ECO105Y1 Chapter Notes - Chapter 9: Creative Destruction, Marginal Cost, Landing Fee

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2 Dec 2016

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The business recipe for maximum profits: estimate marginal revenues and marginal costs, and then set the highest price that allows you to sell the highest quantity for which marginal revenue is greater than marginal cost. Marginal revenue - additional revenue from more sales or from selling one more unit. Calculate as the change in total revenue / revenue from selling one more unit of the product or service. Additional cost must pay to produce more units. Fixed cost (sunk cost) do not change (e. g. rent, insurance) with change in the quantity of output. Fixed cost do not affect smart decisions. Choose when marginal revenues are greater than marginal costs. Key 1 of smart choice choose only when additional benefits are greater than additional opportunity cost. One price rule when buyers can resell. Most products and services have only one price, not a different for each customer. Lower price customer resells the product to make money.

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.

Suppose Wendy's Coffee Factory produces and sells in a perfectly competitive market. At Wendy's current level of production, she is producing the profit-maximizing level of coffee. At this quantity the average total cost of a pound of coffee is $5 and marginal revenue is $7. Given this information, what will be the long run equilibrium price of a pound of Wendy's coffee?

A) Greater than $7 (B) $7 (C) Between $5 and $7 (D) $5 (E) Less than $5.

Therefore, which of the following is not true for a firm in perfect competition?

A) Marginal revenue equals the change in total revenue from selling one more unit. (B) Profit equals total revenue minus total cost.

Any help would be appreciated, thanks!

raspberrycrow658

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.

ECO105Y1 Chapter Notes - Chapter 9: Creative Destruction, Marginal Cost, Landing Fee

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