ECON 101 Lecture Notes - Lecture 40: Market Power, Marginal Revenue, Perfect Competition

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Pro t maximization assumption: we assume that rms attempt to maximize pro ts, pro t= total revenue - total cost. Perfect competition de nitions: price takers- takes market price that is given. Conditions: for an industry to be competitive > must contain many producers, none of whom. 2. have a large market share: market share- fraction of total industry output a rm has. Industry firm graph: supply/demand of industry > price of it > demand curve of individual rms cause there"s nothing they can do about price, demand curve is essentially perfectly elastic because there are an infinite. Amount of substitutes: ex: no one cares what fucking store of frozen yogurt you"re buying > all tastes the same and they"re everywhere. Pro t in perfect competition: pro t = tr tc. 2: tc = fc + vc > pro t = tr (fc + vc) If price is not greater than avc > shutdown.

Related Questions

A small firm faces an inverse demand function of P = 100 - Q. Its total cost function is given by TC = .5Q2. (You should see right away that marginal revenue is thus MR = 100 - 2Q, and it also happens that marginal cost is just MC = Q. Both MR and MC are the first derivatives of total revenue and total cost. And a quick comment on MC: unlike some marginal cost functions we've seen, this one is not constant, because marginal cost is getting $1 higher with each additional unit of output.)

The Chief Executive Officer will manage the firm, choosing output and price. Currently, the CEO is negotiating an incentive-based contract with the shareholders of the company.
(Hint: basing compensation on revenue will motivate revenue maximization rather than profit maximization!)

Hint: since the plan creates incentives for the CEO to maximize revenue rather than profit, you should not set MR = MC at this point. BIG hint: revenue is maximized when selling an additional unit won't increase your revenue, or in math terms, when MR = 0.)

Owners' proposal: CEO keeps 10% of TR.

Firm price:
Firm output:
Total revenue:
Firm profit:
CEO compensation:
Remaining profit for owners:

redfrog477

A. A competitive firm

can consider only its location in setting the price.
must base its competitive price on product differentiation.
has the ability to set its own price.
must accept the price determined by the intersection of the market supply and demand curves.
has no supply curve.

B. If a firm is making an economic profit, then

the factors of production are being paid their opportunity costs.
there will be no change in the number of firms if the industry is perfectly competitive.
the factors of production are being paid less than their opportunity costs.
the factors of production are being paid more than their opportunity costs.
the firm will exit the industry

C. Along a downward-sloping monopoly demand curve,

marginal revenue is greater than price.
the elasticity of demand is constant.
marginal revenue decreases when the price decreases.
marginal revenue is equal to zero when the price is equal to zero

D. If, in the short run, a perfectly competitive firm is producing at a point where the total cost is greater than total revenue, then the firm should

shut down because economic profits are negative.
continue to produce as long as P > AVC.
continue to produce because accounting profits are positive.
set a higher price for its output.
set a lower price for its output

E. For a perfectly competitive firm, the demand curve is

the marginal revenue curve.
perfectly inelastic.
always equal to marginal cost.
the same as the market demand curve

F. A firm in a(n) industry will have the most elastic demand curve

monopolistic
oligopolistic
monopolistically competitive
perfectly competitive

G. If the demand curve of a monopolist is in the inelastic range, then

total revenue will fall if the price increases.
total revenue will be unchanged if the price increases.
total revenue will rise if the price increases.
the total supply will increase by an equal amount if demand increases.
the price will be unchanged if total revenue increases

H. Monopolistic competition and oligopoly are examples of

monopoly.
perfect competition.
theories of consumer behavior.
imperfect competition.
the extreme cases on the market structure continuum

I. Under which market structure do firms face the flattest (most elastic) demand curve?

perfect competition
monopolistic competition
oligopoly
monopoly

J. At the point of long-run equilibrium for a perfectly competitive firm,

economic profits are zero.
TR > TC.
TR < TC.
P = AVC.
normal profits are zero.

brownlouse308

(1)	(2)	(3)	(4)	(5)	(6)	(7)
Output (Q)	Price per Unit (P)	Total Revenue (TR)	Marginal Revenue (MR)	Total Cost (TC)	Average Total Cost (ATC)	Marginal Cost (MC)
0	$10			$8
1	9			11
2	8			12
3	7			15
4	6			24
5	5			35
6	4			48

Does this data represent the revenues and costs of a perfect competitive firm or a firm with some degree of âmonopoly powerâ? ______________________

How do you know? ________________________________________________

Fill in the blanks in the table above.

How much output should this firm produce to maximize itâs profit? _____units. What price should this firm charge for its product? $_____ per unit.

This choice of output and price will lead to an economic profit = $______

ECON 101 Lecture Notes - Lecture 40: Market Power, Marginal Revenue, Perfect Competition

ECON 101 Full Course Notes

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