MICRO equations and MC

Explain why the typical firm chooses to operate despite incurring a loss in the short run.

The Fixed costs are a "sunk cost". They have been paid, so as long as they are making enough to pay the VC (workers, ingredients, etc.) then the short run works.

Total fixed cost (TFC)

TC at 0 output

value of loss maximizing output

TR(output #) equil price(MR))- TC

negative externality and solution

in the free market too much is produced, MSC>MSB at Qfm solution: government levies a per unit tax on cigarettes to achieve the optimal quantity

when marginal utility is falling but positive total utility will...

increase at a decreasing rate

the monopolistic marginal factor (resources) cost labor curve is (graph_

is above the labor supply curve bc to hire more workers the firm must raise the wage for all workers

If the total cost per day remains unchanged in the long run, what is the long-run equilibrium price for umbrellas?

$8. All firms will make the minATC in the long run. This is productive efficiency. Firms will leave the industry until the price rises from $7 to $8

Elasticity Coefficient equation

%change in Q/% change in price

When the marginal cost curve lies below the average total cost curve, it is true that as output increases

ATC is decreasing

TC in graph

ATC to maximizing Q (P*Q)

AFC is the difference btw what?

AVC and ATC

what is the difference btw a lump sum tax and a per unit tax (subsidy)?

Lump sum one time payment to a company Effects fixed costs increasing AFC and ATC Per unit ($1) subsidy on every unit produced Effects variable costs decreasing AVC, ATC, MC

when MP is falling what happens MC

MC goes up as MP goes down

explain why in a monopoly the D curve is above the MR curve

MR is lower than demand because in order to sell one more unit of the good, the company must lower price on all units sold

total revenue (TR) in graph

MR=MC then P*Q

TR

P*Q

need ATC to calculate profit when looking at a graph but how do you do it?

P*Q = TR ATC*Q= TC difference btw them is the profit

how much do you import?

Qconsumed-Qdom

shortage equation

Qd - Qs= shortage

AVC

VC/Q

CS

buyers maximum-price

If a perfectively competitive market with no government intervention is allocatively efficient, which of the following must be true?

consumer surplus plus producer surplus is at its maximum

what does total revenue cover?

covers all explicit costs and implicit costs (MR at the base of ATC)

Compared with a perfectly competitive market, a single-price monopoly with the same market demand and cost curves will

decrease output and increase price

firms will enter until...

economic profit is =0

MR moves to minimum AVC what happens to firms?

firms leave the market (SHUT DOWN RULE) which will drive prices up

TC

fixed + variable

Average fixed cost (AFC)

fixed cost/Quanitity

if ATC if above the MR is this a profit or a loss?

loss

lorenz curve

measures the extent of income inequality

PS

price- sellers minimum

positive externality and solution

produce less than the socially optimal amount of a good solution: gov't can provide a per unit subsidy to achieve optimal quantity that shifts the D curve over

TR-TC=...

profit

an effective minimum wage policy in a competitive market will increase unemployment and increase the total earnings of labor only if the demand for labor is

relatively inelastic

profit

revenue-costs

loss maximizing output in chart

stop before MC>MR, last one below the equil price

MC=MR

subrtract down the row of TVC or TC

Variable cost equation

take the TC - the first TC of 0 refer to notes FRQ

The income elasticity of demand for Good D is 1.2 (normal vs inferior goods, so not this question), and the cross-price elasticity of demand for dresses with respect to the price of Good D is 0.2 (+ = substitutes; - = complements). Based on your answer to part (e), what will happen to the demand for dresses?

the demand for dresses will decrease; the positive cross-price elasticity of demand for dresses with respect to the price of Good D means that the goods are substitutes; therefore, a decrease in the price of Good D will lead to a decrease in the demand for dresses.

what happens to the market price as firms enter?

the market price decreases, the MS increases, then the overall price will decrease

Suppose the market demand for Good D increases. Will the profit-maximizing quantity of Good D for Raskin's Clothing Store increase, decrease, or stay the same in the short run?

the profit-maximizing quantity of Good D will increase; the increase in market demand will increase the market price (the firm's marginal revenue), which will shift the marginal revenue curve upward at each quantity; MR=MC will occur at a higher quantity

ATC

total cost/Quantity AVC+AFC=ATC

economic profit equation

total revenue - Explicit cost (liscense, ingredients ect.) - implicit costs

where is TR maximized in monopoly

where MR=0

what is considered allocatively efficient?

where monopoly operates at P=MC

when MR is at the bottom of ATC what is happening?

you are making no economic profit but still operating because you can pay your implicit/fixed costs