ECON 1B03 Study Guide - Final Guide: W. M. Keck Observatory, Utility, Technological Change

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ECON 1B03 Full Course Notes

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A perfectly competitive market has the following characteristics: There are many buyers and sellers in the market. Market demand and supply determine price and every buyer and firm takes the markets equilibrium price as given- they are price takers. The goods offered by the various sellers are homogeneous (identical) Firms can freely enter or exit the market: there are no barriers to entry such as patents, exclusive rights to a key input to production etc. Total revenue for a firm is the selling price times the quantity sold. Since p is given (a number), the tr curve is a linear function of q. Average revenue, ar, tells us how much revenue a firm receives for the typical unit sold. Average revenue is total revenue divided by the quantity sold. Marginal revenue= the change in total revenue from an additional unit sold. Mr is the slope of the total revenue function.

Related Questions

A. A competitive firm

can consider only its location in setting the price.
must base its competitive price on product differentiation.
has the ability to set its own price.
must accept the price determined by the intersection of the market supply and demand curves.
has no supply curve.

B. If a firm is making an economic profit, then

the factors of production are being paid their opportunity costs.
there will be no change in the number of firms if the industry is perfectly competitive.
the factors of production are being paid less than their opportunity costs.
the factors of production are being paid more than their opportunity costs.
the firm will exit the industry

C. Along a downward-sloping monopoly demand curve,

marginal revenue is greater than price.
the elasticity of demand is constant.
marginal revenue decreases when the price decreases.
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

shut down because economic profits are negative.
continue to produce as long as P > AVC.
continue to produce because accounting profits are positive.
set a higher price for its output.
set a lower price for its output

E. For a perfectly competitive firm, the demand curve is

the marginal revenue curve.
perfectly inelastic.
always equal to marginal cost.
the same as the market demand curve

F. A firm in a(n) industry will have the most elastic demand curve

monopolistic
oligopolistic
monopolistically competitive
perfectly competitive

G. If the demand curve of a monopolist is in the inelastic range, then

total revenue will fall if the price increases.
total revenue will be unchanged if the price increases.
total revenue will rise if the price increases.
the total supply will increase by an equal amount if demand increases.
the price will be unchanged if total revenue increases

H. Monopolistic competition and oligopoly are examples of

monopoly.
perfect competition.
theories of consumer behavior.
imperfect competition.
the extreme cases on the market structure continuum

I. Under which market structure do firms face the flattest (most elastic) demand curve?

perfect competition
monopolistic competition
oligopoly
monopoly

J. At the point of long-run equilibrium for a perfectly competitive firm,

economic profits are zero.
TR > TC.
TR < TC.
P = AVC.
normal profits are zero.

brownlouse308

Suppose the inverse market demand function for a two-firm Cournot model is given by P=49-Q where Q=q_1+q_2 is the total output produced in the market, P is the market price, q_1 is the quantity of output produced by firm 1, q_2 is the quantity of output produced by firm 2. The marginal costs of the two firms are MC1=2 and MC2=3. For a linear inverse demand function P=a+bq, the marginal revenue is given by MR=a+2bq.

1. Find the marginal revenue MR1 of firm 1 as a function of q_1 and q_2.

2. Setting MR1=MC1, determine the reaction function of firm 1.

3. Find the marginal revenue MR2 of firm 2 as a function of q_1 and q_2.

4. Setting MR2=MC2, determine the reaction function of firm 2.

5. What quantity of output will each firm produce? That is, use the two reactions functions to find q_1 and q_2.

6. What is the market price P.

7. Determine the profits of each firm assuming there are no fixed costs.

upstairsatom

Suppose the inverse market demand function for a two-firm Cournot model is given by P=49-Q where Q=q1+q2 is the total output produced in the market, P is the market price, q1 is the quantity of output produced by firm 1, q2 is the quantity of output produced by firm 2. The marginal costs of the two firms are MC1=2 and MC2=3. For a linear inverse demand function P=a+bq, the marginal revenue is given by MR=a+2bq.

1. Find the marginal revenue MR1 of firm 1 as a function of q1 and q2.

2. Setting MR1=MC1, determine the reaction function of firm 1.

3. Find the marginal revenue MR2 of firm 2 as a function of q1 and q2.

4. Setting MR2=MC2, determine the reaction function of firm 2.

5. What quantity of output will each firm produce? That is, use the two reaction functions to find q1 and q2.

6. What is the market price P.

7. Determine the profits of each firm assuming there are no fixed costs.

upstairsatom

ECON 1B03 Study Guide - Final Guide: W. M. Keck Observatory, Utility, Technological Change

ECON 1B03 Full Course Notes

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