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ECON 101 Lecture Notes - Lecture 15: Marginal Revenue, Perfect Competition, Marginal Utility

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fuchsiapug261
30 Apr 2019
School
U of M
Department
Economics
Course
ECON 101
Professor
Benjamin Zamzow

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ECON 101 Full Course Notes
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ECON 101 Full Course Notes
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Document Summary

Perfect competition requires: many buyers and many sellers, free entry and exit, perfect information about prices and quality, and identical products. We assume that no single buyer or seller can exert an effect on the market price or quantity. Firms are assumed to be price takers; they take the market price as given and focus only on their. Good examples would be the market for corn, wheat milk, etc. no single farmer really affects the quantity decision. supply. Market demand curves are always downsloping, i. e. law of demand is assumed to hold. Yet, we assume that each individual competitive firm faces a perfectly horizontal demand curve, e. g. perfectly elastic demand. If the competitive firm raises its price, it sells nothing. If the competitive firm lowers its price, it captures the entire market. To understand how output (and price) is set by firms in a competitive market, we must first understand revenue for a competitive firm.

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Related Questions

1. A perfectly elastic demand function

Select one:

a. is characteristic of an individual firm operating in a perfectly competitive market.

b. shows that a consumer is willing to pay any amount for the product.

c. shows that the individual firm can increase sales by lowering the price of output.

d. has a marginal revenue that is always decreasing.

 

2. Your local farmer has many competitors and exists in a market structure known as perfect competition. This means that price is determined outside of the individual farmer's ability to charge a price higher than the going market for a bushel of wheat, hence the farmer is

Select one:

a. a price maker and can therefore charge different customers different prices.

b. a price taker and cannot affect the market price of wheat.

c. always able to price produce above the competition and earn a larger profit.

d. never able to determine any prices he charges for anything, such as soybeans

 

 

3. All of the following are true regarding perfectly competitive price determination EXCEPT

Select one:

a. the individual firm takes the market price as given.

b. the individual firm is known as a market price maker.

c. the individual firm's marginal revenue curve is horizontal at the market price.

d. the market price is determined by the interactions among all buyers (households) and firms.


1.
If firms in a monopolistically competitive market are earningpositive profits,
A) firms will likely be subject to regulation.
B) barriers to entry will be strengthened.
C) some firms must exit the market.
D) new firms will enter the market.
2.

Panel c in the set of figures shown is consistent with a firm in amonopolistically competitive market that is


A) earning profit and is in both short-run and long-runequilibrium.
B) earning economic profit and is in short-run equilibrium, but notlong-run equilibrium.
C) earning profit and is in long-run equilibrium, but not short-runequilibrium.
D) earning a negative profit and is not in equilibrium.
3.
When a profit-maximizing firm in a monopolistically competitivemarket is producing the long-run equilibrium quantity,
A) its marginal revenue will exceed its marginal cost.
B) its average revenue will equal its marginal cost.
C) it will be earning positive economic profits.
D) its demand curve will be tangent to its average-total-costcurve.
4.
Monopolistic competition differs from perfect competition becausein monopolistically competitive markets
A) each of the sellers offers a somewhat different product.
B) strategic interactions between firms is vitally important.
C) there are barriers to entry.
D) all firms can eventually earn economic profits.
5.
The free entry and exit of firms in a monopolistically competitivemarket guarantees that
A) economic losses can persist into the long run, but not economicprofits.
B) both economic profits and economic losses can persist into thelong run.
C) economic profits can persist into the long run, but not economiclosses.
D) both economic profits and economic losses disappear in the longrun.
6.


Panel (a) shows a profit-maximizing monopolistically competitivefirm that is

A) All answers are correct
B) earning a zero profit.
C) charging a price that is equal to average total cost.
D) in long-run equilibrium.
7.
Since a firm in a monopolistically competitive market faces a
A) perfectly elastic demand curve, it will always operate withexcess capacity.
B) downward-sloping demand curve, it will always operate atefficient scale.
C) perfectly inelastic demand curve, it will always operate atefficient scale.
D) downward-sloping demand curve, it will always operate withexcess capacity.
8.
In a monopolistically competitive market,
A) firms can enter or exit the market without restriction.
B) each firm takes the price of its product as given.
C) each firm produces a product that is essentially identical tothe products of other firms in the market.
D) there are only a few sellers.
9.
The fact that there is a great deal of advertising of men’s shavingproducts indicates that
A) it costs firms very little to produce those products.
B) the market for those products is perfectly competitive.
C) those products are highly differentiated.
D) All answers are correct
10.
A profit-maximizing firm in a monopolistically competitive marketdiffers from a firm in a perfectly competitive market because thefirm in the monopolistically competitive market
A) has no barriers to entry.
B) faces a downward-sloping demand curve for its product.
C) faces a horizontal demand curve at the market clearingprice.
D) is characterized by market share maximization.

Use the figure above to answer the following questions. It pictures three cost curves of a perfectly competitive producer of apples. It also pictures a variety of possible market prices, ranging from $1.10 per bushel to $4.90 per bushel. We assume that the firm wants to maximize profit. Let Point f= $4.90/bushel; point g= $4/bushel: point m= $2.40/bushel Figure 21.1 Price or Cost (dollars/bushel) MC AT 4.90 g 13 18 24 37 46 50 54 Quantity (thousands of bushels/year) 11) Consider a long-run competitive equilibrium. Let the demand for an industry's product rise. In response, we would expect which of the following? a. An immediate increase in price and higher production by all existing firms (as they equate their MC with the higher market price). b. The higher supply by so many firms turns their normal profits (zero accounting profit) into losses. c. The losses give firms an incentive to leave the industry, which lowers supply. d. The lower supply raises the market price, restores profit to normal (zero accounting profit), and stops the exodus of firms from the industry. e. All of the above.