ECON 212 Lecture Notes - Lecture 9: Inverse Demand Function, Marginal Revenue, Demand Curve

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Recall: competitive firms (4) find price (5) find revenue (6) find cost. Have the ability to affect the price and therefore p is now p(y) a function of quantity. A competitive firm"s supply curve, or its inverse supply curve ((cid:1842)=(cid:1858)(cid:4666)(cid:1843)(cid:4667)) is the same as its marginal cost curve, so long as. Every firm wants to maximize profits ( (cid:1870)(cid:1857)(cid:1874)(cid:1857)(cid:1866)(cid:1873)(cid:1857) (cid:1855)(cid:1867)(cid:1871)(cid:1872)) and for competitive firms, price is fixed. The profit maximizing quantity and price is down dependent on (cid:1844)= (which is the first order condition) (cid:1844)= (cid:883)(cid:884) (cid:884) (1) rearrange the demand curve with respect to q : (2) find mr : (3) set mr = mc: Example: cost curve (cid:4666)(cid:4667)=(cid:2870) faces a demand curve =(cid:883)(cid:884) (cid:1842) (cid:1844)(cid:1857)(cid:1874)(cid:1857)(cid:1866)(cid:1873)(cid:1857)=(cid:4666)(cid:883)(cid:884) (cid:4667)=(cid:883)(cid:884) (cid:2870) (cid:883)(cid:884) (cid:884)=(cid:884) (cid:883)(cid:884)=(cid:886) =(cid:885) (cid:1842)=(cid:883)(cid:884) (cid:1842)=(cid:891) (cid:1844)(cid:1857)(cid:1874)(cid:1857)(cid:1866)(cid:1873)(cid:1857)=(cid:4666)(cid:883)(cid:884) (cid:885)(cid:4667)(cid:885)=(cid:884)(cid:889) (cid:2870)=(cid:891) (7) find profit (cid:1842)(cid:1870)(cid:1867)(cid:1858)(cid:1872)=(cid:884)(cid:889) (cid:891)=(cid:883)(cid:890) (cid:1842)=(cid:883)(cid:884) you lose money because you had to reduce the price on all units in order to increase your sales by one unit.

Related Questions

32. Which of the following is not a difference between monopolies and perfectly competitive markets?

A. Monopolies face downward sloping demand curves while perfectly competitive firms face horizontal demand curves.

B. Monopolies charge a price higher than marginal cost while perfectly competitive firms charge a price equal to marginal cost.

C. Monopolies can earn profits in the long run while perfectly competitive firms break even.

D. Monopolies choose to produce the quantity at which marginal revenue equals marginal cost while perfectly competitive firms do not.

40. Which of the following statements is not correct?

A. Both monopolies and monopolistically competitive firms can earn economic profits in the long run.

B. Both monopolistically competitive and perfectly competitive firms can earn economic profits in the short run.

C. Only competitive firms produce the welfare-maximizing level of output.

D. Firms in perfect competition, monopolistic competition, and monopoly maximize profits by producing where marginal revenue equals marginal cost.

43. A monopolistically competitive firm is currently producing 20 units of output. At this level of output the firm is charging a price equal to $20, has marginal revenue equal to $12, has marginal cost equal to $12, and has average total cost equal to $18. From this information we can infer that

A. the profits of the firm are negative.

B. firms are likely to leave this market in the long run.

C. the firm is currently maximizing its profit.

D. All of the above are correct.

QUESTION 22

For a perfectly competitive firm, profit maximization (or loss minimization) occurs at the level of output at which

	a.	MR = MC.
	b.	MR = AVC.
	c.	P = ATC.
	d.	MR = ATC.

4 points

QUESTION 23

If MR > MC, then

	a.	profits are being maximized.
	b.	the firm is producing too much of the good to be maximizing profits.
	c.	the firm can increase its profits (or minimize its losses) by increasing output.
	d.	the firm must be incurring losses.

4 points

QUESTION 24

If firms are earning zero economic profits, they must be producing at an output level at which

	a.	price minus marginal cost.
	b.	total revenue equals total costs, in other words, normal profits.
	c.	price equals average variable cost.
	d.	marginal revenue equals marginal cost.
	e.	none of the above

4 points

QUESTION 25

In the theory of perfect competition,

	a.	the market demand curve is horizontal.
	b.	the single firm faces a horizontal demand curve.
	c.	the single firm faces a downward-sloping demand curve.
	d.	the market demand curve is downward sloping.
	e.	b and d

azureshark954

A firm faces the demand function Qd = 60 - P and the cost function C = 11Q2 +5. (a) What is the optimal quantity that a price-taking (and profit-maximizing) firm should supply?

(b) What is the profit when the quantity produced is optimal?

(c) Construct a graph showing the demand curve, the MR curve, the MC curve, and the AC curve. Show the equilibrium point (where Q is optimal); indicate the point's coordinates (i.e. P* and Q*). Show in the graph the area that corresponds to profit.

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ECON 212 Lecture Notes - Lecture 9: Inverse Demand Function, Marginal Revenue, Demand Curve

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