ECON 20 Lecture Notes - Lecture 17: Economic Surplus, Marginal Cost, Imperfect Competition

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amaranthgrasshopper262

28 Aug 2020

School

Irvine Valley College

Department

Economics

Course

ECON 20

Professor

mcneil

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Document Summary

Regardless of the source or market power, output price is not taken as given by the firm. Instead: price is a decision variable for imperfectly competitive firms. Firms with market power must decide not only (1) how much to produce, (2) how to produce it, and (3) how much to demand in each input market, but also (4) what price to charge for their output. Note: these decisions are not independent; they are interrelated. Demand in monopoly markets- figure 13. 2- the demand curve facing a perfectly competitive firm is perfectly elastic. Perfectly competitive firms are price-takers; they are small relative to the size of the market and thus cannot influence market price. The implication is that demand curve facing a perfectly competitive firm is perfectly elastic. If the firm raises its price, it sells nothing and there is no reason for the firm to lower its price if it can sell all it wants at p* =

Related Questions

____ 36. A firm facing a horizontal demand curve

a.	cannot affect the price it receives for its output.
b.	always produces at an output at which P = MR.
c.	faces perfectly elastic demand for its product.
d.	All of the above are correct.

____ 37. Which of the following decisions cannot be made by a firm in a perfectly competitive market?

a.	Market exit decision
b.	The market price of the product
c.	Quantity of output it can produce
d.	Entering a market

____ 38. In short-run equilibrium, a perfectly competitive firm

a.	may earn a profit or a loss.
b.	always earns a profit.
c.	never earns a profit.
d.	earns a profit only if the firm has no fixed cost.

copperbutterfly71

In a perfectly competitive market

1.a firm faces a perfectly elastic demand because there is unrestricted entry and exit.

2.if a firm raises its price, it will lose some, but not all, of its customers.

3.when a firm sells another unit of output, the addition to total revenue is equal to market price.

4.all of the above

1. A perfectly competitive firm will continue producing in the short run as long as it can cover its:

A.total cost.
B.average total cost.
C.average variable cost.
D.average fixed cost.

2. A perfectly competitive firm will earn a profit and will continue producing the profit-maximizing quantity of output in the short run if price is:

A.greater than marginal cost.
B.less than marginal cost.
C.less than average variable cost.
D.greater than average total cost.

3. Monopolistic competition is an industry characterized by:

A.a product with many close substitutes.
B.a horizontal demand curve.
C.a small number of firms.
D.barriers to entry and exit.

4. If a perfectly competitive firm increases production from 10 units to 11 units, and the market price is $20 per unit, total revenue for 10 units is:

A.$10.
B.$20
C.$200.
D.$210.

5. The demand curve facing a monopolist is:

A.horizontal, the same as that facing a perfectly competitive firm.
B.downward sloping, the same as that facing a perfectly competitive firm.
C.upward sloping, the same as that facing a perfectly competitive firm.
D.downward sloping, unlike the horizontal demand curve facing a perfectly competitive firm.

6. Suppose that a monopolist increases production from 10 units to 11 units. If the market price declines from $30 per unit to $29 per unit, marginal revenue for the eleventh unit is:

A.$1.
B.$9.
C.$19.
D.$29.

7. Most electric, gas, and water companies are examples of:

A.unregulated monopolies.
B.natural monopolies.
C.restricted-input monopolies.
D.sunk-cost monopolies.

8.If a perfectly competitive firm is producing a quantity that generates P > MC, then profit:

A.is maximized.
B.can be increased by increasing the price.
C.can be increased by decreasing the price.
D.can be increased by increasing production.

ECON 20 Lecture Notes - Lecture 17: Economic Surplus, Marginal Cost, Imperfect Competition

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