MGEB02H3 Lecture Notes - Lecture 9: Economic Surplus, Business Insider, Form 10-Q

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amberant375

6 Nov 2018

School

UTSC

Department

Economics for Management Studies

Course

MGEB02H3

Professor

April M.Franco

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Co(cid:374)(cid:859)t fro(cid:373) last le(cid:272)ture : take a firm w/cost curve can compute mc, atc, etc, profit max implies mr=mc, uppose the(cid:455) (cid:272)a(cid:374)(cid:859)t i(cid:373)pa(cid:272)t the pri(cid:272)e, then mr = p, so profit max is p = mc. Mc(q) = mr = p: a competitive firm, a competitive firm positive profits, a firm may make profits in the short run, but in the long run will not. In long run, if profits are being made, other firms will enter _ drive down the price. It is possible a firm will incur losses if p < atc for the profit maximizing quantity: still measured by profit per unit x quantity, profit per unit is negative (p atc < 0) Might think price will increase in near future. Shutting down + starting up could be costly: firm has 2 choices in the short run (must compare the profitability of both choices, continue producing, shut down temporarily.

Related Questions

True or False, and explain (one sentence is sufficient)

A.) If P > ATC then a firms is making economic profit.

B.) In a perfectly competitive industry, it is possible for a firm to earn P > ATC in the long run.

C.) If P = AVC in the long run, then the firm should shut down and exit.

D.) If P < ATC in the short run, then a firm should shut down and exit.

1. A firm that is a pure competitor has P > ATC and P > MC on the output (Q) it is presently producing and selling. Is this firm maximizing its profits? If not, which direction should it change its output if it wants to maximize its total profit?

2. Is a pure competitor in short-run or long-run equilibrium if it has P=MC=ATC? Explain.

3. There is free entry in the model of pure competition. Assuming that P > ATC for a vast number of firms producing a standardized product for a given market, what will happen to market supply as the consequence? What will happen to the market price (P) of the product these firms are producing?

4. Firms in the pure competition have horizontal demand functions. (The market determines product price, so firms in this competitive market are price takers.) Do firms in this model have to lower prices if they want to sell more output? Why or why not?

copperporcupine291

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

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MGEB02H3 Lecture Notes - Lecture 9: Economic Surplus, Business Insider, Form 10-Q

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