Econ Final
economic profit
total revenue minus total cost, including both explicit and implicit costs
accounting profit
total revenue - explicit costs
if firms in the market are producing output but are currently making economic losses
P2 illustrates the present situation for the typical firm in the market, and S2 indicates the corresponding supply curve.
In the long-run equilibrium of a competitive market with identical firms, what is the relationship between price PP, marginal cost MCMC, and average total cost ATCATC? P>MCP>MC and P>ATCP>ATC.
P=MC and P=ATC.
he salary cap would have formalized the collusion on salaries and helped
to prevent any team from cheating
marginal cost formula
change in total cost / change in quantity
A profit-maximizing grocery store maximizes profit by producing at
where marginal revenue equals marginal cost. The supermarket then charges the maximum price consumers are willing to pay at this quantity.
efficient level of output
where price equals marginal cost
optimal level of production
where profit is the highest and where mc=mr
With free entry and exit, long-run equilibrium will occur when price is equal to the minimum average total cost of $7 and each producer earns
zero profit.
total surplus in this case would be equal to the area underneath the demand curve
(12×800,000×$8=$3,200,000), and this exceeds the cost of building the bridge
The market is not in long-run equilibrium,
, because firms are earning positive economic profit.
consumer benefit
= Consumer Surplus−Tax (12×10×10)−$24 = $26
explain graph shapes
AFC declines as the quantity goes up because a fixed cost is spread across a greater number of units. MC declines for the first four units due to an increasing marginal product of the variable input. MC rises thereafter due to decreasing marginal product. AVC is U-shaped for the same reason as MC. ATC declines due to falling AFC and increasing marginal product. ATC rises at higher levels of production due to decreasing marginal product.
Explain the relationship among ATC, AFC, and AVC.
AFC plus AVC equals ATC.
when a law prevents price discrimination
Adults pay the same price and purchase just as many tickets with or without price discrimination. However, the children who were willing to pay $4 but will not see the show now that the price is $7 will be worse off. The producer is also worse off because profit is lower.
Consider a monopolistically competitive market with NN firms
As NN rises, the demand for each firm's product falls. As a result, each firm's demand curve will shift in
When a small firm expands the scale of its operation, why does it usually first experience increasing returns to scale? When the same firm grows to be extremely large, why might a further expansion of the scale of operation generate decreasing returns to scale?
As a small firm expands the scale of operation, the higher production level allows for greater specialization of the workers and long-run average total costs fall. As an enormous firm continues to expand, it will likely develop coordination problems and long-run average total costs begin to increase.
The government imposes a $1,000 per year license fee on all pizza restaurants. Which cost curves shift as a result?
Average total cost and average fixed cost. A license fee is an example of a fixed cost; that is, it does not vary with the level of output. Both average total cost and average fixed cost include fixed costs in their calculations.
A firm is producing 20 units with an average total cost of $25 and marginal cost of $15. If the firm were to increase production to 21 units, which of the following must occur?
Average total cost would decrease.
Under what conditions would the long-run market supply curve be upward sloping?
If an input necessary for production is in limited supply or if firms have different costs.
profit maximization
If marginal revenue exceeds marginal cost, the firm should increase output to increase profit. If marginal cost exceeds marginal revenue, the firm should decrease output to increase profit. At the profit-maximizing level of output, marginal revenue and marginal cost are exactly equal.
Where is the efficient scale on the graph?
Efficient scale is the output that minimizes ATC. It is also the place where MC crosses the average-total-cost curve.
average fixed cost
Fixed Cost/Quantity
Producer surplus
Graphically, producer surplus is equal to the area above the marginal-cost curve, below the equilibrium price, and to the left of the quantity of groceries sold.
If a firm is producing a level of output where marginal revenue exceeds marginal cost, would it improve profits by increasing output, decreasing output, or keeping output unchanged? Why?
If MR > MC, increasing output will increase profits because an additional unit of production increases revenue more than it increases costs.
Bob's lawn-mowing service is a profit-maximizing, competitive firm. Bob mows lawns for $27 each. His total cost each day is $280, of which $30 is a fixed cost. He mows 10 lawns a day.
In the short run, Bob should not shut down . In the long run, Bob should exit the industry. Because Bob's average total cost is $280/10=$28, which is greater than the price, he will exit the industry in the long run. Because fixed cost is $30, average variable cost is $280−$30/10=$25$, which is less than the price, so Bob will not shut down in the short run.
