ECON 1 Lecture Notes - Lecture 30: Competitive Equilibrium, Marginal Cost, Marginal Utility

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16 Mar 2019

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ECON 1 Lecture Notes - Lecture 1: Comparative Advantage, Corn Laws

ECON 1 Lecture Notes - Lecture 2: Demand Curve, Competitive Equilibrium

ECON 1 Lecture Notes - Lecture 30: Competitive Equilibrium, Marginal Cost, Marginal Utility

Document Summary

If a good does not produce externalities, a competitive equilibrium for that good is efficient. If the demand curve is downward sloping, a shift out in the supply curve will decrease the competitive equilibrium price. A tax of per unit on a good will increase the price of the good by . A monopolist will set a price for a good that exceeds the marginal cost of producing it. Lesson 1: theory versus reality: a simplification of reality, good theory = the right simplification. Ultimate test: how well does it predict in a variety of circumstances. Lesson 2: thinking on the margin: economics assumes that people maximize an objective, maximization implies comparing marginal benefit and marginal cost, value of marginal product vs wage. Lesson 3: the concept of equilibrium: people purse competing objectives, brings it to a balance: best quality and best price to sell at.

Related Questions

Answer the following questions pertaining to monopolist production.

1) If a monopolist is producing in the inelastic portion of its demand curve, which of the following will occur if the monopolist decreases its price?

a. Marginal revenue will decrease, but profits will increase.

b. Marginal revenue will increase, but profits will decrease.

c.Total revenue will decrease, but profits will increase.

d.Both total revenue and profits will decrease.

e. Both total revenue and profits will increase.

2) Which of the following statements is true for a perfectly competitive firm but not true for a monopoly?

a.The firm's price is equal to its average revenue.

b.The firm cannot affect the market price for its good.

c.It is difficult for other firms to enter the industry.

d. The demand for the firm's product is unit elastic.

e.The firm must lower its price in order to sell more of its product.

3) Monopolies are inefficient for which of the following reasons?

a. They produce too little of the good.

b.They produce too much of the good.

c. They do not produce an output level at which marginal cost equals marginal revenue.

d. The marginal cost of producing the good is too low.

e. The firm is too large.

4) Which of the following is necessarily true of the profit-maximizing equilibrium of a monopolist who sets a single price?

a. Price equals average total cost.

b. Price is greater than the marginal cost.

c. Average total cost is at its minimum level.

d. Marginal revenue is greater than marginal cost.

e. Marginal cost is minimized.

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In a perfectly competitive market, in the long run, the marginal cost of a firm becomes equal to its minimum average total cost.

A) True
B) False

Generally, The price a firm charges for its product is equal to its total revenue divided by the number of units sold.

A) True
B) False

In a perfectly competitive firm to maximize profit a firm must make sure that the price it charges does not exceed its marginal cost.

A) True
B) False

Firms in a competitive market can never make economic profits while they may make biasness (accounting) profits.

A) True
B) False

When a perfectly competitive firm is making a positive economic profit its average revenue must be greater than its average total cost.

A) True
B) False

To maximize its profit a firm always produces at the quantity level where it can charge the highest price and earn the greatest revenue; this strategy is consistent with setting is MC equal to price.

A) True
B) False

When a firm in a competitive market is making a positive economic profit its business profit may be positive or negative.

A) True
B) False

In a perfectly competitive market new entries could result in increases in input prices thus making production costs go up.

A) True
B) False

In a perfectly competitive market, in the long run, each firm produces the maximum amount it can produce and charges the lowest price possible. That is why we consider competitive markets efficient.

A) True
B) False

10.

A monopolist always under-produces and charges a price higher than its MC.

A) True
B) False

11.

As the only supplier in the market a monopolist can charge any price it wishes and buyers have no choice but to pay.

A) True
B) False

12.

The marginal revenue is the additional revenue generated by the last unit of labor hired.

A) True
B) False

13.

The price a monopolist charges may or may not be above its average cost but it is always above its MR.

A) True
B) False

14.

When demand curve is a downward-sloping straight line (linear) marginal revenue will be greater than MC at all output leveles.

A) True
B) False

15.

By setting its MR equal to its MC a monopolist determines the output that would maximize its profit.

A) True
B) False

16.

In the long run each competitive firm would produce at the quantity level where its MC is equal to its MR as well as its ATC.

A) True
B) False

17.

