ECON 20 Lecture Notes - Lecture 11: Competitive Equilibrium, Marginal Revenue, Marginal Product
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28 Aug 2020
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Increasing returns to scale or economies of scale: an increase in a firm"s scale of production leads to lower costs per unit produced. Constant returns to sale: an increase in a firm"s sale of production has no effect on costs per unit produced. Firms can choose from three factor atc sizes: s, m, l. In both sr and lr, p= mc for firm and q(s) = q (d) in perfect competitive market. Economic profit = 0 this happens in lr equilibrium but doesn"t have to happen in. The firms in the business want to stay in the business and those who aren"t in the business don"t want in (long run) Short run expansion and losses o equilibrium: (attach pics here) And there are enough firms so that supply equals demand. The long-run adjustment mechanism: investment flows toward profit opportunities. The entry and exit of firms in response to profit opportunities usually involve the financial capital market.
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Given the following short-run production cost schedule:
Quantity Produced | Total Cost ($) |
0 | 20 |
1 | 27 |
2 | 38 |
3 | 53 |
4 | 73 |
5 | 100 |
6 | 130 |
The table above gives the short-run total cost function for a typical firm in a perfectly competitive industry.
(a) What is the dollar value of the firm's total fixed cost?
(b) Calculate the marginal cost of producing the first unit of output.
(c) If the price the firm receives for its product is $20, indicate the firm's profit-maximizing quantity of output.
(d) Explain your answer in (c) above.
(e) Given your results, what will happen to the number of firms in the industry in the long-run (assuming there is no barrier to entry). Explain.
(f) Input the above data in excel and draw, using excel, the (1) total cost, (2) fixed cost, and (3) average variable cost curves for the above firm.