ECON 1 Lecture Notes - Lecture 6: Average Variable Cost, Marginal Cost, Competitive Equilibrium

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ECON 1 Lecture 5: Econ note day 5 10/8/18

ECON 1 Lecture Notes - Lecture 6: Average Variable Cost, Marginal Cost, Competitive Equilibrium

ECON 1 Lecture 7: Budget Constraints

Document Summary

Equity and efficiency: competitive equilibrium is efficient, but it may not be equitable, example: compare the apple market experiment with the real market: Experimental market: buy and sell only one unit; one point each time. Real market: have both discrete units and continuous units, depending on what king of service or product; consumers can buy as often as they want; supply is produced, but not given. Cost and supply: profit = revenue - cost, revenue = price x quantity, when quantity rises, both revenue and cost rises, total cost = fixed cost + variable cost. Initially, average variable cost may fall as output rises (specialization). Eventually, average variable cost rises as output rise (fixed factor). Marginal cost: definition: the increase in cost from one more unit of output. If marginal cost > average cost, average cost is rising. If marginal cost < average cost, average cost is falling.

Related Questions

Multiple choice qs on Perfect Competition - Qs College level 1 MIcreconomics

1. What is the correct interpretation of the perfectly competitive firm's supply curve?

It is the same as its average variable cost curve.

It is the same as its total variable cost curve.

It is the same as the portion of its marginal cost curve that lies above the average variable cost curve.

It is the same as the portion of its average variable cost curve that lies above the marginal cost curve.

2. What is the name of the type of market that is dominated by a few firms?

Oligopoly.

Monopolistic competition.

Monopoly.

Perfect competition.

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3. What is break-even output?

The output at which the total revenue just covers a firm's total fixed cost.

The output at which the total revenue just covers a firm's total variable cost.

The output at which the total revenue just covers a firm's fixed and variable costs including normal profits.

The output at which the firm is making zero normal profits.

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4. All of the following except one are considered to be the prerequisite elements for a market system to work effectively. Which is the exception?

Extensive specialization and trade.

Perfect competition.

Private ownership of productive resources.

A legal and social foundation

A balanced government budget

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5. What is the term for the price at which the firm makes only normal profits?

Shutdown price.

Break-even price.

Average price.

Economic price.

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6. Which of the following statements is true regarding the price in a perfectly competitive market?

Price equals average revenue but not marginal revenue.

Price equals marginal revenue but not average revenue.

Price is equal to neither the average nor the marginal revenue.

Price is equal to both the average and marginal revenue.

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7. What is the term for the extra revenue derived from the sale of one more unit?

Average revenue.

Marginal revenue.

Net revenue.

Total revenue.

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8. What is the term for the amount of revenue that will always equal the price of the product in a perfectly-competitive market?

Marginal price.

Net revenue.

Average revenue.

Total revenue.

Q1. Average total cost is equal to
a. AFC + AVC
b. AFC/total output
c. AFC/AVC
d. AVC/AFC

Q2. As output increases, the ATC
a. increases
b. decreases
c. remains constant
d. falls and then rises

Q3. Total profit is equal to
a. total revenue minus total cost
b. total revenue minus explicit cost
c. total revenue minus variable cost
d. total revenue minus marginal cost

Q4. Marginal cost crosses the
a. AVC curve at the highest point of the AVC curve
b. ATC curve at the lowest point of the ATC curve
c. AFC curve at the lowest point of the AFC curve
d. ATC curve at the highest point of the ATC curve

Q5. Wages paid are an example of an explicit cost of doing business.
a. true
b. false

Q6. Any revenue over and above total cost is labeled economic profit.
a. true
b. false

Q7. If the selling price of a product is $10, the average total cost is $8, and total sales are 5,000 units, the total profit will be
a. $5,000
b. $8,000
c. $10,000
d. $20,000

Q8. Whenever marginal revenue exceeds marginal cost,
a. profit declines if output increases
b. profit increases if output increases
c. losses increase if output increases
d. marginal revenue must be rising

Q9. Under perfectly competitive conditions, marginal revenue is
a. greater than average revenue
b. equal to average revenue
c. less than average revenue
d. equal to the average variable

Q10. A firm's break-even point occurs where
a. marginal revenue equals marginal cost
b. marginal revenue equals average variable cost
c. total revenue equals total cost
d. total revenue equals total variable cost

Q11. The addition to total output resulting from using one more unit of a productive resource is the
a. average product
b. marginal input
c. total product
d. marginal product

Q12. Unlike a firm in pure competition, a monopolist may be able to
a. block the entry of new firms into the industry
b. continue to earn economic profits in the long run
c. earn economic profits in the short run
d. both (a) and (b)

Q13. Producer surplus is the difference between the price the firm is willing to sell its goods and the price it actually receives.
a. true
b. false

Q14. In the long run, under conditions of perfect competition, market forces come into play to
a. enhance profits
b. increase demand
c. eliminate profits
d. separate MR and AR

Q15. Consumer surplus is the area above the demand curve and below the equilibrium price.
a. true
b. false

Q16. Under perfect competition, market price is determined by market demand and supply.
a. true
b. false

Q17. The more that firms advertise, the closer they get to perfect competition.
a. true
b. false

Q18. Perfect competition assumes that a producer is interested in maximizing profit.
a. true
b. false

Q19. In the long run, under conditions of perfect competition, the buyer will eventually be able to buy the product at a
a. price equal to the lowest point on the ATC curve past the optimal scale of operation
b. price below cost
c. price equal to the lowest point on the ATC curve at the optimal scale of operation
d. discount

Q20. The lowest possible ATC curve is attained at the optimal scale of output.
a. true
b. false

A firm is producing where its marginal costs are at the lowest level. What can one most likely infer from this? a. there is either lost opportunity for further profits by producing more, or the firm should shut-down if it is competitive and price is at that low level. b. It is a price-taker who is producing too much. c. It is a monopolist who is producing the socially optimal quantity. d. The firm is producing rationally.

6. A single-price monopolist sets price a. where MR=demand. b. where supply=demand c. from the demand curve at the quantity for which MC=MR. d. where MR=MC.

7. Assume that the Law of Diminishing Marginal Product applies at the current output level of a competitive firm. The price is $20 and, at the current output level, marginal cost is $16 and average total cost is $20. To maximize profits the firm should: a. produce the current output level, since average revenue (price) = average cost. b. produce more since marginal revenue exceeds marginal cost at current output. c. produce less since marginal revenue is always below average revenue. d. any of the above is possible, without further information.

8. Which of the following statements is true? (i) When a competitive firm sells an additional unit of output, its revenue increases by an amount less than the price. (ii) When a monopoly firm sells an additional unit of output, its revenue increases by an amount less than the price. (iii) Average revenue is the same as price for both competitive and monopoly firms. a. (i) only b. (iii) only c. (i) and (ii) d. (ii) and (iii)

9. If a firm in a competitive market triples the number of units of output sold, then total revenue will a. more than triple. b. less than triple. c. exactly triple. d. All of the above are potentially true.

10. When a competitive firm makes a decision to shut down, it is most likely that a. marginal cost is above average variable cost. b. marginal cost is above average total cost. c. price is below the minimum of average variable cost. d. fixed costs exceed variable costs.

ECON 1 Lecture Notes - Lecture 6: Average Variable Cost, Marginal Cost, Competitive Equilibrium

ECON 1 Lecture 5: Econ note day 5 10/8/18

ECON 1 Lecture Notes - Lecture 6: Average Variable Cost, Marginal Cost, Competitive Equilibrium

ECON 1 Lecture 7: Budget Constraints

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