🏷️ LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION →
Log in
HomeTextbook Notes300,000CA170,000

ECON 1B03 Chapter Notes - Chapter 8: Perfect Competition, Pyrroloquinoline Quinone, Marginal Revenue

89 views11 pages
School
McMaster University
Department
Economics
Course
ECON 1B03
Professor
Hannah Holmes

For unlimited access to Textbook Notes, a Class+ subscription is required.

Shanghaibalcony1234 and 37744 others unlocked
ECON 1B03 Full Course Notes
46
ECON 1B03 Full Course Notes
Verified Note
46 documents

Document Summary

Module 4, unit 8. 1: perfect competition in the short run: So, when tr > tc there is profit. How much revenue a firm receives for the typical unit sold. Ar = p (ar = tr/q = pq/q = p) Mr is the slope of the total revenue function. The change in total revenue from an additional unit sold. Since tr = pq, if q is increased by 1 tr will increase by the p of the good. Mr = p, in a perfectly competitive firm. Ex: j&h dairy produces and sells cheese in a perfectly competitive market. The market price for cheese is /250g brick. A profit-maximizing firm will produce a quantity of output at the point where mr = mc. In the example, mr = mc at a quantity of 6. In perfect competition only, a firm will produce where p = mc. Where mr > mc, the firm should increase q (add more to tr)

Get access

Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers
Class+
$8 USD/m
Billed $96 USD annually
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
30 Verified Answers

Related Documents

ECON 1B03 Chapter Notes - Chapter 14: Marginal Revenue, Perfect Competition
azuremuskrat35

Related Questions

PROFIT MAXIMIZATION

Reminders:

Q: Quantity, TC: Total Costs, VC: Variable Costs, MC: Marginal Costs, MR: Marginal Revenue, TR: Total Revenue

1. Suppose the market for DVD movies is perfectly competitive. The industry price for the movies is $24, and a typical firm has the following total cost data:

Q

TC

VC

MC

MR

TR

Net Profit

0

10

1

33

2

53

3

70

4

90

5

114

6

143

a. Calculate the TR, MR, and MC for each level of output.

b. What condition must be met for the firm to maximize profits? What is the profit maximizing level of output and price for this firm? How much profit would be made?

2. Now suppose that some firms have been able to differentiate their DVDs, and the market has become monopolistically competitive. A typical firm now has the following demand schedule and total cost data:

Q

P

TC

VC

MC

MR

TR

Net Profit

0

40

8

1

35

20

2

30

28

3

25

40

4

20

56

5

15

76

6

10

100

a. Calculate the TR, MR, and MC for each level of output.

b. What condition must be met for the firm to maximize profits? What is the profit maximizing level of output and price for this firm? How much profit would be made?

(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 “monopoly power”? ______________________

How do you know? ________________________________________________

Fill in the blanks in the table above.

How much output should this firm produce to maximize it’s 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 = $______

Suppose that a firm faces the demand curve, P = 100 - 3Q, where P denotes price in dollars and Q denotes total unit sales. The cost equation is TC = 200 + 22Q.

A. Determine the firm’s profit-maximizing output and price.

B. Suppose that there is a change in the production process so that the cost equation becomes TC = 80 + 12Q + Q2. Determine the resulting effect on the firm’s output and price.

C. Compared to the two different cost structures in part a and b, what has happened to the Total cost and Marginal cost at the original quantity found in part a? Also, comment on your findings here as it relates to the quantity values computed in parts a and b.

D. Suppose that the firm sells in a competitive market and faces the fixed price: P = $48. State the Total Revenue (TR) and Marginal Revenue (MR) functions, and using the cost function in part b, find the firm’s new optimal quantity.