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ECON 101 Lecture Notes - Lecture 27: Shortage, Demand Curve, Market Power

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School
U of M
Department
Economics
Course
ECON 101
Professor
Chad Hogan

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ECON 101 Full Course Notes
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ECON 101 Full Course Notes
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Document Summary

P > min atc then choose a q so that mc = p. P < min atv then shut down. P > min avc then choose q so that mc = p. P < min avc then shut down. Firms might produce at a loss in the short run. If min avc < p < min atc. Will never produce at a loss in the long run. Firms are able to enter and exit the industry. These are actions available to individual firms in the long run. Entry or exit occurs in response to firm profit levels. Marginal firm must produce at a minimum atc. Mc = atc atc is at a minimum. If all firms have access to the same technology and the same factor markets, then: Left: what"s going on for an individual firm. Each firm produces at q0 because that is where atc = mc. Sell at the price of the minimum atc.

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Related Questions

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.

Explain: The short-run rule for operating or shutting down is P > AVC, operate; P < AVC shut down. The long-run rule for continuing in the business or exiting the industry is P = ATC, continue; P < ATC, 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