ECN 104 Lecture Notes - Lecture 9: Sunk Costs, Marginal Revenue, Market Power

33 views3 pages

orchidmuskrat766

16 Nov 2017

School

Ryerson University

Department

Economics

Course

ECN 104

Professor

Tsogbadral Galaabaatar

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Characteristics of perfect competition: many buyers and many sellers, goods offered for sale are largely the same, firms can freely enter or exit the market. Each buyer & seller is a price taker - takes the price as given. Total revenue (tr) = price x quantity. Marginal revenue - the change in tr from selling one more unit. A competitive firm can keep increasing its output without affecting the market price. So, each one-unit increase in quantity causes revenue to rise by price. Mr = p is only true for firms in competitive markets. Use the margin to figure out what quantity maximizes firm"s profit. Mr = mc at the point-maximizing q. If increase quantity by one unit, revenue rises by mr, cost rises by mc. If mr > mc, then increase quantity to raise profit. If mr < mc, then reduce quantity to raise profit. Shutdown: a short run decision to produce anything because of market conditions.

Related Questions

PROFIT MAXIMIZATION

Reminders:

Q: Quantity, TC: Total Costs, VC: Variable Costs, MC: Marginal Costs, MR: Marginal Revenue, TR: Total Revenue

1. Suppose the market for DVD movies is perfectly competitive. The industry price for the movies is $24, and a typical firm has the following total cost data:

Q	TC	VC	MC	MR	TR	Net Profit
0	10
1	33
2	53
3	70
4	90
5	114
6	143

a. Calculate the TR, MR, and MC for each level of output.

b. What condition must be met for the firm to maximize profits? What is the profit maximizing level of output and price for this firm? How much profit would be made?

2. Now suppose that some firms have been able to differentiate their DVDs, and the market has become monopolistically competitive. A typical firm now has the following demand schedule and total cost data:

Q	P	TC	VC	MC	MR	TR	Net Profit
0	40	8
1	35	20
2	30	28
3	25	40
4	20	56
5	15	76
6	10	100

a. Calculate the TR, MR, and MC for each level of output.

b. What condition must be met for the firm to maximize profits? What is the profit maximizing level of output and price for this firm? How much profit would be made?

Based on market research, a film production company obtains the following information about the demand and production costs of its new DVD:

Demand: P = 1,000 -10Q

Total Revenue: TR =1,000Q 10Q^2

Marginal Revenue: MR =1,000- 20Q

Marginal Cost: MC=100 10Q

where Q indicates the number of copies sold and P is the price in dollars.

a. Find the price and quantity that maximizes the company's profit.

b. Find the price and quantity that would maximize social welfare (the competitive equilibrium).

c. Calculate the deadweight loss from monopoly.

taupemanatee473

Firm A and Firm B are two of the largest producers of a special pool-cleaning robot. Suppose that the marginal cost of making such a robot is constant at $1,500 per unit and there is no start-up cost. The demand for the robot is described by the following table.

Price	Quantity	TR	MR	MC	TC	Profit
$8,500	5,500
7,500	6,500
6,500	7,500
5,500	8,500
4,500	9,500
3,500	10,500
2,500	11,500
1,500	12,500

a) Complete the columns for total revenue, marginal revenue, marginal cost, total cost, and profit in the table above.

b) If the market for the robots were perfectly competitive, what would the price and quantity be?

c) If there were only one supplier of robots (i.e., a monopoly), what would the price and quantity be?

d) If the two firms formed a cartel, what would be the price and quantity? If the two firms split the market evenly, what would Firm A

pinkchimpanzee873

ECN 104 Lecture Notes - Lecture 9: Sunk Costs, Marginal Revenue, Market Power

Document Summary

Get access

Related Documents

ECN 104 Chapter Notes - Chapter 14: Sunk Costs, Marginal Revenue, Perfect Competition

ECN 104 Chapter Notes - Chapter 14: Sunk Costs, Market Power, Marginal Revenue

ECN 104 Lecture Notes - Lecture 8: Opportunity Cost, Sunk Costs, Variable Cost

Related Questions