ECON 20A Lecture Notes - Lecture 10: Marginal Revenue, Market Power, Perfect Competition

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whitewalrus574

18 Jan 2018

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Three years after graduating, you run your own business. You must decide how much to produce, what price to charge, how many workers to hire, etc. We begin by studying the behavior of firms in perfectly competitive markets. The goods offered for sale are largely the same. Firms can freely enter or exit the market. Because of 1 & 2, each buyer and seller is a price taker takes the price as given. Marginal revenue (mr): the change in tr from selling one more unit. A competitive firm can keep increasing its output without affecting the market price. So, each one-unit increase in q causes revenue to rise by p, i. e. , mr = p. Mr = p is only true for firms in competitive markets. To find the answer, think at the margin. If increase q by one unit, revenue rises by mr, cost rises by mc. If mr > mc, then increase q to raise profit.

Related Questions

Your firm is one of 100 identical firms operating in the short run in a perfectly competitive market. Your total cost function (short run and long run) is C = 800 + 25 q + 0.5 q2, and your marginal cost function is MC = 25 + q. The (short run and long run) market demand curve is given by Q = 2,750 â 5P. a.Find the supply curve for your firm. Show work. Then, find the short-run market supply curve. Show work. b.Find equilibrium price, P*, and quantity, Q*, in the market in the short run.Show work. c.Find the lowest price at which your firm will not exit the market in the long run.Show work. Referring to your answer in part b, should your firm exit the market in the long run if P* in the market does not increase over time?Explain. d.If you choose not to exit, how many firms (including your own) do you expect to be in the market in the long run?Show work, and explain.

lavenderotter524

Which of the following is not necessarily a characteristic of perfect competition? (Points: 1)

low prices
a large number of buyers and sellers
a homogeneous product
perfect information

2. In the short run, a perfectly competitive ball bearing manufacturer will continue to produce at a loss if (Points :1)
it is covering all of its variable cost plus part of its fixed cost

it is covering all of its fixed cost
variable cost is less than the fixed cost
fixed cost is zero

3. The golden rule of profit maximization states that any firm maximizes profit by producing where (Points :
marginal revenue equals marginal cost
demand is unit elastic, and total revenue is the greatest
price equals marginal revenue
price equals marginal cost

4. Which of the characteristics of perfect competition assures that economic profit will be zero in the long run? (Points: 1)
There are easy entry and exit in the market.
Each firm is a price taker.
Each firm has access to perfect information.
Each firm is small relative to the market.

5. A constant-cost industry is distinguished by the fact that(Points: 1)
firms' short-run average total costs are horizontal
firms' short-run marginal cost curves are horizontal
the long-run industry supply curve is perfectly elastic
the short-run industry supply curve is perfectly elastic

6. Commodity products are (Points: 1)
pasteurized
bland
perceived by consumers to be identical
made by one manufacturer

7. In a perfectly competitive industry we are likely to find(Points: 1)
firms producing a wide variety of products
barriers to entry
no profit possible in the short run
firms that do not advertise

8. Perfectly competitive firms are price takers because (Points :1)
all small firms must take the price set by the largest firm in the market
firms take the price that government determines is a "fair" price
each firm is small and goods are perfect substitutes for one another
free entry and exit in the short run creates a constant market price in the long run

9. In perfect competition, if one firm raises its price, (Points :1)
others will follow
that firm will increase its revenues
that firm will lose revenues because other firms will not follow
all consumers will be adversely affected

10. Suppose, at its present rate of output, a perfectly competitive firm's marginal revenue exceeds both its marginal cost and its average variable cost. To maximize profit, the firm should (Points: 1)
lower the price
raise the price
increase output
reduce output

tanpig844

In a perfectly competitive market, assume every firm faces the same short run total cost curve: TC= 2q^2 + 10q + 200. The market demand curve is :Qd = 800-8P. Given perfect competition, if this industry is in long run equillibrium:

1) Find the level of output produced by each firm

2) Find the market price of the output.

3) Find the total industry output adn the number of firms in the market.

4) How much economic profit does each firm in this market make?

sangriahare446

ECON 20A Lecture Notes - Lecture 10: Marginal Revenue, Market Power, Perfect Competition

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