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ECON 101 Chapter Notes - Chapter 14: Marginal Revenue, Marginal Cost, Profit Maximization

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bronzesardine236
23 Nov 2017
School
UBC
Department
Economics
Course
ECON 101
Professor
Ratna Shrestha

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ECON 101 Full Course Notes
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ECON 101 Full Course Notes
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Document Summary

Characteristics: many buyers & sellers, goods offered are regarded as equivalent by buyers, firms can freely enter/exit market. Revenue: quantity, price, total revenue: p x q, average revenue: tr / q, marginal revenue: change tr / change q, marginal cost: change in tc / change in q. Profit maximization: quantity, total revenue, total cost: tr - q, profit: tr - tc, marginal revenue, marginal cost, change in profit: mr - mc. Short-run supply curve: positive output short-run supply curve: mc equal or > avc, mc > atc: profit, mc < atc: loss, mc = atc: break even, either shut down or produce, q: either 0 or x. Long-run supply curve: entry & exit, perfectly elastic supply curve, 2 reasons for upward supply curve slope, some resources used in production are used only in limited q, firms may have different costs.

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Related Questions

Given following Price and Total Cost functions:

P = 120 - 7Q

TC = 40 + 70Q - 10Q2 + 0.6Q3

Where P = price, and Q is output.

Fill in the table below and answer the questions below the table.

Q

P

FC

TVC

TC

TR

Profit

0

 Ā  Ā  Ā  Ā  Ā  Ā 

1

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2

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6

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7

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10

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If your company's goal is to maximize profit, answer the following questions below:

What price will you charge for your product?

What quantity will you produce?

And what would be your maximum profit or minimum loss at the price and output you chose?

2. If your company's goal is to maximize total revenue, answer the following questions below:

What price will you charge for your product?

What quantity will you produce?

And what would be your maximum total revenue at the price and output you chose? (3 points)

Question 3

Given a firm with the following cost data, fill in the table below.

Q = OUTPUT TFC = Total Fixed Cost AVC = Average Variable Cost ATC = Average Total Cost TVC = Total Variable Cost MC = Marginal Cost TC = Total Cost

Ā 

Q

FC

TVC

TC

AVC

ATC

MC

0

 Ā  Ā  Ā 

---

---

---

1

 Ā  Ā  Ā  Ā  Ā 

10

2

 Ā  Ā  Ā  Ā  Ā  Ā 

3

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10

 Ā 

10

4

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Your firm is one of 100 identical firms operating in the short-run in a perfectly competitive market. Your total cost function (short-run and long-run) is C = 500 + 20 q + q2, and your marginal cost function is MC = 20 + 2q. The (short-run and long-run) market demand curve is given by Q = 4,500 - 5P.

a. Find the supply curve for your firm. Then, find the short-run market supply curve. Show work.

b. Find equilibrium price, P*, and quantity, Q*, in the market in the short-run. Show work.

c. Find your firm's total revenue, total cost, and profit in the short-run. Show work.

d. Find the minimum efficient scale (MES) for your firm. Show work. Find the long-run equilibrium price in the market after entry or exit has occurred. Show work.

The market for wheat consists of 500 identical firms, each with the total and marginal cost functions shown:

TC = 90,000 + 0.00001Q2

MC = 0.00002Q,

where Q is measured in bushels per year. The market demand curve for wheat is Q = 90,000,000- 20,000,000P, where Q is again measured in bushels and P is the price per bushel.

a. Determine the short-run equilibrium price and quantity that would exist in the market.

b. Calculate the profit-maximizing quantity for the individual firm. Calculate the firm's short-run profit (loss) at that quantity.

c. Assume that the short-run profit or loss is representative of the current long-run prospects in this market. You may further assume that there are no barriers to entry or exit in the market. Describe the expected long-run response to the conditions described in part b. (The TC function for the firm may be regarded as an economic cost function that captures all implicit and explicit costs.)