Because its product is different from those offered by other firms, a firm in a monopolistically competitive market faces a downward-sloping demand curve.
In the short run, it follows a monopolist's rule for profit maximization because it is not a price taker. In the long run, when firms are free to enter or exit the market, economic profits are driven to zero (at which point, the firms remaining in the market are nonetheless profit-maximizing by not taking losses)
If a firm is operating in the area of constant returns to scale, what will happen to average total costs in the short run if the firm expands production? Why? What will happen to average total costs in the long run? Why?
In the short run, the size of the production facility is fixed, so the firm will experience diminishing returns and increasing average total costs when adding additional workers. In the long run, the firm will expand the size of the factory and the number of workers together, and if the firm experiences constant returns to scale, average total costs will remain fixed at the minimum.
What constitutes a competitive firm's long-run supply curve? Explain.
It is the portion of the firm's marginal-cost curve that lies above its average-total-cost curve because the firm maximizes profit where , and in the long run, the firm must cover its total costs or it should exit the market.
What constitutes a competitive firm's short-run supply curve? Explain.
It is the portion of the firm's marginal-cost curve that lies above its average-variable-cost curve because the firm maximizes profit where , and in the short run, fixed or sunk costs are irrelevant and the firm must only cover its variable costs.
Which of the following conditions does NOT describe a firm in a monopolistically competitive market?
It takes its price as given by market conditions.
The rise in the price of crude oil increases production costs for individual firms, causing the marginal-cost curve and average-total-cost curve to shift upward. Therefore
MCBMCB and ATCAATCA represent the marginal-cost and average-total-cost curves before the price hike, and MCAMCA and ATCBATCB represent the marginal-cost and average-total-cost curves after the hike.
A firm is producing 1,000 units at a total cost of $5,000. If it were to increase production to 1,001 units, its total cost would rise to $5,008. What does this information tell you about the firm?
Marginal cost is $8, and average total cost is $5000/1001=5
Suppose the price for a firm's output is above the average variable cost of production but below the average total cost of production. Will the firm shut down in the short run? Explain. Will the firm exit the market in the long run? Explain.
No. In the short run, the firm's fixed costs are sunk costs so the firm will not shut down because it only needs to cover its variable costs. Yes. In the long run, the firm must cover total costs, and if P < ATC, the firm generates losses in the long run and it will exit the market.
Why are cartel agreements often not successful?
One party has an incentive to cheat to make more profit.
For a profit-maximizing monopoly that charges the same price to all consumers, what is the relationship between price P, marginal revenue MR, and marginal cost MC?
P>MR and MR=MC. Like a competitive firm, the monopolist's profit-maximizing quantity of output is determined by the intersection of the marginal-revenue curve and the marginal-cost curve, therefore MR=MCMR=MC. Unlike a competitive firm, however, the monopolist's profit-maximizing price is greater than marginal revenue (P>MRP>MR). See Section: Profit Maximizatio
What is true of a monopolistically competitive market in long-run equilibrium?
Price is greater than marginal cost. Unlike perfectly competitive markets, price is greater than marginal cost in the long-run equilibrium of a monopolistically competitive market. Because marginal cost must be equal to marginal revenue, price is not equal to marginal revenue. In the short run, firms can make positive economic profits, but as long as price is greater than average total cost, new firms will enter until price is equal to average total cost and firms make zero economic profits. In a perfectly competitive market, firms produce at the minimum of average total cost, but in a monopolistically competitive market in long-run equilibrium, firms produce a quantity of output that is below this level. The firm forgoes this opportunity to produce more because it would need to cut its price to sell the additional output. It is more profitable for a monopolistic competitor to continue operating with excess capacity.
total revenue
Price x Quantity proportional to the amount of output sold
explain the relationship between the production function and the total-cost curve.
The total-cost curve reflects the production function. When an input exhibits diminishing marginal product, the production function gets flatter because additional increments of inputs increase output by ever smaller amounts. Correspondingly, the total-cost curve gets steeper as the amount produced rises.
The New York Times (Nov. 30, 1993) reported that "the inability of OPEC to agree last week to cut production has sent the oil market into turmoil . . . [leading to] the lowest price for domestic crude oil since June 1990." Why were the members of OPEC trying to agree to cut production?
So they could raise the price
Average Total Cost (ATC)
TC/Q
Once trade begins, the firm no longer has monopoly power and must become a price taker
The firm is a price taker and is no longer facing a downward-sloping demand curve. Thus, it is now possible to sell more without reducing the price.
