ECON 2030 Chapter : Chapter 11 Notes

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15 Mar 2019

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Today"s menu: wednesday 30 september 2015: business, practice problems, chapter 11: 1-4, 7-11, 18, 19. This purpose we assume is that they want to achieve product maximization. Or mr= change in tr divided by change in q. Or mc= change in tc divided by change in q: marginal cost (mc, total cost (tc) Tr- explicit= acct profit from what we do. Implicit = acct profit from what were not doing. This means that accounting profit from what we"re doing must be positive as well as equal to the accounting profit of what we"re not doing. Equilibrium: examples, costs, total (tc) = (fixed+ variable costs, fixed (fc) = cost which doesn"t change as we change our level of output. Ccorndog example, if you produce 3 hotdogs per day . Your rent won"t change: variable (vc, marginal (mc, average, average/marginal cost relationship, examples, total (atc, fixed (afc, variable (avc, time, short run, long run, definition, definition.

Related Questions

NUMBER 1.

a. A firm is currently producing 40 units of output. At this level of ouput produced:

. Its average total cost is 130 (ATC = 130)

. The price per unit of output is 150

. MR = 30

. MC = 50

i. Is this firm making profits or losses? How much?

ii. Are they mÃ¡ximum profits? Why?

iii. If your answer to part ii. was no, what does this firm have to do to maximize its profits?

NUMBER 2.

A firmâs total cost and marginal cost functions are

TC = 10 Q² + 2 Q â 2 ; MC = 20 Q + 2.

Asuming that the market price is 42 and that the marginal revenue (MR) is also 42 (it is constant at all output levels), how much output will this firm sell (produce) to maximize profits?

If a monopolist or a perfectly competitive firm is producing at a break-even point, then:
i. average revenue is equal to average variable cost
ii. average revenue is equal to average total cost
iii. total revenue is equal to total variable cost
iv. total revenue is equal to total cost

iii

i and iii

ii and iv

A natural monopoly, such as a local electricity provider, is the result of:
i. a firm owning or controlling a key input used in the production process
ii. economies of scale existing over a wide range of output
iii. long-run average total costs declining continuously as output increases
iv. long-run total costs declining continuously as output increases

What do economies of scale, the exclusive ownership of essential raw materials used in the production process, and patents have in common?

they are all barriers to entry

they all help explain why a monopolists demand and marginal revenue curves are identical

they must all be present before a monopolist may practice price discrimination

they all help explain why a firms short run average total cost curve is U-shaped

#10

The principle that a firm should produce up to the point where the marginal revenue (MR) from the sale of an extra unit of output is equal to the marginal cost (MC) of producing the extra unit applies:

to both perfectly competitive firms and monopolies

only to monopolies

only to perfectly competitive firms

only to firms that can employ discriminatory pricing strategies

#11

A monopoly is producing a level of output such that marginal revenue is equal to marginal cost. The firm is selling its output at a price of $8 per unit and is incurring average variable costs of $5 per unit and average total costs of $10 per unit. Given this information, it may be concluded that the firm:

is operating at maximum total profit

is operating at a loss that could be reduced by shutting down

is operating at a profit that could be increased by producing more output

is operating at a loss that is less than the loss incurred by shutting down

#12

Suppose the demand function for a profit maximizing monopolists good is P = 120 - 0.2Q, its total cost function is TC = 40 + 4Q + Q2, and its marginal cost function is MC = 4 + 2Q. If the firm uses a uniform pricing strategy, then rounded to the nearest unit of output and to the nearest dollar the firm will:

produce 48 units of output, charge a price of $110, and earn a total profit of $5280

produce 48 units of output, charge a price of $110, and earn a total profit of $2744

produce 52 units of output, charge a price of $134, and earn a total profit of $5322

produce 52 units of output, charge a price of $134, and earn a total profit of $4016

magentabuffalo597

1.
A monopolist faces the following demand curve:

Price Quantity Demanded

$51 1

$47 2

$42 3

$36 4

$29 5

$21 6

$12 7

The monopolist has total fixed costs of $60 and has a constantmarginal cost of $15. What is the profit-maximizing level ofproduction?

