Final exam (exam 2 review)

a profit-maximizing firm will only produce a positive amount of output if

its total revenue is greater than or equal to its variable cost

the profit maximizing rule P=MC applies to

perfectly competitive firms only

under perfect competition ______, while under monopoly _____

P=MC; P>MC

when a monopolist can charge any price he likes to any consumer, how do you find his economic profit?

TR-TC TR= the sum of all the reservation prices TC= MC x number of customers

ATC curve is ____ the AVC curve

above

Why is the marginal cost curve upward sloping?

bc of diminishing returns to variable factors of production

a natural monopoly is a monopoly that arises from

economies of scale

the essential feature that differentiates imperfectly competitive firms from perfectly competitive firms is that an imperfectly competitive firm

faces a downward-sloping demand curve

the most important challenge facing a firm in a perfectly competitive market is deciding

how much to produce

if a monopolist's marginal revenue exceeds it marginal cost at its current level of output, then to maximize its profit the monopolist should

increase output until price equals marginal cost

relative to a monopoly charging a single price to all consumers, perfect price discrimination ___ producer surplus and ___ consumer surplus

increases; decreases

if a production process exhibits diminishing returns, then as output rises

marginal cost will eventually increase

to sell an extra unit of output, a perfectly competitive firm ____, and an imperfectly competitive firm ___

need not alter its price; must lower its price

a monopolistically competitive firm is one

of many firms that sell products that are close but not perfect substitutes

if a perfectly competitive firm produces an output level at which price is less than marginal cost, then the firm should ___

reduce output to earn greater profits or smaller losses

If VC > TR, then the firm should

shut down

how do you find short term supply curve?

the MC curve above the AVC curve

once a firm has determined the quantity of output it wishes to sell, the maximum price it can charge for each unit is determined by

the demand curve facing the firm

when the price of a perfectly competitive firm's output rises,

the firm will produce more

if a firm faces a downward-sloping demand curve, then

the firm's marginal revenue from selling an additional unit of output is less than price

how do you find the socially optimal level of output (for monopoly)?

when P=MC