A firm in a competitive market receives $500 in total revenue and has marginal revenue of $10.
The firm's average revenue is $10, and 50 units were sold. Since the firm operates in a perfectly competitive market, the price is equal to the marginal revenue of $10. This means that average revenue is also $10 and 50 units were sold
Which of the following markets best fits the definition of monopolistic competition?
The market for haircuts A key feature of monopolistic competition is product differentiation. That is, each firm produces a product that is at least slightly different from those of other firms. The market for haircuts is characterized by product differentiation, whereas the markets for wheat, tap water, and crude oil are not.
Now suppose the patent expires and other firms are free to use the technology.
The market price falls to P2 firms reach zero profit All firms' average-total-cost curves decline to ATC2
Let the region representing monopolist's profit be called XX, consumer surplus YY, and deadweight loss ZZ.
The monopolist's profit is X+Y+Z in this case.Total surplus before price discrimination was equal to X+YX+Y, but with price discrimination it increased to X+Y+ZX+Y+Z. Therefore, the increase in the monopolist's profit is larger than the increase in total surplus as a result of price discrimination. Now suppose that there is some cost of price discrimination. To model this cost, let's assume that the monopolist has to pay a fixed cost CC to price discriminate. Under which of the following conditions would the monopolist pay the fixed cost to be allowed to price discriminate? Y+Z>C Under which of the following conditions would a benevolent social planner, who cares about total surplus, agree to allow the monopolist to price discriminate as long as it pays the fixed cost? Z>C
The market for fertilizer is perfectly competitive. Firms in the market are producing output but are currently making economic losses.
The price of fertilizer must be less than average total cost, greater than average variable cost, and equal to marginal cost.
A competitive market
There are many buyers and sellers in the market. The goods offered for sale are largely the same This makes each buyer and seller is a price taker. A third condition sometimes thought to characterize perfectly competitive markets is: Firms can freely enter or exit the market. try to maximize profit For the competitive firm, marginal revenue is fixed at the price of the good and marginal cost is increasing as output rises. a perfectly competitive firm takes its price as given by market conditions.
each firm is earning a positive profit because price is greater than average total cost.
Thus, entry will occur and the price will fall. As price falls, quantity demanded will rise and the quantity supplied by each firm will fall.
If a firm is in a competitive market, what happens to its total revenue if it doubles its output? Why?
Total revenue doubles. This is because, in a competitive market, the price is unaffected by the amount sold by any individual firm.
What is the shape of the marginal-cost curve in the typical firm? Why is it shaped this way?
Typically, the marginal-cost curve is U-shaped. The firm often experiences increasing marginal product at very small levels of output as workers are allowed to specialize in their activities. Thus, marginal cost falls. At some point, the firm will experience diminishing marginal product, and the marginal-cost curve will begin to rise.
Average Variable Cost
Variable Cost/Quantity
Explain the relationship between ATC and MC.
When MC is below ATC, ATC must be declining. When MC is above ATC, ATC must be rising. Therefore, MC crosses ATC at the minimum of ATC.
Explain the relationship between marginal cost and average total cost.
When marginal cost is below average total cost, the average-total-cost curve must be falling. When marginal cost is above average total cost, the average-total-cost curve must be rising. Thus, the marginal-cost curve crosses the average-total-cost curve at the minimum of average total cost.
You go to your campus bookstore and see a coffee mug emblazoned with your university's shield. It costs $5, and you value it at $8, so you buy it. On the way to your car, you drop it, and it breaks into pieces. Should you buy another one or should you go home because the total expenditure of $10 now exceeds the $8 value that you place on it? Why?
You should buy another mug because the marginal benefit ($8) still exceeds the marginal cost ($5). The broken mug is a sunk cost and is not recoverable. Therefore, it is irrelevant.
total cost curve
a graphical representation of the total cost, showing how total cost depends on the quantity of output. When quantity is low, average total cost declines as quantity rises; when quantity is high, average total cost rises as quantity rises. Marginal cost is also U-shaped due to diminishing marginal product, but it rises steeply as output increases. Finally, when marginal product is rising, marginal cost is falling
Compared to the social optimum, a monopoly firm chooses
a quantity that is too low and a price that is too high. The monopolist chooses to produce and sell the quantity of output at which the marginal-revenue and marginal-cost curves intersect, which is lower than the socially efficient quantity (found where the demand curve and the marginal-cost curve intersect). Furthermore, the price a monopolist charges is higher than the marginal cost, meaning that there are some consumers who value the good more than the marginal cost (but less than the price) who do not receive the good. The price is therefore too high compared to the social optimum.
