ECN 102 Lecture Notes - Lecture 29: Marginal Revenue, Marginal Utility, Demand Curve

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22 Dec 2020

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Perfectly competitive market: a market in which all market participants (both producers and consumers) are price-takers. Their production/consumption behavior has no effect on the market price of the good they sell or buy. Perfectly competitive industry: an industry (a group of producers/firms that produce and sell indistinguishable products) in which producers are. Entry into and exit out of the industry is free. The number of producers in an industry can adjust to changing market conditions. Producers in an industry cannot artificially keep other firms out. It must contain many producers, none of whom have a large market share. Market share: the fraction of the total industry output accounted for by that producer"s output. Standardized product (commodity): a product that consumers regard as the same good even when it comes from different producers. One farmer cannot increase his prices without losing all sales to other wheat farmers who sell what consumers regard as the same product for cheaper.

Related Questions

Question 1

The four types of market structures we study in economics are perfect competition, monopolies, oligopolies, and corporations.

True

False

Question 2

Marginal costs will start to fall before average costs start to fall.

True

False

Question 3

A perfectly competitive industry is characterized by a few producers, all producers produce a homogeneous product, and there is free mobility of resources.

True

False

Question 4

One of the objectives of the monopolist is to squeeze out smaller competitors from the market.

True

False

Question 5

Unlike the perfect competitor, who is a price taker, the monopolist is facedwith a demand curve such that he/she can charge whatever price he/shewishes.

True

False

Question 6

A monopolist is different from a perfect competitor by the monopolist'sprice being equal to average revenue.

True

False

Question 7

Average fixed costs diminish continuously as output increases.

True

False

Question 8

The monopolist produces a product for which there are no close substitutegoods.

True

False

Question 9

Economies of scale is when the cost of producing a unit increases as itsoutput rate increases.

True

False

Question 10

The long-run average cost curve will be derived by adding up all the shortrun average total cost curves.

True

False

Which of the following is not necessarily a characteristic of perfect competition? (Points: 1)

low prices
a large number of buyers and sellers
a homogeneous product
perfect information

2. In the short run, a perfectly competitive ball bearing manufacturer will continue to produce at a loss if (Points :1)
it is covering all of its variable cost plus part of its fixed cost

it is covering all of its fixed cost
variable cost is less than the fixed cost
fixed cost is zero

3. The golden rule of profit maximization states that any firm maximizes profit by producing where (Points :
marginal revenue equals marginal cost
demand is unit elastic, and total revenue is the greatest
price equals marginal revenue
price equals marginal cost

4. Which of the characteristics of perfect competition assures that economic profit will be zero in the long run? (Points: 1)
There are easy entry and exit in the market.
Each firm is a price taker.
Each firm has access to perfect information.
Each firm is small relative to the market.

5. A constant-cost industry is distinguished by the fact that(Points: 1)
firms' short-run average total costs are horizontal
firms' short-run marginal cost curves are horizontal
the long-run industry supply curve is perfectly elastic
the short-run industry supply curve is perfectly elastic

6. Commodity products are (Points: 1)
pasteurized
bland
perceived by consumers to be identical
made by one manufacturer

7. In a perfectly competitive industry we are likely to find(Points: 1)
firms producing a wide variety of products
barriers to entry
no profit possible in the short run
firms that do not advertise

8. Perfectly competitive firms are price takers because (Points :1)
all small firms must take the price set by the largest firm in the market
firms take the price that government determines is a "fair" price
each firm is small and goods are perfect substitutes for one another
free entry and exit in the short run creates a constant market price in the long run

9. In perfect competition, if one firm raises its price, (Points :1)
others will follow
that firm will increase its revenues
that firm will lose revenues because other firms will not follow
all consumers will be adversely affected

10. Suppose, at its present rate of output, a perfectly competitive firm's marginal revenue exceeds both its marginal cost and its average variable cost. To maximize profit, the firm should (Points: 1)
lower the price
raise the price
increase output
reduce output

tanpig844

Q8. To arrive at a logical determination of a firm's optimum output, economists assume that the firm seeks to
a. maximize output
b. minimize cost
c. maximize profit or minimize loss
d. maximize price

Q9. So long as marginal cost is rising, average variable cost must rise.
a. true
b. false

Q10. As output increases, marginal cost increases, reaches a maximum, and then falls.
a. true
b. false

Q11. Which of the following is the best example of variable cost?
a. depreciation on a building
b. property taxes
c. wages
d. rent paid for one's building

Q12. If the AVC is $12, the AFC is $4, the AR is $20, and output is 6,000 units, the total profit is
a. $72,000
b. $48,000
c. $24,000
d. negative $96,000

Q13. Under perfect competition, if a firm is suffering a loss,
a. MR exceeds ATC
b. AR equals AVC
c. AR equals ATC
d. AR is less than ATC

Q14. Elaine's firm is in a perfectly competitive industry. Why doesn't Elaine try to sell more of her product by lowering its price below the market price?
a. her demand curve is not elastic
b. doing so would be considered unethical price chiseling
c. her competitors would not allow it
d. she can sell all she wants at the market price

Q15. In the long run, perfect competition results in firms producing
a. at the minimum point of their long-run average cost curves, which indicates allocative efficiency
b. where price equals marginal cost, which indicates economic efficiency
c. where price equals marginal cost, which indicates the optimal scale of operation
d. at the minimum point of their long-run average cost curves, which indicates economic efficiency

Q16. On a graph of average cost curves, the space between ATC and AVC represents AFC.
a. true
b. false

Q18. If MC equals MR at a point greater than ATC, the perfectly competitive firm will
a. sustain a loss
b. shut down
c. make an economic profit
d. expand output

Q19. Since all producers have the same average revenue under conditions of perfect competition, they all have the same profits in the short run.
a. true
b. false

Q20. If the entry of new firms in a perfectly competitive industry substantially increases the market demand for resources,
a. this reduces the market price of resources
b. this raises the market price of resources
c. the market price of resources does not change
d. this lowers the ATC curves of individual firms

Q22. Under conditions of perfect competition, profits exist whenever AR is above AVC at equilibrium output.
a. true
b. false

Q23. Under perfect competition, market price is determined by market demand and supply.
a. true
b. false

Q24. If one firm in a perfectly competitive industry is somehow able to produce at a lower cost than competing firms in the short run,
a. the competing firms will adopt similar production techniques in the long run
b. the more efficient firm will earn higher profits than the competing firms in the long run
c. the competing firms will earn higher profits than the more efficient firm in the short run
d. the competing firms will go out of business in the long run

ECN 102 Lecture Notes - Lecture 29: Marginal Revenue, Marginal Utility, Demand Curve

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