ECON-200 Lecture Notes - Lecture 27: Average Variable Cost, Sunk Costs, Marginal Cost

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azureprairie-dog22

18 Sep 2020

School

Diablo Valley College

Department

Economics

Course

ECON-200

Professor

Sorce

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Document Summary

Short-run output shut-down rule - firms may continue to produce even when losing money firm could expect to earn a profit in the future. Shutting down might be costlier than operating in the red. Part of marginal curve greater than average cost curve. Price changes >> firm changes output so that marginal cost equals price. Higher market price or higher prices for inputs may lead to upward shifts in marginal cost and market short-run supply curve - sum of all firm supply curves in the market. Perfectly inelastic supply - greater output only possible by building new plants. Perfectly elastic supply - when marginal costs are constant. Producer surplus - difference between revenue and variable cost: surplus = r - vc = profit + fc. Short-run, long-run cost short-run cost - remember that certain inputs are fixed in the short-run.

Related Questions

10-When marginal cost is greater than average total cost,
A. Average total cost must be increasing with output
B. Average variable cost must be decreasing with output
C. Average fixed cost must be increasing with output
D. Marginal cost must be increasing with output

11-If a firm's demand curve falls below its AVC curve, then the firm should
A. Shut down now
B. Operate in the short run but not the long run
C. Set price = marginal cost
D. Shutdown in the long-run

12- The demand curve facing a perfectly competitive firm is
A. Upward sloping
B. Perfectly inelastic
C. Downward sloping
D. Perfectly elastic

13-If the demand curve falls below the ATC curve but lies above AVC, then the firm should
A. Should shut down
B. Operate in the short run but not the long run
C. Set price = marginal cost
D. Operate in the short run and the long run

14-At the output where MC = ATC = P, the perfectly competitive firm
A. Should shutdown
B. Has no economic profit
C. Is not profit maximizing
D. Should raise output

ivorybee159

34. All firms in an industry have the same costs. Assume that all other firms in the industry are in short-run equilibrium. However, at the current level of output of one particular firm, AC-MC>P-MR>AVC. If nothing changes, this firm should: (A) decrease its output. (B) increase its output. (C) keep output constant. (D) shut down in the short run. ((E) decrease output in the short run and shut down in the long run. (F) increase output in the short run and shut down in the long run. (G) adjust output until Total Revenue = Total Cost. (H) produce where the marginal cost curve just cuts the demand curve in the short and long run. (1) none of the above.

Question 13 (1 point)

A firm that has not shut down in the short run will not shut down in response to a decrease in the marginal costs.

Question 13 options:

	1) True
	2) False

Question 14 (1 point)

Saved

A firm earns a positive economic profit when the market price exceeds its marginal cost.

Question 14 options:

	1) True
	2) False

Question 15 (1 point)

For prices greater than the minimum value of average variable cost, the firm's short-run supply curve coincides with its short-run marginal cost curve.

Question 15 options:

	1) True
	2) False

Question 16 (1 point)

Saved

The number of firms in an industry is fixed in the short run.

Question 16 options:

	1) True
	2) False

Question 17 (1 point)

When a competitive firm earns zero profit, the market price is equal to both the firm's average and marginal costs.

Question 17 options:

	1) True
	2) False

Question 18 (1 point)

Saved

If the market price is currently above the shut-down price, the firm will be making positive profits.

Question 18 options:

	1) True
	2) False

Question 19 (1 point)

A competitive firm's supply curve is identical to its marginal cost curve.

Question 19 options:

	1) True
	2) False

Question 20 (1 point)

Saved

There is no reason for a competitive firm to stay in business if it is making zero profits.

Question 20 options:

	1) True
	2) False

tanfish913

ECON-200 Lecture Notes - Lecture 27: Average Variable Cost, Sunk Costs, Marginal Cost

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