ECO101H1 Lecture Notes - Lecture 17: Organic Food, Perfect Competition, Demand Curve

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5 Apr 2017

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ECO101H1 Full Course Notes

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The market for organic food is perfectly competitive and in long-run equilibrium. One farm owner buys all of the other farms, and (thus) has a monopoly. Market ss = sum of firms" ss schedules. Encourage research and development: protect consumers from monopoly prices. Grant patent protection (monopoly), but for limited period of time. Period of patent protection: consumer pays monopoly price (pm) After patent expires: legal barriers to entry is eliminated and consumers pay competitive price (pc) When patent expires: market becomes perfectly competitive, economic profits, in long run, are zero (no barriers to entry) Requires that seller be able to segment its customers. A dry cleaner: an example of price discrimination. 100 adults willing to pay and 2000 students willing to pay . Cost to dry clean a shirt: mc = atc = . [to simplify, we assume that there are no fixed costs that marginal cost is unchanged at ]

Related Questions

1. Which of the following is true under a monopoly?

A. Monopolist chooses the highest possible price.
B. Monopolist chooses a price that is always higher than marginal cost of production.
C. Marginal revenue of a monopolist is price.
D. None of the above are true for monopoly.

2. You are the manager of a monopoly that faces a demand curve described by P = 230 -20Q. Your costs are C = 5 +30Q. The profit-maximizing output for your firm is:

A. 4
B. 5
C. 6
D. 7

3. Which of the following is true?

A. A monopolist produces on the inelastic portion of its demand.
B. A monopolist always earns an economic profit.
C. The more inelastic the demand, the closer marginal revenue is to price.
D. In the short run a monopoly will shutdown if P < AVC.

4. In a competitive industry with identical firms, long rum equilibrium is characterized by:

A. P = AC
B. P = MC
C. MR = MC
D. All of the above

5. You are the manager of a firm that sells its product in a competitive market at a price of $50. Your firm's cost function is C = 40 + 5Q². Your firm's maximum profits are:

A. 125
B. 250
C. 100
D. 85

6. A perfectly competitive firm faces:

A. A perfectly elastic demand function
B. A perfectly inelastic demand function
C. a demand function with unitary elasticity
D. none of the above

purpleworm770

Consider the following market demand schedule and total costs for a monopoly.

Q	P	TR	TC	MR	MC	Profit
0	45		4
1	40		9
2	35		19
3	30		39
4	25		61
5	20		91
6	15		130
7	10		172

a) Fill in the blanks.

b) How is the relationship between price and MR different between monopolistic and perfectly competitive markets?

c) Would the demand curve facing a monopolistic competitive market be more or less elastic than the demand curve facing a monopolist, why? Do firms in a monopolistically competitive market make long-run economic profits, why or why not?

crimsongnu281

6. Power Printers Total Costs (per hour)

q TC

0 65

1 80

2 95

3 120

4 150

5 200

If the price of a printer is $50 in this perfectly competitive industry, what is the profit-maximizing rate of output?

7. Which of the following is NOT true in a perfectly competitive market?

a. There is free entry and exit into the industry.

b. Each firm produces a differentiated product.

c. Each firm faces a perfectly elastic demand curve.

d. Price is equal to marginal revenue at every output level for the firm.

8. A perfectly competitive firm should always continue to operate in the short run as long as:

a. P < ATC at the rate of output where MR = MC.

b. P < AVC at the rate of output where MR = MC.

c. MR > AVC at the rate of output where MR = MC.

d. MR > AFC at the rate of output where MR = MC.

9. A firm that makes zero economic profits:

a. Must eventually go bankrupt.

b. Should shut down.

c. Incurs a loss, but should not shut down.

d. Covers all its costs, including a provision for normal profit.

10. A monopoly firm is different from a competitive firm in that:

A. There are many substitutes for the monopolistâs product whereas the competitive firmâs demand curve is perfectly elastic.

B. The monopolistâs demand curve is perfectly inelastic, whereas the competitive firmâs demand curve is perfectly elastic.

C. The monopolist can influence the price in the market, whereas the competitive firm is a price taker.

D. All of the above

taupewombat30

ECO101H1 Lecture Notes - Lecture 17: Organic Food, Perfect Competition, Demand Curve

ECO101H1 Full Course Notes

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