ECON 1B03 Lecture Notes - Production Function, W. M. Keck Observatory, Marginal Product

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ECON 1B03 Full Course Notes

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Econ 1b03 - chapter 13 cost of production. The economic goal of every firm is to maximize its profit. Total revenue, rv: the amount a firm receives for the sale of its output. Total cost, tc: the market value of the inputs a firm uses in production. Profit, ii, is the firm"s total revenue minus its total cost. Profit = total revenue total cost. A firm"s cost of production includes all opportunity costs of making its output of goods and services. Explicit and implicit costs: a firm"s cost of production include explicit costs and implicit costs, explicit costs: require a direct outlay of money (can get a receipt). Implicit costs: don"t require a direct outlay of money (money you could have made if you invested in ________ instead of upgrading the computer in your office). Economists measure a firm"s economic profit as total revenue minus total cost, including both explicit and implicit costs, i. e, total opportunity costs.

Related Questions

(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 = $______

If a monopolist or a perfectly competitive firm is producing at a break-even point, then:
i. average revenue is equal to average variable cost
ii. average revenue is equal to average total cost
iii. total revenue is equal to total variable cost
iv. total revenue is equal to total cost

iii

i and iii

ii and iv

A natural monopoly, such as a local electricity provider, is the result of:
i. a firm owning or controlling a key input used in the production process
ii. economies of scale existing over a wide range of output
iii. long-run average total costs declining continuously as output increases
iv. long-run total costs declining continuously as output increases

What do economies of scale, the exclusive ownership of essential raw materials used in the production process, and patents have in common?

they are all barriers to entry

they all help explain why a monopolists demand and marginal revenue curves are identical

they must all be present before a monopolist may practice price discrimination

they all help explain why a firms short run average total cost curve is U-shaped

#10

The principle that a firm should produce up to the point where the marginal revenue (MR) from the sale of an extra unit of output is equal to the marginal cost (MC) of producing the extra unit applies:

to both perfectly competitive firms and monopolies

only to monopolies

only to perfectly competitive firms

only to firms that can employ discriminatory pricing strategies

#11

A monopoly is producing a level of output such that marginal revenue is equal to marginal cost. The firm is selling its output at a price of $8 per unit and is incurring average variable costs of $5 per unit and average total costs of $10 per unit. Given this information, it may be concluded that the firm:

is operating at maximum total profit

is operating at a loss that could be reduced by shutting down

is operating at a profit that could be increased by producing more output

is operating at a loss that is less than the loss incurred by shutting down

#12

Suppose the demand function for a profit maximizing monopolists good is P = 120 - 0.2Q, its total cost function is TC = 40 + 4Q + Q2, and its marginal cost function is MC = 4 + 2Q. If the firm uses a uniform pricing strategy, then rounded to the nearest unit of output and to the nearest dollar the firm will:

produce 48 units of output, charge a price of $110, and earn a total profit of $5280

produce 48 units of output, charge a price of $110, and earn a total profit of $2744

produce 52 units of output, charge a price of $134, and earn a total profit of $5322

produce 52 units of output, charge a price of $134, and earn a total profit of $4016

magentabuffalo597

Question 3

We saw in class that the same good can fall in different categories (public/private/club/common resource) depending on circumstances. An example of such a good would be watching a movie at the theater. If a lot of people want to watch it, the movie is a _________. If very few people want to watch it (to the point where a room could not even be filled), the movie is likely to be a _______.

A. a common resource; a public good

B. a public good; a common resource

C. a private good; a club good

D. a club good; a private good

3 points

Question 4

Which of the following statements about the free-rider problem is not true?

A. Individuals have an incentive to free-ride when the good is not excludable.

B. The kinds of goods for which the free rider problem arises are common resources and public good.

C. Markets for goods for which there is a free-rider problem are inefficient because not enough of the good is produced.

D. Goods for which the free-rider problem exists tend to be over provided relative to what would be optimal.

4 points

Question 5

To achieve the efficient provision of public goods, the

A. market should be allowed to operate without government intervention.

B. government must limit the provision of those goods.

C. government must tax producers of those goods.

D. government must either provide those goods or subsidize their production.

3 points

Question 6

Which of the following statements about public goods is not true?

A. Because people cannot be excluded from their consumption and thus have no incentive to pay for them, public goods are underprovided by the market.

B. Efficiency requires that the government provide or fund (subsidize) the provision of all public goods.

C. Efficiency requires that the government provide or fund only the public goods that create more benefits than costs to society.

D. In reality, it is hard to provide public goods efficiently.

3 points

Question 7

Public goods must be provided by the government as the market on its own will fail to provide them. However, even with government provision it is very hard to achieve efficiency. Why?

A. In reality, it is very hard (if not impossible) to accurately estimate the benefits of providing a public good.

B. A. In reality, there can be overruns in the cost of providing the public good.

C. Government decisions about which public goods to provide can be influenced by lobbying by interest groups.

D. All of the above are true.

4 points

Question 8

Which of the following is not a common resource?

A. congested roads

B. clean water

C. wild life, which hunters want to hunt and others want to view.

D. a fireworks display.

3 points

Question 9

Many species of animals must be protected by law to keep them from extinction. Why are cows not one of these endangered species even though there is such a high demand for beef?

A. Cows reproduce at a high rate and have adapted well to their environment.

B. Public policies protect cows from predators and diseases.

C. Cows are privately owned (private goods), whereas many endangered species are owned by no one (common resources).

D.There is a natural ecological balance between the birth rate of cows and human consumption.

3 points

Question 10

Which of the following statements about common resources is not true?

A. Due to the free-rider problem, common resources tend to be overused.

B. Because there is rivalry in the consumption of common resources, whenever one person uses a common resource it is imposing a negative externality on others who might also want to use it.

C. There are no private solutions to the management of common resources.

D. One of the solutions that ensures that common resources are properly managed is their privatization.

3 points

Question 11

In our analysis of the firmâs behavior and goals, when we talk about cost, we include _________, and when we talk about profit, we mean ________.

A. Explicit costs only; economic profit

B. Implicit costs only; economic profit

C. Implicit costs only; accounting profit

D. Explicit + implicit costs; economic profit

E. Explicit + implicit costs; accounting profit

3 points

Question 12

One of the differences between explicit and implicit costs is that

A. explicit costs must be greater than implicit costs.

B. explicit costs do not require a direct monetary outlay, whereas implicit costs do.

C. implicit costs do not require a direct monetary outlay, whereas explicit costs do.

D. implicit costs must be greater than explicit costs.

3 points

Question 13

Which of the following is FALSE:

A. If accounting profit is zero, then economic profit is negative

B. Economic profit takes cost the opportunity cost of time and capital into account

C. Economic Profit = Accounting Profit + Implicit Cost

D. Economic Profit = Accounting Profit â Implicit Cost

3 points

Question 14

Which of the following is an example of an implicit cost?

(i) the owner of a firm forgoing an opportunity to earn a large salary working in Wall Street

(ii) interest paid on the firm's debt

(iii) rent paid by the firm to lease office space

A. (ii) and (iii) only

B. (i) and (iii) only

C. (i) only

D. (iii) only

3 points

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ECON 1B03 Lecture Notes - Production Function, W. M. Keck Observatory, Marginal Product

ECON 1B03 Full Course Notes

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