The key feature of an oligopolistic market is that
a small number of firms are acting strategically. The essence of an oligopolistic market is that there are only a few sellers. As a result, the actions of any one seller in the market can have a large impact on the profits of all the other sellers. This interdependence leads oligopolistic firms to behave in a strategic manner.
if there are implicit costs of production
accounting profits will exceed economic profits.
a firm generally experiences economies of scale, constant returns to scale, and diseconomies of scale
as the scale of production expands.
to maximize economic efficiency, the publisher would set the price
at $10 per book because that is the marginal cost of the book. At that price, the publisher would have negative profit equal to the amount paid to the author ($2,000,000)
when there are no variable costs
average total cost is equal to average fixed cost
Whenever marginal cost is less than average total cost
average total cost is falling
diseconomies of scale
average total cost rises as output rises
The industry is not in long-run equilibrium because
because profit is not equal to zero.
not perfectly competitive markets
cable tv, electricity, blue jeans
When a monopolist switches from charging a single price to perfect price discrimination, it reduces
consumer surplus. Perfect price discrimination describes a situation in which the monopolist knows exactly each customer's willingness to pay and can charge each customer a different price. In this case, the monopolist charges each customer exactly his or her willingness to pay, and the monopolist gets the entire surplus in every transaction. When a monopolist charges a single price, some consumers get positive consumer surplus, therefore the switch to perfect price discrimination reduces consumer surplus.
If advertising makes consumers more loyal to particular brands, it could ________ the elasticity of demand and ________ the markup of price over marginal cost.
decrease, increase Advertising often tries to convince consumers that products are more different than they truly are. By increasing the perception of product differentiation and fostering brand loyalty, advertising makes buyers less concerned with price differences among similar goods, thereby decreasing the elasticity of demand for a particular brand. When a firm faces a less elastic demand curve, the firm can increase its profits by charging a larger markup over marginal cost.
A firm is a natural monopoly if it exhibits the following as its output increases:
decreasing average total cost.
marginal-cost curve
determines how much the firm is willing to supply at any price, it is the competitive firm's supply curve.
If a higher level of production allows workers to specialize in particular tasks, a firm will likely exhibit ________ of scale and ________ average total cost.
economies, falling
A monopolist always produces a quantity at which demand is
elastic. If the firm produced a quantity for which demand was inelastic, then if the firm raised its price, quantity would fall by a smaller percentage than the rise in price, so revenue would increase. Because costs would decrease at a lower quantity, the firm would have higher revenue and lower costs, so profit would be higher. Thus the firm should keep raising its price until profits are maximized, which must happen on an elastic portion of the demand curve
The Prisoners' Dilemma is a two-person game illustrating that
even if cooperation is better than the Nash equilibrium, each person might have an incentive not to cooperate. The Prisoners' Dilemma game provides insight into why cooperation is difficult. Many times in life, people fail to cooperate with one another even when cooperation would make them all better off. The story of the prisoners' dilemma contains a general lesson that applies to any group trying to maintain cooperation among its members.
fixed cost
examine total cost at an output of zero
If a firm continues to employ more workers within the same size factory, it will eventually
experience diminishing marginal product.
wages and salaries are
explicit costs of production because dollars flow out of the firm.
total cost
fixed cost + marginal cost of the first pie
total cost
fixed costs plus variable costs
perfectly competitive markets
gasoline, corn, beans, stocks
natural monopoly
hen a single firm can supply a good or service to an entire market at a lower cost than could two or more firms due to average total cost decreasing as output increases. For any given amount of output, a larger number of firms leads to less output per firm and higher average total cost
dominant strategy
if it is the best strategy for a player to follow regardless of the strategies pursued by other players. In this case, if Mexico imposes low tariffs, then the United States is better off with high tariffs because it gets $30 million with high tariffs and only $25 billion with low tariffs. If Mexico imposes high tariffs, then the United States is better off with high tariffs because it get $20 billion with high tariffs and only $10 billion with low tariffs. So the United States has a dominant strategy of high tariffs.
exit the market (permanently cease operations)
if the revenue it would get from producing is less than its total costs.
