Quiz 8, Homework 4

Students typically are charged a lower price for movie tickets than non- students (student discount). We can infer from this that the demand by students for movie tickets is a) more elastic than the demand by non-students for movie tickets. b) less elastic than the demand by non-students for movie tickets. c) perfectly elastic. d) unitary elastic. e) perfectly inelastic

More elastic than the demand by non-students for movie tickets - Consumers with more elastic demand have more alternative options, and so the firm must charge them a lower price.

Pareto Efficiency

A situation where no economic agent can be made better off without making some other economic agent worse off.

As long as price is sufficient to cover ________, the firm is better off by operating rather than by shutting down.

AVC

A profit-maximizing strategy becomes a loss minimization strategy when a firm in a perfectly competitive industry is producing where

AVC < P < ATC

In the short run where total variable cost is ________ at a(n) ________ rate, marginal cost is positive and decreasing.

Increasing at a Decreasing

Relative to a competitively organized industry, a monopoly produces _______ output and charges a __________ price

Less output & charges a Higher price

If a monopolist successfully engages in 1st degree price discrimination, this will

increase social welfare.

If marginal cost is above average variable cost, then average variable cost is _____________.

increasing (see graph in Lesson 7)

Diminishing marginal returns implies

increasing Marginal Cost

The shutdown point for a perfectly competitive firm is the

lowest point on the AVC curve

The formula for MC is

ΔTVC/Δq

Refer to Figure A. Suppose demand for wheat is initially D2. If the price of rice (a substitute for wheat) falls, then demand for wheat will shift to ________. This will ________ the equilibrium price of wheat and individual profit maximizing firms will produce ________ bushels of wheat.

D1; decrease; 0 b/c Price is now lower than AVC

1st degree price discrimination eliminates

DWL from a monopoly

The Speedy Typesetting Company, a perfectly competitive firm, is currently producing where P = MC and is earning a normal rate of return. The firm mainly employs minimum wage workers and the government just increased the minimum wage from $5.85 to $6.55 per hour. In the short run, this firm will most likely

reduce the amount of output it produces b/c its cost curves have shifted up and to the left. (Now it is MR<MC)

In the short run when the marginal product of labor ________, the marginal cost of an additional unit of output ________.

rises; falls

Economic profit is

(P‐ATC)q

Which of the following will lead to a Pareto Efficient outcome? a) 1st degree price discrimination. b) 2nd degree price discrimination. c) Third degree price discrimination d) A price ceiling. e) None of these.

1st degree price discrimination - No DWL (all surplus captured by the firm)

A monopoly is an industry with

a single seller of a good with no close substitutes

Because marginal cost is always ________ in the short run, total variable cost always ________ when output increases.

positive; increases

If the marginal cost curve is below the average variable cost curve, then average variable costs are _____________.

decreasing (see graph in Lesson 7)

In the short run, firms act to _________ losses or __________ profits

minimize; maximize

Refer to Figure A. If demand for wheat is D3, then in the long run

new firms will enter the industry and the current firms will expand production.

The supply curve of a monopolist is

non-existent (because the profit maximizing quantity depends on both the demand curve and the marginal cost curve)

If revenues exceed total cost, economic profit is ________.

positive