Microeconomics Study Guide 3
higher out raises revenue
output effect
low price reduces revenue
price effect
monopolistic market power =
price makers
Total cost + Variable cost =
Fixed Cost
MR > MC =
INCREASE production
Constant returns to scale occur when a firms
Long run average total costs do not vary as output increases
Diseconomies of scale occur when a firms
Longrun ATC are increasing as OUTPUT increases
In order to sell more product, a monopolist must
Lower its price
TC - FC =
MC
MR = ?
MC for profit maximizing
A profit maximizing monopolist will produce the level of output at which
MR = MC
Maximizing quantity is where
MR = MC
Competitive markets has
Many buyers and sellers
For any given price, a firm in a competitive market will maximize profit by selecting the level of output at which price intersects the ?
Marginal Cost Curve
Upward curve on a graph
Marginal cost
Price where monopolist will charge
Where MC meets DEMAND
Level of output will be supplied on a graph :
Where Q2 meets the MC on the graph
What is the marginal revenue of the 3rd unit?
$20
Profit MAX formula
(P-ATC) x Q
Competitive market: no matter quantity sold....
... price stays THE SAME
When 100 identical firms participate in this market, at what price will 15,000 units be supplied to this market?
15,000/100 $1.50
If there are 300 identical firms in this market, what level of output will be supplied to the market when price is $2.00?
60,000
Example of a private good
A pair of pants
Exit
ATC
Shutdown
AVC
What is the average variable cost of producing 5 units of output?
AVC = VC/Q 200/5 = $40
When firms in a perfectly competitive market face the same costs, in the long run they must be operating
At their efficiency scale
Before considering any public project, the government should:
Compare the total cost and total benefits of the project & conduct a cost-benefit analysis
MR < MC =
DECREASE production
When one person enjoys the benefit of a tornado siren, she reduces the benefit to others
FALSE
If the firms fixed cost of production is $3, and the market price is $10, how many units should the firm produce to MAXIMIZE profit?
FC= 3 units
Which of the following is not a common resource
Neighborhood garden
Monopolistic =
ONLY provider
The value of a business owners time is an example of
Opportunity cost
TR =
P (average revenue) x Q
Long run equillibrium
P + MC + ATC
A firm will exit the market when ?
P < ATC
A firm will shutdown temporarily because ?
P < AVC
A profit maximizing monopolist charges a price of $12. The intersection of the marginal revenue and marginal cost curves occurs where output is 10 units and marginal cost is $6. Average total cost for 10 units of output is $5. What is the monopolist's profit?
P= (P-ATC) x Q $70
EXIT WHEN ?
Price is LESS than ATC
Long run equillibrium is where on the graph these three intersect
Price, MC, ATC
Deadweight loss that arises from a monopoly is a consequence of the fact that the monopoly
Quantity is lower than the socially-optimal quantity
Where marginal cost curve crosses the average cost curve, the ATC
Rises
Which of these types of costs can be ignored when an individual or a firm is making decision
Sunk costs
Tsintah weaves traditional Navaho rugs. She weaves and sells 50 rugs. Her average cost of production per rug is $50. She sells each rug for a price of $65. Her total revenue is ?
TR = P x Q 65x50= $3250
Average revenue = Price only in MONO market
TRUE
Excludable and rival in consumption, a sweatshirt is a private good
TRUE
For a firm operating in a perfectly competitive industry, marginal revenue and average revenue are equal
TRUE
Only for competitive firms does average revenue equal marginal revenue
TRUE
If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue then
Total cost exceeds total revenue
Marginal cost will be ?
U-Shaped
Marginal cost curve is always
UPWARD sloping
Shape of marginal cost curve?
Upward sloping
What is meant by a competitive firm?
price takers
