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
