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ECON 20 Lecture Notes - Lecture 25: Perfect Competition, Marginal Cost, Production Function

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School
Irvine Valley College
Department
Economics
Course
ECON 20
Professor
mcneil

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Document Summary

Perfectly competitive supply: the cost side of the market and production in the short- run. Perfectly competitive supply: the cost side of the market and production in the short run. The supply curve represents the marginal cost curve (includes opportunity costs) and the sellers reservation price in a market. This example [1] is based upon harry"s ability to collect/supply cans. As he spends more time collecting cans it becomes harder to find others which is why marginal cans diminished. Harry can sell each can for sh. 20 and his opportunity cost is /hour. He should continue collecting until marginal revenue = marginal cost (3 hours). He has diminishing marginal increases due to the principle of increasing opportunity costs (harder to find cans). The price of the good would have to increase for him to collect for more than 3 hours (he needs more than to continue collecting).

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Related Questions

A. A competitive firm

  1. can consider only its location in setting the price.
  2. must base its competitive price on product differentiation.
  3. has the ability to set its own price.
  4. must accept the price determined by the intersection of the market supply and demand curves.
  5. has no supply curve.

B.Ā If a firm is making an economic profit, then

  1. the factors of production are being paid their opportunity costs.
  2. there will be no change in the number of firms if the industry is perfectly competitive.
  3. the factors of production are being paid less than their opportunity costs.
  4. the factors of production are being paid more than their opportunity costs.
  5. the firm will exit the industry

C.Ā Along a downward-sloping monopoly demand curve,

  1. marginal revenue is greater than price.
  2. the elasticity of demand is constant.
  3. marginal revenue decreases when the price decreases.
  4. marginal revenue is equal to zero when the price is equal to zero

D.Ā If, in the short run, a perfectly competitive firm is producing at a point where the total cost is greater than total revenue, then the firm should

  1. shut down because economic profits are negative.
  2. continue to produce as long as P > AVC.
  3. continue to produce because accounting profits are positive.
  4. set a higher price for its output.
  5. set a lower price for its output

E.Ā For a perfectly competitive firm, the demand curve is

  1. the marginal revenue curve.
  2. perfectly inelastic.
  3. always equal to marginal cost.
  4. the same as the market demand curve

F.Ā A firm in a(n) industry will have the most elastic demand curve

  1. monopolistic
  2. oligopolistic
  3. monopolistically competitive
  4. perfectly competitive

G.Ā If the demand curve of a monopolist is in the inelastic range, then

  1. total revenue will fall if the price increases.
  2. total revenue will be unchanged if the price increases.
  3. total revenue will rise if the price increases.
  4. the total supply will increase by an equal amount if demand increases.
  5. the price will be unchanged if total revenue increases

H. Monopolistic competition and oligopoly are examples of

  1. monopoly.
  2. perfect competition.
  3. theories of consumer behavior.
  4. imperfect competition.
  5. the extreme cases on the market structure continuum

I.Ā Under which market structure do firms face the flattest (most elastic) demand curve?

  1. perfect competition
  2. monopolistic competition
  3. oligopoly
  4. monopoly

J.Ā At the point of long-run equilibrium for a perfectly competitive firm,

  1. economic profits are zero.
  2. TR > TC.
  3. TR < TC.
  4. P = AVC.
  5. normal profits are zero.
Demand is elastic when the elasticity ofdemandis:
Select correct option:
Greater than 0
Greater than 1
Less than 1
Less than 0
The law of diminishing returns assumes:
Select correct option:
There are no fixed factors of production.
There are no variable factors of production.
Utility is maximised when marginal product falls.
Some factors of production are fixed.
The law of diminishing marginal utility states:
Select correct option:
The supply curve slopes upward.
Your utility grows at a slower and slower rate as you consumemoreand more units of a good.
The elasticity of demand is infinite.
None of the given options.
If there is a price ceiling, there will be:
Select correct option:
Shortages
Surpluses
Equilibrium
None of the given options.


A "Giffen good" is defined as one for which:
Select correct option:
Marginal utility is zero.
The demand curve is perfectly elastic.
The substitution effect is positive.
The demand curve is positively sloped.


The concave shape of the production possibilitiescurveillustrates:
Select correct option:
Increasing opportunity costs for both goods
Increasing opportunity cost for good X but not for good Y
Increasing opportunity cost for good Y but not for good X
Constant opportunity costs for both goods


Although there are many reasons why a market can benon-competitive,the principal economic difference between acompetitive and anon-competitive market is:
Select correct option:
The number of firms in the market.
The extent to which any firm can influence the price oftheproduct.
The size of the firms in the market.
The annual sales made by the largest firms in the market.


If marginal product is equal to average product:
Select correct option:
The total product will fall
The average product will not change
Average variable costs will fall
Total revenue will fall


The price elasticity of supply shows us:
Select correct option:
How steep the supply curve is
How fast supply responds to price
How much supply shifts when income changes
How much quantity supplied responds to price changes


Moving from left to right, the typical productionpossibilitiescurve:
Select correct option:
Has a constant negative slope
Has a constant positive slope
Illustrates increasing opportunity costs
Illustrates decreasing opportunity costs

1. A perfectly competitive firm will continue producing in the short run as long as it can cover its:

A.total cost.
B.average total cost.
C.average variable cost.
D.average fixed cost.

2. A perfectly competitive firm will earn a profit and will continue producing the profit-maximizing quantity of output in the short run if price is:
A.greater than marginal cost.
B.less than marginal cost.
C.less than average variable cost.
D.greater than average total cost.
3. Monopolistic competition is an industry characterized by:
A.a product with many close substitutes.
B.a horizontal demand curve.
C.a small number of firms.
D.barriers to entry and exit.
4. If a perfectly competitive firm increases production from 10 units to 11 units, and the market price is $20 per unit, total revenue for 10 units is:
A.$10.
B.$20
C.$200.
D.$210.
5. The demand curve facing a monopolist is:
A.horizontal, the same as that facing a perfectly competitive firm.
B.downward sloping, the same as that facing a perfectly competitive firm.
C.upward sloping, the same as that facing a perfectly competitive firm.
D.downward sloping, unlike the horizontal demand curve facing a perfectly competitive firm.
6. Suppose that a monopolist increases production from 10 units to 11 units. If the market price declines from $30 per unit to $29 per unit, marginal revenue for the eleventh unit is:
A.$1.
B.$9.
C.$19.
D.$29.
7. Most electric, gas, and water companies are examples of:
A.unregulated monopolies.
B.natural monopolies.
C.restricted-input monopolies.
D.sunk-cost monopolies.
8.If a perfectly competitive firm is producing a quantity that generates P > MC, then profit:
A.is maximized.
B.can be increased by increasing the price.
C.can be increased by decreasing the price.
D.can be increased by increasing production.