Economics 1021A/B Lecture Notes - Lecture 11: Demand Curve

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ECON 1021A/B Full Course Notes

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If the price (mr) is , the profit-maximizing output is 7 sweaters a day. Mc = mr and the firm incurs a loss equal to tfc. At a price below the shutdown point, the firm produces nothing. If the price (mr) is , mr = atc and the firm earns zero economic profit (breaks even). If p is between the shutdown price and the breakeven price, the firm incurs a loss, but one that is less than tfc. Mc = mr = atc = breakeven point. We can use the cost curves to construct the supply curve: The firm is indifferent between producing or not at the shutdown point, t. The firm"s supply curve is the mc curve above the minimum avc (the shutdown point). Below the shutdown point would be ignored and graphed like that -> this is because the firm will not operate if the prices are below 17 dollars as they will lose a lot of money.

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11.) Which statement is false?
A. The minimum point of the AVC curve is the shutdown point.
B. The minimum point of the ATC curve is the breakeven point.
C. The firm's short-run supply curve runs up the marginal cost curve from the shutdown point all the way up the curve.
D. None of these statements are false.
12.) Which statement is false?
A. The firm's short-run supply curve runs along the MC curve from the shutdown point to the break-even point.
B. The MC curve intersects the ATC curve at the latter's minimum point.
C. Total revenue = price x output sold.
D. None of these statements are false.

26.) If the price were $25, this firm would _______ in the short run and _______ in the long run.
A. shut down; stay in business
B. shut down; go out of business
C. operate; stay in business
D. operate; go out of business

22.) If price is above the break-even point, in the short run the firm will _____ and in the long run the firm will _____.
A. shut down; stay in business
B. shut down; go out of business
C. operate; go out of business
D. operate; stay in business

8.) Which statement is true?
A. Because they are the only seller in the industry, the monopolist does not have to lower their price to sell more output.
B. Most firms in the United States are monopolies.
C. Unlike the perfect competitor, the monopolist does not necessarily produce at that output where MC = MR.
D. None of these statements are true.

15.) In the United States, natural monopolies
A. are easily converted to competitive industries.
B. are common in retailing.
C. are commonly regulated by governments.
D. are rarely regulated by governments.

21.) If a monopoly firm can sell its eighth unit of output for a price of $175, it may expect to receive a price __________ in order to sell more than eight units.
A. of more than $175
B. of $175
C. of less than $175
D. of $100

27.) Which statement is true?
A. Since the monopolist is the only firm in the industry, its profit is calculated differently from the way a perfect competitor would calculate profit.
B. The monopolist's demand curve and marginal revenue curve are the same line.
C. In the long run under monopoly, the most efficient output is the most profitable output.
D. A monopolist may lose money in the short-run

Deriving the short-run supply curve.

Consider the competitive market for halogen lamps. The following graph shows the marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves for a typical firm in the industry. For each price in the following table, use the graph to determine the number of lamps this firm would produce in order to maximize its profit. Assume that when the price is exactly equal to the average variable cost, the firm is indifferent between producing zero lamps and the profit-maximizing quantity. Also, indicate whether the firm will produce, shut down, or be indifferent between the two in the short run. Lastly, determine whether it will make a profit, suffer a loss, or break even at each price.

Price (dollars per lamp)	Quantity of lamps	Produce or shutdown	Profit or loss
15
20
25
55
70
85

orangeoyster501

20) When price is less than average variable cost at the profit-maximizing level of output, a firm should: A) continue to produce the level of output at which marginal revenue equals marginal cost if it is operating in the long run. B) shutdown, because it cannot even cover all of its variable costs let alone its fixed costs if it stays in business. C) shutdown, because it will lose nothing in that case. D) continue to produce the level of output at which marginal revenue equals marginal cost if it is operating in the short run. 21) When price is greater than average variable cost but less than average total cost at the profit-maximizing level of output, a firm should: A) continue to produce the level of output at which marginal revenue equals marginal cost. B) shutdown to minimize its losses. C) reduce output to the level at which price equals average variable cost to minimize its losses. D) increase output to minimize its losses. 22) Assume that at the current market price, a perfectly competitive firm's profit-maximizing level of output yields total revenues that are just equal to total costs. Which of the following statements applies to this firm? A) The firm should increase its explicit costs to reduce its tax burden. B) The firm should shut down right now. C) The firm should continue to operate in the short run to minimize losses, but shut down if things don't improve over the long run. D) The firm is earning zero economic profit and should continue to operate. 23) The perfectly competitive firm's supply curve: A) coincides with its perfectly elastic demand curve. B) is the firm's average total cost curve above the shutdown point. C) is perfectly inelastic at the market price. D) is the firm's marginal cost curve above the minimum point on the AVC curve. 24) Assume there is a decrease in the market demand for a good sold by price-taking firms that are initially producing the profit-maximizing level of output. How will the market adjust over time? A) Firms will exit the market, causing price to rise until losses are eliminated. B) Firms will exit the market, causing price to fall until positive profits are eliminated. C) Firms will enter the market, causing price to fall until positive profits are eliminated. D) Firms will enter the market, causing price to rise until losses are eliminated. 25) What is the "most efficient capacity" for the perfectly competitive firm? A) The plant size for which Price = AR. B) The plant size at which LRAC is at its minimum. C) The plant size at which MR = MC. D) The plant size at which any of the SRATC curves are tangent to the LRAC curve.

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Economics 1021A/B Lecture Notes - Lecture 11: Demand Curve

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