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ECON 1B03 Lecture Notes - Lecture 8: Marginal Revenue, Demand Curve, Market Price

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jadekangaroo683
4 Apr 2016
School
McMaster University
Department
Economics
Course
ECON 1B03
Professor
Hannah Holmes

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ECON 1B03 Full Course Notes
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ECON 1B03 Full Course Notes
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Document Summary

There are many buyers and sellers: no power to individually to affect to market, known as price takers. The goods offered by sellers are homogenous: the goods are identical. Firms can freely enter and exit the market: there are no barriers to entry. The amount of money a firm receives for the sale of its output: total revenue = price x. Profit = total revenue total costs: area of losses tc > tr, area of profit tc < tr. How much revenue a firm receives for the typical unit sold: average revenue = total revenue/ Change in total revenue from an additional unit sold: the slope of the total revenue function, marginal revenue = change in tr/ change in q. For a perfectly competitive firm: marginal revenue = price. Calculating mr: market price for cheese , p = ar = mr. Calculating profit and mc: = tr tc, mc = tc/ q, quantity 6, profit .

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Related Questions

Suppose Wendy's Coffee Factory produces and sells in a perfectly competitive market. At Wendy's current level of production, she is producing the profit-maximizing level of coffee. At this quantity the average total cost of a pound of coffee is $5 and marginal revenue is $7. Given this information, what will be the long run equilibrium price of a pound of Wendy's coffee?

A) Greater than $7 (B) $7 (C) Between $5 and $7 (D) $5 (E) Less than $5.

Therefore, which of the following is not true for a firm in perfect competition?

A) Marginal revenue equals the change in total revenue from selling one more unit. (B) Profit equals total revenue minus total cost.

(C) Average revenue is greater than marginal revenue. (D) Price equals average revenue.

Any help would be appreciated, thanks!

A. A competitive firm

  1. can consider only its location in setting the price.
  2. must base its competitive price on product differentiation.
  3. has the ability to set its own price.
  4. must accept the price determined by the intersection of the market supply and demand curves.
  5. has no supply curve.

B. If a firm is making an economic profit, then

  1. the factors of production are being paid their opportunity costs.
  2. there will be no change in the number of firms if the industry is perfectly competitive.
  3. the factors of production are being paid less than their opportunity costs.
  4. the factors of production are being paid more than their opportunity costs.
  5. the firm will exit the industry

C. Along a downward-sloping monopoly demand curve,

  1. marginal revenue is greater than price.
  2. the elasticity of demand is constant.
  3. marginal revenue decreases when the price decreases.
  4. marginal revenue is equal to zero when the price is equal to zero

D. If, in the short run, a perfectly competitive firm is producing at a point where the total cost is greater than total revenue, then the firm should

  1. shut down because economic profits are negative.
  2. continue to produce as long as P > AVC.
  3. continue to produce because accounting profits are positive.
  4. set a higher price for its output.
  5. set a lower price for its output

E. For a perfectly competitive firm, the demand curve is

  1. the marginal revenue curve.
  2. perfectly inelastic.
  3. always equal to marginal cost.
  4. the same as the market demand curve

F. A firm in a(n) industry will have the most elastic demand curve

  1. monopolistic
  2. oligopolistic
  3. monopolistically competitive
  4. perfectly competitive

G. If the demand curve of a monopolist is in the inelastic range, then

  1. total revenue will fall if the price increases.
  2. total revenue will be unchanged if the price increases.
  3. total revenue will rise if the price increases.
  4. the total supply will increase by an equal amount if demand increases.
  5. the price will be unchanged if total revenue increases

H. Monopolistic competition and oligopoly are examples of

  1. monopoly.
  2. perfect competition.
  3. theories of consumer behavior.
  4. imperfect competition.
  5. the extreme cases on the market structure continuum

I. Under which market structure do firms face the flattest (most elastic) demand curve?

  1. perfect competition
  2. monopolistic competition
  3. oligopoly
  4. monopoly

J. At the point of long-run equilibrium for a perfectly competitive firm,

  1. economic profits are zero.
  2. TR > TC.
  3. TR < TC.
  4. P = AVC.
  5. normal profits are zero.

Multiple choice qs on Perfect Competition - Qs College level 1 MIcreconomics

1. What is the correct interpretation of the perfectly competitive firm's supply curve?

It is the same as its average variable cost curve.

It is the same as its total variable cost curve.

It is the same as the portion of its marginal cost curve that lies above the average variable cost curve.

It is the same as the portion of its average variable cost curve that lies above the marginal cost curve.

2. What is the name of the type of market that is dominated by a few firms?

Oligopoly.

Monopolistic competition.

Monopoly.

Perfect competition.

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3. What is break-even output?

The output at which the total revenue just covers a firm's total fixed cost.

The output at which the total revenue just covers a firm's total variable cost.

The output at which the total revenue just covers a firm's fixed and variable costs including normal profits.

The output at which the firm is making zero normal profits.

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4. All of the following except one are considered to be the prerequisite elements for a market system to work effectively. Which is the exception?

Extensive specialization and trade.

Perfect competition.

Private ownership of productive resources.

A legal and social foundation

A balanced government budget

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5. What is the term for the price at which the firm makes only normal profits?

Shutdown price.

Break-even price.

Average price.

Economic price.

================================================

6. Which of the following statements is true regarding the price in a perfectly competitive market?

Price equals average revenue but not marginal revenue.

Price equals marginal revenue but not average revenue.

Price is equal to neither the average nor the marginal revenue.

Price is equal to both the average and marginal revenue.

=================================================

7. What is the term for the extra revenue derived from the sale of one more unit?

Average revenue.

Marginal revenue.

Net revenue.

Total revenue.

=========================

8. What is the term for the amount of revenue that will always equal the price of the product in a perfectly-competitive market?

Marginal price.

Net revenue.

Average revenue.

Total revenue.