ECON-221 Chapter Notes - Chapter 8: Average Variable Cost, Marginal Revenue, Profit Maximization

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turquoiseturtle299

13 Oct 2020

School

Diablo Valley College

Department

Economics

Course

ECON-221

Professor

yoon

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Document Summary

Profit = total revenue total costs. To maximize profit, marginal revenue = marginal costs. Produce the level of output for which p = mc provided that p > avc. If p < avc at all levels of output, shut down and produce nothing. Law of supply: producers offer more of a product for sale when its price rises. Supply curves are essentially marginal cost curves and because of the law of diminishing returns, marginal costs curves are upward sloping in the short run. For every price/quantity pair along the market supply curve, price will be equal to each seller"s marginal cost of production. At every point along a market supply curve, price measures what it would cost producers to increase production by one unit. Applying the theory of supply: theory continue to expand output until marginal cost is equal to the price of the product. Incentive principle how producers respond to changes in incentives they face in the market.

Related Questions

1.Profit maximizing firms should increase output to the point where:

a.Total revenue is largest

b.Total revenue just exceeds total costs

c.An increase in revenue is just offset by an increase in cost.

d.Fixed costs are covered

e.Total cost is minimized

2.The Golden Rule of Output Determination for a perfectly competitive firm is to:

a.Choose the output rate at which price is greatest.

b.Choose the output rate at which marginal revenue equals marginal cost.

c.Produce to the point of diminishing marginal returns

d.Produce until total revenue exceeds total cost.

e.Choose the output rate at which total cost is the lowest.

3.Which of the following conditions would indicate that a perfectly competitive firm should expand output to increase its profit?

a.Marginal cost equals average cost

b.Total cost exceeds marginal cost

c.Price exceeds marginal cost

d.Total revenue exceeds total costs

e.Total revenue equal price

4. It would not pay a firm to produce anything in the short run if the price were:

a.Above average total costs

b.Equal to marginal cost and above the average variable cost.

c.Equal to total revenue divided by output

d.Below average variable cost

e.Below marginal average cost

rubydolphin297

The total cost of production equals

Select one:

a. average total cost + average variable cost

b. average total cost + average fixed cost

c. average variable cost + average fixed cost

d. total fixed cost + total variable cost

e. marginal cost + total variable cost

If a firms output equals 10, product price equals $5.00, TFC = $8.00, and TVC = $60.00, then the firms profit would equal

Select one:

a. $.80

b. $1.80

c. $80.00

d. -$16.80

e. -$18.00

The difference between variable cost and fixed cost is that

Select one:

a. fixed cost is paid even when there is no output

b. fixed cost is always falling as output increases

c. variable cost only increases for a while and then it decreases

d. fixed cost is always less than variable cost

e. fixed cost is not paid once production begins

A local bagel company plans to keep and maintain its bagel factory, which is estimated to last 25 years. All cost decisions it makes during the 25-year period

Select one:

a. are short-run decisions

b. are long-run decisions

c. involve only maintenance of the factory

d. are zero, since the cost decisions were made at the beginning

e. involve both fixed and variable cost

Total cost divided by quantity of output is

Select one:

a. average variable cost

b. average total cost

c. average fixed cost

d. marginal cost

e. total variable cost

1. Fixed costs of production in the short run:

A. Cannot be reduced by producing less output

B. Are a function of the level of variable costs

C. Are low in proportion to variable costs in the short run

D. Increase as the firm produces more output

2. Marginal cost can be defined as the:

A. Change in total fixed cost resulting from one more unit of production

B. Change in total cost resulting from one more unit of production

C. Change in average total cost resulting from one more unit of production

D. Change in average variable cost resulting from one more unit of production

3. Which of the following is true under conditions of pure competition?

A. There are differentiated products

B. The market demand curve is perfectly elastic

C. No single firm can influence the market price by changing its output

D. Each individual firm has the ability to set its own price

crimsonalligator541

ECON-221 Chapter Notes - Chapter 8: Average Variable Cost, Marginal Revenue, Profit Maximization

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