A firm will temporarily shut down
if the revenue that it would get from producing is less than the variable costs (VC) of production
lump-sum tax causes
increase in fixed cost. Therefore, only average fixed cost and average total cost will rise in this case.
A per-unit tax
increases variable cost at an increasing rate. For example, it increases the variable cost of producing 20 burgers by $20, but it increases the variable cost of producing 21 burgers by $21. Therefore, average variable cost, average total cost, and marginal cost will all be greater under this proposal, and average fixed cost will be unaffected
marginal profit
input in the production process is the increase in the quantity of output obtained from one additional unit of that input. When the number of hours goes from 0 to 1, fish production increases from 0 to 10, so the marginal product of the first hour of fishing is 10 fish
A Nash equilibrium
is a situation in which economic actors interacting with one another all choose their best strategy given the strategies the others have chosen. The Nash equilibrium outcome in this case is for each country to have high tariffs. The payoffs in the upper left and lower right parts of the matrix do reflect a nation's welfare. Trade is beneficial and tariffs are a barrier to trade. However, the payoffs in the upper right and lower left parts of the matrix are not valid. A tariff hurts domestic consumers and helps domestic producers, but total surplus declines. So it would be more accurate for these two areas of the matrix to show that both countries' welfare will decline if they impose high tariffs, whether or not the other country has high or low tariffs.
Consumer surplus
is the difference between a buyer's willingness to pay (what the item is worth to the buyer) and what the buyer actually pays. Graphically, consumer surplus is equal to the area below the demand curve, above the equilibrium price, and to the left of the quantity of groceries consumed.
f the CEO decides to shut down operations
it will earn a loss equal to its fixed cost of $100
If a profit-maximizing, competitive firm is producing a quantity at which marginal cost is between average variable cost and average total cost, it will
keep producing in the short run but exit the market in the long run. In the long run, if the price is less than the average total cost (as is the case in this example), the firm chooses to exit (or not enter) the market.
Marginal revenue is always
less than price. Price falls when quantity rises because the demand curve slopes downward, but marginal revenue falls even more than price because the firm loses revenue on all the units of the good sold when it lowers the price.
If an oligopolistic industry organizes itself as a cooperative cartel, it will produce a quantity of output that is ________ the competitive level and ________ the monopoly level.
less than, equal to An agreement among firms about production and price is called collusion, and the group of firms acting in unison is called a cartel. Once a cartel is formed, the market is, in effect, served by a monopoly; that is, it will produce a quantity of output that is less than the competitive level and equal to the monopoly level
If an oligopoly does not cooperate and each firm chooses its own quantity, the industry will produce a quantity of output that is ________ the competitive level and ________ the monopoly level.
less than, more than Although an oligopoly maximizes its profit by forming a cartel and producing the quantity of output that is equal to the monopoly level, each individual firm has the incentive to increase production above this level. The expected quantity of output in an oligopoly is still less than the competitive level, but it is greater than the monopoly level
the profit-maximizing quantity of output is found by
looking at the intersection of the price with the marginal-cost curve
A competitive firm maximizes profit by choosing the quantity at which
marginal cost equals the price
there is no producer surplus when
marginal cost is constant in a competitive market
marginal product is the slope of the production function, so
marginal product is decreasing when the production function gets flatter.
A monopolistically competitive firm will increase its production if
marginal revenue is greater than marginal cost.
This firm is in a competitive industry, because
marginal revenue is the same for each quantity.
A competitive firm's short-run supply curve is its ________ cost curve above its ________ cost curve.
marginal, average variable
Deadweight loss
means that the total surplus in the economy is less than it would be if the market were competitive, because the monopolist produces less than the socially efficient level of output. Graphically, the triangle that was total surplus in a competitive environment but no longer goes to consumers or producers represents the deadweight loss from this monopoly.
Pretzel stands in New York City are a perfectly competitive industry in long-run equilibrium. One day, the city starts imposing a $100 per month tax on each stand. How does this policy affect the number of pretzels consumed in the short run and the long run?
no change in the short run, down in the long run
The anti-trust laws aim to
prevent firms from acting in ways that reduce competition. These behaviors often involve multiple firms colluding to fix prices or quantities
New firms will enter a monopolistically competitive market if
price is greater than average total cost. As long as price is greater than average total cost, firms in a monopolistically competitive market will make positive economic profit, and therefore, new firms will enter. If the price falls below average total cost, firms will suffer losses and some will exit; therefore, the market is in long-run equilibrium when price is equal to average total cost.