A monopoly always makes an economic profit.

A) True
B) False

18.

When a monopoly's ATC is equal to the price it charges it is making normal economic profits.

A) True
B) False

19.

When a monopoly is making a zero economic profit still its MR>ATC.

A) True
B) False

20.

An increase in demand would enable a monopolist to raise its price while reducing its output.

A) True
B) False

21.

The market supply curve in an increasing-cost industry is:

A) a. upward sloping
B) b. downward sloping
C) c. vertical
D) d. horizontal
E) e. none of the above

22.

The total producer surplus is measured by:

A) a. the area between supply and demand curves.
B) b. the difference between the price the consumer is willing and able to pay and the price suppliers wish to charge to maximize their profits.
C) c. the area between the price consumers actually pay and the demand curve.
D) d. the area between the equilibrium market price and the supply curve.
E) e. the consumer willingness to pay as reflected by the equilibrium market price.

23.

. Economists measure economic (social) welfare by the

A) a. net consumer surplus
B) b. sum of consumer and producer surplus
C) c. sum of the net profits made by the industry's competitive firms
D) d. price consumers are willing to pay for one additional unit of a good
E) e. difference between the total consumer surplus and total producer surplus

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1. Suppose that the total utility from consuming one unit of good X is 54 utils, the total utility of two units of good X is 74 utils, and the total utility of three units of good X is 84 utils. The marginal utility of the third unit is

a.70.67 utils.

b.10 utils.

c.12.25 utils.

d.20 utils.

2. If income rises, the budget constraint

a. Moves outward away from the origin

b. Does not move

c. Moves inward toward the origin

d. Moves farther down the vertical axis

3. Economists assume that the goal of consumers is to maximize total utility.

true/false

4. The budget constraint cuts the horizontal axis at 12 units of good X and it cuts the vertical axis at 20 units of good Y. If the price of good X is $20 and the price of good Y is $12, then what does income equal?

a. $200

b. $240

c. $520

d. $280

e. not enough information to answer this question

5. Consumer equilibrium exists when an individual

a. can be made better off by buying more of a normal good and less of an inferior good.

b. is receiving the same total utility from each of the goods he or she purchases.

c. is receiving the same marginal utility from each of the goods he or she purchases.

d. has the same MU/P ratio for each of the goods he or she purchases.

e. none of the above

6. Suppose you are eating buffalo wings at a local happy hour. The total utils from doing so after the fourth, fifth, sixth, and seventh wings are 30, 50, 65, 72, respectively. In this situation we have __________ marginal utility, which is generally __________ in the analysis of consumer choice.

a. diminishing; not assumed

b. increasing; assumed

c. diminishing; assumed

d. increasing; not assumed

7. Which of the following best describes an interpersonal utility comparison?

a. Usually, Smith seems a lot happier than Jones.

b. Smith gets more utility from working on his computer than Jones gets from working on his computer.

c. Smith usually eats more in a day than Jones eats in a day.

d. ones likes computers produced by Dell Computer Corporation and Smith likes computers produced by Apple Computer Inc

e. Smith got less utility from eating the 30th cookie than eating the 29th cookie, and the same holds for Jones.

8. We would expect the total utility of water to be high but its marginal utility to be low. Why?

a. Because we need water to live and there is so much of it.

b. Because we need water to live and there is very little of it.

c. Because water is a fluid and we don't need fluids to live as much as we need food

d. Because water's price is low.

9.The marginal utility curve for units 6 through 8 of good Z lies below the horizontal axis. What does this imply must be true about the total utility curve for units 6 through 8 of good Z?

a. That portion of good Zâs total utility curve must also lie below the horizontal axis.

b. That portion of good Zâs total utility curve must be upward sloping.

c. That portion of good Zâs total utility curve must be horizontal.

d. That portion of good Zâs total utility curve must be downward sloping.

10. Research presented in the text shows that people are more concerned with their absolute income position in a group than their relative income position in the group.

true/false

ECON 1 Lecture Notes - Lecture 30: Competitive Equilibrium, Marginal Cost, Marginal Utility

ECON 1 Lecture Notes - Lecture 1: Comparative Advantage, Corn Laws

ECON 1 Lecture Notes - Lecture 2: Demand Curve, Competitive Equilibrium

ECON 1 Lecture Notes - Lecture 30: Competitive Equilibrium, Marginal Cost, Marginal Utility

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