EC 201 Lecture Notes - Lecture 9: Marginal Revenue, Substitute Good
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The spreadsheet below gives some of the production cost data. Add columns to show, respectively, average fixed cost (AFC), average variable cost (AVC), average total cost (ATC), and short-run marginal cost (SMC). Then, add columns to show, respectively, total revenue (TR), marginal revenue (MR), total profit, average profit, and profit margin.
Assume that the world market demand and supply curves for clay fire pots intersect at $190 per unit.
Q |
TC |
TFC |
TVC |
0 |
7,000 |
7,000 |
- |
100 |
14,000 |
7,000 |
7,000 |
200 |
23,000 |
7,000 |
16,000 |
300 |
32,000 |
7,000 |
25,000 |
400 |
43,000 |
7,000 |
36,000 |
500 |
52,000 |
7,000 |
45,000 |
600 |
74,000 |
7,000 |
67,000 |
700 |
97,000 |
7,000 |
90,000 |
800 |
111,000 |
7,000 |
104,000 |
900 |
132,000 |
7,000 |
125,000 |
1000 |
152,000 |
7,000 |
145,000 |
QUESTION 22
For a perfectly competitive firm, profit maximization (or loss minimization) occurs at the level of output at which
a. |
MR = MC. |
|
b. |
MR = AVC. |
|
c. |
P = ATC. |
|
d. |
MR = ATC. |
4 points
QUESTION 23
If MR > MC, then
a. |
profits are being maximized. |
|
b. |
the firm is producing too much of the good to be maximizing profits. |
|
c. |
the firm can increase its profits (or minimize its losses) by increasing output. |
|
d. |
the firm must be incurring losses. |
4 points
QUESTION 24
If firms are earning zero economic profits, they must be producing at an output level at which
a. |
price minus marginal cost. |
|
b. |
total revenue equals total costs, in other words, normal profits. |
|
c. |
price equals average variable cost. |
|
d. |
marginal revenue equals marginal cost. |
|
e. |
none of the above |
4 points
QUESTION 25
In the theory of perfect competition,
a. |
the market demand curve is horizontal. |
|
b. |
the single firm faces a horizontal demand curve. |
|
c. |
the single firm faces a downward-sloping demand curve. |
|
d. |
the market demand curve is downward sloping. |
|
e. |
b and d |