A) 5 units
B) 3 units
C) 2 units
D) 4 units
2.
A monopolist faces the following demand curve:

Price Quantity Demanded

$10 5

$9 10

$8 16

$7 23

$6 31

$5 49

$4 52

$3 60

The monopolist has total fixed costs of $40 and a constant marginalcost of $5. At the profit-maximizing level of output, themonopolistâs average total cost is

A) $6.74
B) $9.00
C) $7.50
D) $5.82
3.
A monopoly market

A) generally fails to maximize total economic well-being.
B) generally fails to maximize producer surplus.
C) always maximizes total economic well-being.
D) always minimizes consumer surplus.
4.
For a monopoly, the supply curve is a portion of its
A) none of the above; a monopoly does not have a supplycurve.
B) average total cost curve.
C) marginal revenue curve.
D) marginal cost curve.
5.
A monopoly firm can sell 200 units of output for $36.00 per unit.Alternatively, it can sell 201 units of output for $35.80 per unit.The marginal revenue of the 201st unit of output is
A) $â35.80.
B) $4.20.
C) $â4.20.
D) $35.80.
6.
If a monopolist sells 100 units at $8 per unit and realizes anaverage total cost of $6 per unit, what is the monopolist'sprofit?
A) $800
B) $400
C) $600
D) $200
7.
A monopolist is a price
A) setter, and therefore has no demand curve.
B) setter, and therefore has no supply curve.
C) taker, and therefore has no supply curve.
D) setter, and therefore has no variable cost curve.
8.
To define a monopoly, we cite the following characteristics: (i)The firm is the sole seller of its product. (ii) The firmâs productdoes not have close substitutes. (iii) The firm generates a largeeconomic profit. (iv) The firm is located in a small geographicmarket.
A) (ii) and (iv)
B) All of the above are correct.
C) (i) and (ii)
D) (i) and (iii)
9.
Consider a transportation corporation named C.R. Evans that hasjust completed the development of a new subway system in amedium-sized town in the Northwest. Currently, there are plenty ofseats on the subway, and it is never crowded. Its capacity farexceeds the needs of the city. After just a few years of operation,the shareholders of C.R. Evans experienced incredible rates ofreturn on their investment, due to the profitability of thecorporation.

Which of the following statements are most likely to be true? (i)New entrants to the market know they will earn a smaller piece ofthe market than C.R. Evans currently has. (ii) C.R. Evans is mostlikely experiencing increasing average total cost. (iii) C.R. Evansis a natural monopoly.

A) (ii) and (iii)
B) All of the above are correct.
C) (i) and (iii)
D) (i) and (ii)
10.

Quantity
Price
Total Revenue
Average Revenue
Marginal Revenue
1
$35
$35

2

64
32
29
3
$29

4

17
5
$23

11
6

120

7
$17

-1
8

-7
9

99
11
-13
10

80
8

If the monopolist sells 8 units of its product, how much totalrevenue will it receive from the sale?

You wil have to complete the entries in this table to get ananswer. It is a wothwhile exercise and I encourage you to completethe table.

HINT: (a.) Total Revenue = Price x Quantity. (So for quantity of 3x price of $29 = 87 total revenue)

(b) Average Revenue is the same as Price. (So column 2 and column 4would be the same. Calculate to see if that is correct)

(c) Marginal Revenue = Change in TR divided by change in quantity.(You calculated TR = 87 for Q=3. Thus to find MR for Q = 3, findthe change in TR= 87 - 64 and divided by one).

A) 112
B) It cannot be determined from the information provided.
C) 164
D) 40
11.
What conditions need to be present for a firm to be able to use'price discrimination?'
A) Firm should not be perfectly competitive; the market can beseparated according to different elasticities; items can beresold
B) Firm should be perfectly competitive; the market can beseparated according to different elasticities; resale of the itemsis not possible.
C) Firm should not be perfectly competitive; buyers should havesame elasticities;; resale of the items is not possible.
D) Firm should not be perfectly competitive; the market can beseparated according to different elasticities; resale of the itemsis not possible.
12.
If the government regulates the natural monopoly by asking it tocharge a price that is equal to its marginal cost (P=MC) theregulated monopoly will -------- so instead the government ends upletting it charge a price equal to its ------
A) have a profit; fixed cost
B) have a profit; average cost
C) have a loss; variable cost
D) have a loss; average cost

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ECON 2030 Chapter : Chapter 11 Notes

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