Which of the following represents the equation for each firm's supply curve in the short run?
q
in the long run, the firm will remain in the market and produce if
quantity is greater than the quantity when atc is at its minimum
profit-maximizing quantity
quantity that corresponds to the intersection of the marginal cost and marginal revenue curve
On the following graph, show the effect of the hike in the price of oil on the market supply of boats by shifting the curve in the appropriate direction.
shift supply to the left. the rise in the price of crude oil increases production costs for individual firms and, thus, shifts the market supply curve to the left. In the short run, profits of boat makers decrease . In the long run, the number of boat makers decreases
The deadweight loss from monopoly arises because
some potential consumers who forgo buying the good value it more than its marginal cost. Deadweight loss is the reduction in economic well-being that results from the monopoly's use of its market power. When a monopolist charges a price above marginal cost, some potential consumers value the good at more than its marginal cost but less than the monopolist's price. These consumers do not buy the good. Because the value these consumers place on the good is greater than the cost of providing it to them, this result is inefficient.
If a monopoly's fixed costs increase, its price will _____, and its profit will _____.
stay the same, decrease The monopolist's profit-maximizing quantity of output is determined by the intersection of the marginal-revenue curve and the marginal-cost curve. The price it charges is determined by the point on the demand curve that corresponds to this level of output. An increase in fixed costs does not alter the marginal revenue or the marginal cost, therefore it does not affect the optimal level of output or the optimal price. It does, however, cause profit to decrease because profit equals total revenue minus total costs, and fixed costs are a component of total costs.
marginal revenue
the change in total revenue from an additional unit sold.. equals the price....change in tr / change in quantity
If, as the quantity produced increases, a production function first exhibits increasing marginal product and later diminishing marginal product
the corresponding marginal-cost curve will be U-shaped.
marginal cost
the cost of producing one more unit of a good.. equals the change in quantity... or the chance in variable cost/change in quantity
If the price of a case of ball bearings is $50
the firm will minimize its loss by producing 4 units. Production beyond this level yields a marginal cost that is greater than the marginal revenue of $50, and production below this level yields a marginal cost that is below marginal revenue. At this quantity of production, profit is ($50 per ball bearing×4 ball bearings)−$240=−$40$50 per ball bearing×4 ball bearings−$240=−$40. Because a loss of $40 is better than a loss of $100, it was not a wise decision for the CEO to shut down production. See Sections: The Revenue of a Competitive Firm and The Firm's Short-Run Decision to Shut Down.
The level of production with lowest average total cost is called
the firm's efficient scale. Since marginal cost is higher than average total cost, average total cost must be rising. Therefore, the efficient scale must occur at an output level of less than current units of output.
Total supply in the market equals
the number of firms times the quantity supplied by each firm
If firms in the market are producing output but are currently making economic losses
the price must be between average total cost and average variable cost Because firms are incurring losses, there will be exit in this industry in the long run. This means that the market supply curve will shift to the left, increasing the price of the product to P1. As the price rises, the remaining firms will increase quantity supplied, incurring a higher marginal cost. Exit will continue until price is equal to minimum average total cost. Average total cost will be lower in the long run than in the short run, and the total quantity supplied in the market will fall.
A firm chooses to shut down if
the price of the good is less than the average variable cost of production, which does not include fixed costs
diminishing marginal product
the property whereby the marginal product of an input declines as the quantity of the input increases the production function gets flatter, while the total cost curve gets steeper.
efficient scale
the quantity of output that minimizes average total cost... the middle one in the chart
Total revenue equals
the quantity of output the firm produces times the price at which it sells its output.
when marginal cost is zero
there are no variable costs
profit
total revenue - total cost... p-tc
average revenue
total revenue divided by the quantity of the product sold equals the price of the good
If demand is inelastic and a monopolist raises its price
total revenue would increase and total cost would decrease , causing profit to increase . Therefore, a monopolist will never produce a quantity at which the demand curve is inelastic.
If total revenue is $100, explicit costs are $50, and implicit costs are $30, then accounting profit equals $50.
true
If a market transitions from monopolistic competition to perfect competition, these variables change in the following ways:
•Price falls.•Quantity produced by each firm rises.•Average total cost falls as the firm increases its output to the efficient scale.•Marginal cost rises as output rises.•Profit is zero in both cases and thus stays the same.