AREC 202 Lecture Notes - Steak Sauce, Economic Equilibrium, Perfect Competition

33 views2 pages

lemondog142

25 Mar 2014

School

CSU

Department

Agriculture + Resrce Econ

Course

AREC 202

Professor

Christopher Goemans

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

In the short run, market demand rises, price rises, mr for individual rises. You don"t make more because mc > mr. you don"t produce less because mc < mr. you produce where mc = mr. tc = q x atc. In the long run, more producers will enter the market, driving the price down. Price falls all the way back to the breakeven price (no economic profit) Step 1: in the market, demand shifts out and equilibrium price goes up. Step 2: as a result, individual producers see large economic profit. Step 3: people enter the market until prices fall to their original levels (due to the presence of economic profit) Producers didn"t change price, or anything in this specific market. Perfect competition no economic profits & an elastic market in the long run. As a result, in the short run the supply curve is going to be a lot more inelastic than in the long run.

Related Questions

30) Suppose your trucking firm in a perfectly competitive industry is making zero economic profits in the short run. The federal government imposes a new safety regulation that affects all firms, thus shifting the marginal cost curve upward. As a result your firm's profit maximizing short-run output will A) decrease because the new MC curve will intersect the horizontal demand curve at a lower rate of output. B) remain the same because you will pass on the extra costs to the consumers. C) remain the same since the new regulation does not affect ATC. D) increase as firms will leave the industry at the higher costs, thus driving up the market price. E) increase as price rises in the long run.

6. Power Printers Total Costs (per hour)

q TC

0 65

1 80

2 95

3 120

4 150

5 200

If the price of a printer is $50 in this perfectly competitive industry, what is the profit-maximizing rate of output?

7. Which of the following is NOT true in a perfectly competitive market?

a. There is free entry and exit into the industry.

b. Each firm produces a differentiated product.

c. Each firm faces a perfectly elastic demand curve.

d. Price is equal to marginal revenue at every output level for the firm.

8. A perfectly competitive firm should always continue to operate in the short run as long as:

a. P < ATC at the rate of output where MR = MC.

b. P < AVC at the rate of output where MR = MC.

c. MR > AVC at the rate of output where MR = MC.

d. MR > AFC at the rate of output where MR = MC.

9. A firm that makes zero economic profits:

a. Must eventually go bankrupt.

b. Should shut down.

c. Incurs a loss, but should not shut down.

d. Covers all its costs, including a provision for normal profit.

10. A monopoly firm is different from a competitive firm in that:

A. There are many substitutes for the monopolistâs product whereas the competitive firmâs demand curve is perfectly elastic.

B. The monopolistâs demand curve is perfectly inelastic, whereas the competitive firmâs demand curve is perfectly elastic.

C. The monopolist can influence the price in the market, whereas the competitive firm is a price taker.

D. All of the above

taupewombat30

Answer the following Questions for a Monopoly Firm.

Price	Quantity	TR	MR	MC	TC	Profit
$400	0				$2,000
390	1			$200
380	2				2,360
370	3				2,500
360	4
350	5				2,720
340	6
330	7				3,060
320	8			$250
310	9				3,630
300	10			$400
290	11			$500

a) Fill in the missing information above for this Monopoly Firm. Note there are no numbers for MC and MR when Q=0.

To complete the table you need to know that the ATC of producing 4 units of output is $650 and that the Total Variable Cost of producing 6 units of output is $870.

b) State the Total Fixed Cost for this firm. Please explain how you got your answer.

c) At which unit of output does Diminishing Marginal Returns start? Please explain your answer.

d) If this firm produces in the Short Run, determine its profit maximizing/loss minimizing output level. Please explain your answer using MC and MR.

e) If this firm produces in the Short Run, determine its profit maximizing/loss minimizing price.

f) If this firm produces in the Short Run, state its profit maximizing/loss minimizing profit amount.

g) If this firm shuts down in the Short Run, determine its profit maximizing/loss minimizing profit amount. Please explain your answer.

h) What should this firm do in the Short Run in order to maximize its profits/minimize its loss (produce or shut down)? Please explain your answer using numbers.

i) Explain what this firm should do in the Long Run.

raspberryhorse277

AREC 202 Lecture Notes - Steak Sauce, Economic Equilibrium, Perfect Competition

Document Summary

Get access

Related Documents

AREC 202 Lecture Notes - Perfect Competition, Marginal Revenue, Marginal Cost

ECO101H1 Lecture 15: Lecture 15-Perfect Competition pt.2

ECON 2000 Lecture 3: Unit 3 Notes

Related Questions