help explain why a monopolists demand and marginal revenue curves are identical |
they must all be present before a monopolist may practice price discrimination |
they all help explain why a firms short run average total cost curve is U-shaped |
#10
The principle that a firm should produce up to the point where the marginal revenue (MR) from the sale of an extra unit of output is equal to the marginal cost (MC) of producing the extra unit applies:
to both perfectly competitive firms and monopolies |
only to monopolies |
only to perfectly competitive firms |
only to firms that can employ discriminatory pricing strategies |
#11
A monopoly is producing a level of output such that marginal revenue is equal to marginal cost. The firm is selling its output at a price of $8 per unit and is incurring average variable costs of $5 per unit and average total costs of $10 per unit. Given this information, it may be concluded that the firm:
is operating at maximum total profit |
is operating at a loss that could be reduced by shutting down |
is operating at a profit that could be increased by producing more output |
is operating at a loss that is less than the loss incurred by shutting down |
#12
Suppose the demand function for a profit maximizing monopolists good is P = 120 - 0.2Q, its total cost function is TC = 40 + 4Q + Q2, and its marginal cost function is MC = 4 + 2Q. If the firm uses a uniform pricing strategy, then rounded to the nearest unit of output and to the nearest dollar the firm will:
produce 48 units of output, charge a price of $110, and earn a total profit of $5280 |
produce 48 units of output, charge a price of $110, and earn a total profit of $2744 |
produce 52 units of output, charge a price of $134, and earn a total profit of $5322 |
produce 52 units of output, charge a price of $134, and earn a total profit of $4016 |