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ECON 1000 Chapter Notes - Chapter 14: Marginal Revenue

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amberdog756
20 Dec 2017
School
Carleton University
Department
Economics
Course
ECON 1000
Professor
Collins Ayoo

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Document Summary

Average revenue: the average revenue earned per product sold, formula: total revenue / quantity sold. Marginal revenue: the difference from the change in total revenue and change in quantity sold, formula: change in total revenue / change in quantity sold. In order to maximize their profits, a firm must produce the quantity for which the. Marginal costs = marginal revenue: following rules apply when deciding to increase/decrease production. If marginal revenue > marginal costs, increase output. If marginal revenue < marginal costs, decrease output. If marginal revenue = marginal costs, do nothing: a firm in the short-run should choose to shut down when , total revenue < variable costs, total revenue / quantity < variable costs / quantity, price < average variable cost. Sunk cost: a cost that has already been dealt with and cannot be recovered. Calculating profit for a competitive firm: profit = (price average total costs) x quantity sold.

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Related Questions

32. Which of the following is not a difference between monopolies and perfectly competitive markets?

A. Monopolies face downward sloping demand curves while perfectly competitive firms face horizontal demand curves.

B. Monopolies charge a price higher than marginal cost while perfectly competitive firms charge a price equal to marginal cost.

C. Monopolies can earn profits in the long run while perfectly competitive firms break even.

D. Monopolies choose to produce the quantity at which marginal revenue equals marginal cost while perfectly competitive firms do not.

40. Which of the following statements is not correct?

A. Both monopolies and monopolistically competitive firms can earn economic profits in the long run.

B. Both monopolistically competitive and perfectly competitive firms can earn economic profits in the short run.

C. Only competitive firms produce the welfare-maximizing level of output.

D. Firms in perfect competition, monopolistic competition, and monopoly maximize profits by producing where marginal revenue equals marginal cost.

43. A monopolistically competitive firm is currently producing 20 units of output. At this level of output the firm is charging a price equal to $20, has marginal revenue equal to $12, has marginal cost equal to $12, and has average total cost equal to $18. From this information we can infer that

A. the profits of the firm are negative.

B. firms are likely to leave this market in the long run.

C. the firm is currently maximizing its profit.

D. All of the above are correct.

Question 16

  1. If price is cut and demand is elastic, total revenue will rise because

    the change in quantity demanded is greater than the percent change in price.

    the percent change in quantity demanded is greater than the change in price.

    the percent change in quantity demanded is greater than the percent change in price.

    customers can't find substitutes.

3 points

Question 17

  1. If price is cut and demand is inelastic, total revenue will fall because

    the change in quantity demanded is less than the percent change in price.

    the percent change in quantity demanded is less than the change in price.

    the percent change in quantity demanded is less than the percent change in price.

    customers can find substitutes.

3 points

Question 18

  1. If something is addictive, then

    price and demand are inversely related.

    price elasticity of demand is equal to one.

    demand is perfectly inelastic.

    demand is perfectly elastic.

3 points

Question 19

  1. In general, elasticities measure

    the change in quantity demanded when a product attribute changes.

    the change in consumer spending when income changes.

    the change in an attribute for a percentage change in price.

    the percentage change in the quantity demanded resulting from a fixed percentage change in some attribute.

3 points

Question 20

  1. Average total costs are defined as

    total costs divided by the change in output.

    total costs divided by output.

    the change in total costs when output changes.

    average variable costs plus marginal costs.

3 points

Question 21

  1. If a firm is experiencing economies of scale, then the long-run average cost curve is

    falling.

    rising.

    horizontal.

    shifting.

3 points

Question 22

  1. If average total cost is rising

    marginal cost is above average total cost.

    marginal cost is rising.

    marginal product is rising.

    marginal cost is above average total cost and is falling.

3 points

Question 23

  1. The period of time over which all inputs are variable is the

    market horizon.

    short run.

    calendar year.

    long run.

3 points

Question 24

  1. The supply chain refers to

    the supply curve.

    the process of outsourcing.

    the process of downsizing.

    the process of creating and selling a product.

3 points

Question 25

  1. When the capital (a fixed input) changes

    short-run marginal costs rise.

    short-run average total costs fall but do not shift.

    labor inputs decline.

    the short-run average total cost curve shifts.

3 points

Question 26

  1. A market of price takers is called

    perfectly competitive.

    monopolistically competitive.

    a monopoly.

    an oligopoly.

3 points

Question 27

  1. A market with a single seller is called

    perfectly competitive.

    monopolistically competitive.

    a monopoly.

    an oligopoly.

3 points

Question 28

  1. A market that mainly stresses product differentiation is called

    perfectly competitive.

    monopolistically competitive.

    a monopoly.

    an oligopoly.

3 points

Question 29

  1. Entry into a competitive market will continue until

    economic profits are zero.

    normal profits are zero.

    when accounting losses are zero.

    a. and b. are true

3 points

Question 30

  1. Firms in an oligopoly

    act independently.

    engage in strategic behavior.

    have perfect knowledge of the behavior of others.

    openly collude.

1-7 True or False

1) In the short run, a perfectly competitive firm can earn positive, zero, or negative profit depending on the market price of the firm's output.

2)In the model of the perfectly competitive firm, the firm's fixed costs are equal to its implicit costs of production.

3)Assume the market price is greater than average total cost at the perfectly competitive firm's profit-maximizing level of output. In this case, the firm is earning positive economic profits, which act as an incentive for new firms to enter the market.

4)Assume that at the current level of output, price equals marginal revenue, but is less than average total cost. So long as price is greater than average variable cost, the firm should continue to operate in the short run to minimize its losses.

5)The fact that a firm is a price-setter does not ensure it will make a positive economic profit in the short run and over time.

6)Barriers to entry serve to limit the number of firms that operate in a particular market and, as 11) such, reduce the amount of total profit earned in the market.

7)In the prisoner's dilemma game, each player's dominant strategy is also the Nash equilibrium.

14-17 Multiple Choice

14) Marginal revenue is equal to:
A) the change in P x Q due to a one unit change in output. B) the change in quantity divided by the change in price.

C) the change in price divided by the change in output. D) price, but only if the firm is a price searcher.

15) In order to maximize its profits, a price-taking firm should produce the level of output at which:

A) marginal revenue = marginal cost. B) total revenue = total cost.

C) variable revenue = variable cost. D) average revenue = average cost.

16) Assume that there is an improvement in the technology used by firms in a perfectly competitive industry that is initially in long-run equilibrium. In the short run this would cause:

A) cannot be determined with the information given. B) no change in the firm's economic profit.
C) a decrease in the firm's economic profit. D) an increase in the firm's economic profit.

17) Assume at the firm's profit-maximizing level of output P = AVC. In this case, the firm will be:

A) incurring an economic loss. B) earning a positive economic profit.

C) earning economic profit = 0. D) breaking even.