Microeconomics Study Guide 3

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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


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