ECON 2310 Chapter Notes - Chapter 9: Fixed Cost, Market Power, Marginal Revenue

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5 Dec 2013

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Profit- is equal to a firm"s revenue minus its costs. Inverse demand function- describes how much the firm must charge to sell any given quantity of its product. Marginal revenue- a firm"s marginal revenue at units equals the extra revenue produced by the marginal units sold, measured on a per unit basis. Infrramarginal units- the units the firm sells other than the marginal units. Price taker- a firm is a price taker when it can sell as much as it wants at some given price , but nothing at any higher price. Supply function- the supply function of a price taking firm tells us how much the firm wants to sell at each possible price . Law of supply- when the market price increases, the profit-maximizing sales quantity for a price-taking firm never decreases. Finding the profit-maximizing sales quantity using marginal revenue and. Quantity rule: identify and positive sales quantity at which .

Related Questions

Assume that for a perfectly competitive firm marginal revenue equals rising marginal cost at 100 units of output. At this output level, the firm's total fixed cost is $600 and its total variable cost is $400. If the price of the product is $10 per unit, the firm should produce

Select one:

a. zero units of output.

b. less than 100 units of output.

c. 100 units of output.

d. more than 100 units of output.

e. Cannot be determined from the information given.

When the marginal-cost curve lies below the marginal-revenue curve

Select one:

a. the firm cannot improve its profit since revenue is already greater than cost.

b. marginal revenue is greater than marginal cost, and the firm should therefore increase production to increase profits.

c. marginal revenue is greater than marginal cost, and the firm should therefore decrease production to increase profits.

d. marginal revenue is less than marginal cost, and the firm should therefore decrease production to increase profits.

e. it is not possible for this firm to increase profits since it is failing to operate at an efficient point.

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.

20) When price is less than average variable cost at the profit-maximizing level of output, a firm should: A) continue to produce the level of output at which marginal revenue equals marginal cost if it is operating in the long run. B) shutdown, because it cannot even cover all of its variable costs let alone its fixed costs if it stays in business. C) shutdown, because it will lose nothing in that case. D) continue to produce the level of output at which marginal revenue equals marginal cost if it is operating in the short run. 21) When price is greater than average variable cost but less than average total cost at the profit-maximizing level of output, a firm should: A) continue to produce the level of output at which marginal revenue equals marginal cost. B) shutdown to minimize its losses. C) reduce output to the level at which price equals average variable cost to minimize its losses. D) increase output to minimize its losses. 22) Assume that at the current market price, a perfectly competitive firm's profit-maximizing level of output yields total revenues that are just equal to total costs. Which of the following statements applies to this firm? A) The firm should increase its explicit costs to reduce its tax burden. B) The firm should shut down right now. C) The firm should continue to operate in the short run to minimize losses, but shut down if things don't improve over the long run. D) The firm is earning zero economic profit and should continue to operate. 23) The perfectly competitive firm's supply curve: A) coincides with its perfectly elastic demand curve. B) is the firm's average total cost curve above the shutdown point. C) is perfectly inelastic at the market price. D) is the firm's marginal cost curve above the minimum point on the AVC curve. 24) Assume there is a decrease in the market demand for a good sold by price-taking firms that are initially producing the profit-maximizing level of output. How will the market adjust over time? A) Firms will exit the market, causing price to rise until losses are eliminated. B) Firms will exit the market, causing price to fall until positive profits are eliminated. C) Firms will enter the market, causing price to fall until positive profits are eliminated. D) Firms will enter the market, causing price to rise until losses are eliminated. 25) What is the "most efficient capacity" for the perfectly competitive firm? A) The plant size for which Price = AR. B) The plant size at which LRAC is at its minimum. C) The plant size at which MR = MC. D) The plant size at which any of the SRATC curves are tangent to the LRAC curve.

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ECON 2310 Chapter Notes - Chapter 9: Fixed Cost, Market Power, Marginal Revenue

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