ECO 405 Lecture Notes - Lecture 11: Marginal Revenue, Demand Curve, Marginal Cost

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schen84

4 Jun 2020

School

University at Buffalo

Department

Economics

Course

ECO 405

Professor

Monica Cherry

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Document Summary

Maximize profits: mc = mr p-mc = -p(1/e q,p. If demand is downward sloping and thus eq,p < 0. Formula for the percentage markup"" of price over marginal cost. Thus at the profit maximizing output the demand facing the firm must be elastic, eq,p<1. The percentage markup over marginal cost will be higher the closer eq,p is to 1, ie the more inelastic ie demand. Assume that the firm must sell all its output at one price. So, we can think of the demand curve facing the firm as its average revenue curve. Shows the revenue per unit yielded by alternative output choices. Shows the extra revenue provided by the last unit sold below the demand curve. In the case of a downward-sloping demand curve. Figure 11. 2 market demand curve and associated marginal revenue curve. Because the demand curve is negatively sloped, the marginal revenue curve will fall below the demand ( average revenue"") curve.

Related Questions

1. A price-taking firmâs short-run supply curve is

a. the portion of its marginal cost curve above the average variable cost curve.

b. its average total cost curve.

c. its average variable cost curve.

d. its entire marginal cost curve. e. none of the above.

2. Which of the following is incorrect?

a. For a firm facing a downward-sloping demand curve, marginal revenue will be less than price.

b. In making output decisions, a firm should produce the output level for which marginal revenue equals marginal cost.

c. A price-taking firm will maximize profits by choosing that level of output for which price equals marginal cost.

d. The demand curve facing a price-taking firm is downward-sloping to the right.

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

azureshark954

8. SMC always passes through the

a. minimum of both short run total cost curve and short run variable cost curve.

b. minimum of both short run average cost curve and short run average variable cost curve.

c. minimum of the long run average curve.

d. minimum of the short run average cost curve only.

9. In the first-degree price discrimination consumer surplus is

a. determined by elasticity of demand.

b. determined by the difference between P and MR

c. determined by area under the demand curve minus price.

d. zero.

10. A price taker firm faces a

a. perfectly elastic demand curve

b. declining marginal revenue

c. perfectly elastic supply curve

d. declining market demand curve

11. For a discriminating monopolist, the price is usually

a. higher in the market which has elastic demand

b. higher in the market which has inelastic demand.

c. lower in the market which has inelastic demand

d. higher in the market which as higher marginal revenue.

12. At the point of inflection on the total cost curve.

a. marginal and average costs are equal.

b. marginal cost is maximum.

c. marginal cost is minimum.

d. average cost is minimum.

e. marginal product is minimum.

13. A discriminating monopolist must allocate output by the law of

a. equi-marginal utility c. equi-marginal productivity

b. equi-marginal revenue d. equi-marginal cost

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ECO 405 Lecture Notes - Lecture 11: Marginal Revenue, Demand Curve, Marginal Cost

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