ECON-UA 2 Lecture Notes - Lecture 16: Perfect Competition, Demand Curve, Diminishing Returns

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scarletlion171

7 Nov 2016

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Clicker question: the cost function of a perfectly competitive firm is tc = 1000 + 10q^2. At which level of output q is the atc minimized: 10 , zero, 5, 20. Is its mc curve for all prices above minimum avc. For all prices below minimum avc, the firm will shut down. The number of firms in the industry is fixed. A curve indicating the quantity of output (aggregation of all individual firms" supply curves) That all sellers in a market will produce at different prices. Economic loss: avc < p < atc. Clicker question: the nyc yellow taxi cab industry is perfectly competitive: true, false * (not competitive because there is not free entry into the industry because of cab medallions?) New firms can enter a competitive market. Positive economic profit continues to attract new entrants until economic profit is reduced to zero. Until each firm is earning zero economic profit. Just enough accounting profit to cover implicit costs.

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True or False, and explain (one sentence is sufficient)

A.) If P > ATC then a firms is making economic profit.

B.) In a perfectly competitive industry, it is possible for a firm to earn P > ATC in the long run.

C.) If P = AVC in the long run, then the firm should shut down and exit.

D.) If P < ATC in the short run, then a firm should shut down and exit.

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

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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.

ECON-UA 2 Lecture Notes - Lecture 16: Perfect Competition, Demand Curve, Diminishing Returns

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