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ECON 2010 Lecture Notes - Lecture 24: Marginal Revenue, Marginal Cost, Market Power

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fuchsiasheep454
4 Dec 2016
School
CU-Boulder
Department
Economics
Course
ECON 2010
Professor
Zacharyszlendak

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ECON 2010 Full Course Notes
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Document Summary

Price setters are people who set the price. Price takers are the buyers and sellers; they have no market power. Price is always constant meaning they are required to buy and sell at that set price. Firms can freely enter/exit the market and price is constant. Profit is maximized when total revenue-total cost is the greatest and where marginal revenue intersects or equals marginal cost (q*). If marginal revenue>marginal cost, you should produce that good. If marginal revenue

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Related Questions

Multiple choice qs on Perfect Competition - Qs College level 1 MIcreconomics

1. What is the correct interpretation of the perfectly competitive firm's supply curve?

It is the same as its average variable cost curve.

It is the same as its total variable cost curve.

It is the same as the portion of its marginal cost curve that lies above the average variable cost curve.

It is the same as the portion of its average variable cost curve that lies above the marginal cost curve.

2. What is the name of the type of market that is dominated by a few firms?

Oligopoly.

Monopolistic competition.

Monopoly.

Perfect competition.

---------------------------------------------------

3. What is break-even output?

The output at which the total revenue just covers a firm's total fixed cost.

The output at which the total revenue just covers a firm's total variable cost.

The output at which the total revenue just covers a firm's fixed and variable costs including normal profits.

The output at which the firm is making zero normal profits.

==================================================================

4. All of the following except one are considered to be the prerequisite elements for a market system to work effectively. Which is the exception?

Extensive specialization and trade.

Perfect competition.

Private ownership of productive resources.

A legal and social foundation

A balanced government budget

==========================================================

5. What is the term for the price at which the firm makes only normal profits?

Shutdown price.

Break-even price.

Average price.

Economic price.

================================================

6. Which of the following statements is true regarding the price in a perfectly competitive market?

Price equals average revenue but not marginal revenue.

Price equals marginal revenue but not average revenue.

Price is equal to neither the average nor the marginal revenue.

Price is equal to both the average and marginal revenue.

=================================================

7. What is the term for the extra revenue derived from the sale of one more unit?

Average revenue.

Marginal revenue.

Net revenue.

Total revenue.

=========================

8. What is the term for the amount of revenue that will always equal the price of the product in a perfectly-competitive market?

Marginal price.

Net revenue.

Average revenue.

Total revenue.

 

Answer the following questions pertaining to monopolist production. 

 

1) If a monopolist is producing in the inelastic portion of its demand curve, which of the following will occur if the monopolist decreases its price?

a. Marginal revenue will decrease, but profits will increase.

b. Marginal revenue will increase, but profits will decrease.

c.Total revenue will decrease, but profits will increase.

d.Both total revenue and profits will decrease.

e. Both total revenue and profits will increase.

 

2) Which of the following statements is true for a perfectly competitive firm but not true for a monopoly?

a.The firm's price is equal to its average revenue.

b.The firm cannot affect the market price for its good.

c.It is difficult for other firms to enter the industry.

d. The demand for the firm's product is unit elastic.

e.The firm must lower its price in order to sell more of its product.

 

3) Monopolies are inefficient for which of the following reasons?

a. They produce too little of the good.

b.They produce too much of the good.

c. They do not produce an output level at which marginal cost equals marginal revenue.

d. The marginal cost of producing the good is too low.

e. The firm is too large.

 

4) Which of the following is necessarily true of the profit-maximizing equilibrium of a monopolist who sets a single price?

a. Price equals average total cost.

b. Price is greater than the marginal cost.

c. Average total cost is at its minimum level.

d. Marginal revenue is greater than marginal cost.

e. Marginal cost is minimized.

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.