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ECON 103 Chapter Notes - Chapter 9: Opportunity Cost, Production Function, Average Variable Cost

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magentamoose283
23 Oct 2015
School
Simon Fraser University
Department
Economics
Course
ECON 103
Professor
Douglas Allen

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Document Summary

9. 0. 1 all rms are price taker - has no impact on its price, it is so small compare to the size of the market. 9. 0. 2 competitive rms ignore their rivals and make output decisions based only on prices. 9. 0. 3 there is no strategic behaviour on the part of rms. 9. 0. 4 the competitive firm: each rm is price taking, ignores its rivals output decisions, and doesn"t engage in strategic behaviour. 9. 0. 5 its demand curve is at and just equal to the price. 9. 0. 6 consumers think of one competitive rm as being a perfect substitute for every other price taking rm. 9. 0. 7 the demand curve is also equal to the marginal and average revenue for the rm. 9. 0. 8 marginal revenue - change in total revenue / change in output. 9. 0. 9 average revenue - total revenue / total output. 9. 0. 10 when the price is xed the demand curve is the price = mr = ar.

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Related Questions

Suppose that a monopolist farm's demand curve is given by p=210-4y and it faces a constant marginal cost of $10. Answer the following questions:

a) what is the profit maximization output for this monopolist? how much total revenue does it earn at this profit maximization level of the output?

b) Suppose that the marginal cost increases to $20. How does total revenue change?

c) Now consider a perfectly competitive industry with a constant marginal cost of $10 for each rm. Find the optimal level of market output and the corresponding price in this industry.

d) Suppose that the marginal cost of each rm in this perfectly competitive industry increases to $20. How does total industry revenue change?

e) Compare and discuss your answers to parts (b) and (d).

A. A competitive firm

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

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

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

C.Ā Along a downward-sloping monopoly demand curve,

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

D.Ā 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

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

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

  1. the marginal revenue curve.
  2. perfectly inelastic.
  3. always equal to marginal cost.
  4. the same as the market demand curve

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

  1. monopolistic
  2. oligopolistic
  3. monopolistically competitive
  4. perfectly competitive

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

  1. total revenue will fall if the price increases.
  2. total revenue will be unchanged if the price increases.
  3. total revenue will rise if the price increases.
  4. the total supply will increase by an equal amount if demand increases.
  5. the price will be unchanged if total revenue increases

H. Monopolistic competition and oligopoly are examples of

  1. monopoly.
  2. perfect competition.
  3. theories of consumer behavior.
  4. imperfect competition.
  5. the extreme cases on the market structure continuum

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

  1. perfect competition
  2. monopolistic competition
  3. oligopoly
  4. monopoly

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

  1. economic profits are zero.
  2. TR > TC.
  3. TR < TC.
  4. P = AVC.
  5. normal profits are zero.

(a) Explain the difference between average, total, and marginal revenue? What is the shape of the total and marginal revenue curves for the individual perfectly competitive firm? [5marks]

(b) Why does price equal marginal revenue for the perfectly competitive firm? What is the relationship to the demand curve for the firm? [5marks]

(c) Why is the level of output at which marginal revenue equals marginal cost the profitmaximizing output? [5marks]

(d) What conditions are necessary to determine if the purely competitive firm should produce in the short run? State the marginal revenue and marginal cost conditions and the total revenue and total cost conditions.