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CAS EC 101 Lecture Notes - Lecture 21: Average Variable Cost, Demand Curve, Economic Equilibrium

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Verified Note
coralcaribou304
23 Oct 2018
School
Boston University
Department
Economics
Course
CAS EC 101
Professor
Bruce Watson

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19

CAS EC 101 Lecture Notes - Lecture 19: Ferrari Monza, Marginal Revenue, Perfect Competition

21

CAS EC 101 Lecture Notes - Lecture 21: Average Variable Cost, Demand Curve, Economic Equilibrium

22

CAS EC 101 Lecture Notes - Lecture 22: De Beers, Market Power, Bauxite

Document Summary

Ec 101 lecture 21 - accounting profits and economic profits / entry & exit to market. As long as the firm is above the shut down cut off, which is the point where the average variable cost is equal to the price, then the firm will continue to produce. The market supply curve is going to look exactly like the individual supply curve. The quantity demanded is only going to be multiplied by 1000 because all of the firms want to produce at the same price. Individual firm demand curve is the price line -> horizontal demand curve because the firm can supply as much or as little they want at that price level. At quantity q* there are no profits made, and the price is equal to the marginal cost and average cost. Accounting costs are only explicit costs, which is money that is actually paid, like rent. Total accounting costs: + + = .

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Related Questions

Consider a market with many firms that have different cost structures.

Unless shutdown or exit is optimal, every firm expands production until ___________.

A.

marginal product is maximized.

B. marginal revenue, marginal cost, and price are all equal

(MR = MC = P)

C. marginal revenue is equal to the minimum of the short-run average total cost.

D. marginal cost is minimized.

To construct the supply curve in a market with many firms with different cost structures, the ___________.

A.

individual supply curves for each firm are added together.

B.

individual average variable cost curves are added together.

C.

minimums of the​ firms' marginal cost curves are linked together.

D.

minimums of the​ firms' long-run average total cost curves are linked together.

The equilibrium price is the ___________.

A.

​long-run average total cost of the last entrant into the market.

B.

the average marginal cost of the firms.

C.

the long-run average total cost of the first entrant into the market.

D.

minimum of the average variable cost of the smallest firm in the market.

In terms of economic profits, early market entrants earn

(negative

zero

positive)

economic profits and the last entrant earns

(negative

zero

positive)

economic profits.

A perfectly competitive firm will choose to shut down when the (price (marginal revenue)/ average total cost) intersects the marginal cost curve below the ( total cost curve average variable cost curve ).

Therefore, the short-run supply curve for a perfectly competitive firm is represented by __________.

A. the portion of the average variable cost curve below marginal cost. B. the portion of the average variable cost curve above marginal cost. C. the portion of the marginal cost curve above the average total cost. D. the portion of the marginal cost curve above average variable cost.

In the long run, the supply curve for a perfectly competitive firm is represented by __________.

A. the portion of the marginal cost curve above the average total cost. B. the portion of the marginal cost curve above average variable cost. C. the portion of the average variable cost curve below marginal cost. D. the portion of the average variable cost curve above marginal cost.

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.

If firms in a competitive market have different cost functions, then

  A.

there is no short-run market supply curve.
  B.

the market supply curve reflects those firms' operating envelopes, even in the short run.
  C.

some of the firms will shut down because their costs are too high to compete.
  D.

the firms' marginal costs will be different at the market price.