ECON 1010 Chapter Notes - Chapter 1: Sunk Costs, Marginal Revenue, Marginal Cost
ECON 1010 Full Course Notes
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| Number of newspapers per day (Q) | Total revenue (including advertising revenues) per day (TR) | Total cost per day (TC) | Marginal Revenue (MR) | Marginal Cost (MC) | Total Profit |
| 0 | 0 | 3500 | $ - | $ - | $ (3,500.00) |
| 1000 | 3250 | 3600 | $ 3.25 | $ 0.10 | $ (350.00) |
| 2000 | 4250 | 3700 | $ 1.00 | $ 0.10 | $ 550.00 |
| 3000 | 4750 | 3860 | $ 0.50 | $ 1.60 | $ 890.00 |
| 4000 | 5000 | 4020 | $ 0.25 | $ 1.60 | $ 980.00 |
| 5000 | 5200 | 4300 | $ 0.20 | $ 0.28 | $ 900.00 |
| 6000 | 5375 | 4500 | $ 0.18 | $ 0.20 | $ 875.00 |
| 7000 | 5400 | 4590 | $ 0.03 | $ 0.09 | $ 810.00 |
| 8000 | 5375 | 4810 | $ (0.03) | $ 0.22 | $ 565.00 |
| 9000 | 5225 | 5050 | $ (0.15) | $ 0.24 | $ 175.00 |
Q6) What is total fixed cost ?
Q7) If Star's total fixed costs were to DOUBLE for some reason, how much profit (or loss) does Star make when fixed costs are doubled?
Q8) Given your answer in #7, should the Star shut down, why or why not? If they should continue to produce, how many papers should they produce? Explain your choice in 25-50 words.
#7
If a monopolist or a perfectly competitive firm is producing at a break-even point, then:
i. average revenue is equal to average variable cost
ii. average revenue is equal to average total cost
iii. total revenue is equal to total variable cost
iv. total revenue is equal to total cost
| i |
| ii |
| iii |
| i and iii |
| ii and iv |
#8
A natural monopoly, such as a local electricity provider, is the result of:
i. a firm owning or controlling a key input used in the production process
ii. economies of scale existing over a wide range of output
iii. long-run average total costs declining continuously as output increases
iv. long-run total costs declining continuously as output increases
| i |
| ii |
| iii |
| iv |
| ii and iii |
| ii and iv |
| ii, iii, and iv |
#9
What do economies of scale, the exclusive ownership of essential raw materials used in the production process, and patents have in common?
| they are all barriers to entry |
| they all help explain why a monopolists demand and marginal revenue curves are identical |
| they must all be present before a monopolist may practice price discrimination |
| they all help explain why a firms short run average total cost curve is U-shaped |
#10
The principle that a firm should produce up to the point where the marginal revenue (MR) from the sale of an extra unit of output is equal to the marginal cost (MC) of producing the extra unit applies:
| to both perfectly competitive firms and monopolies |
| only to monopolies |
| only to perfectly competitive firms |
| only to firms that can employ discriminatory pricing strategies |
#11
A monopoly is producing a level of output such that marginal revenue is equal to marginal cost. The firm is selling its output at a price of $8 per unit and is incurring average variable costs of $5 per unit and average total costs of $10 per unit. Given this information, it may be concluded that the firm:
| is operating at maximum total profit |
| is operating at a loss that could be reduced by shutting down |
| is operating at a profit that could be increased by producing more output |
| is operating at a loss that is less than the loss incurred by shutting down |
#12
Suppose the demand function for a profit maximizing monopolists good is P = 120 - 0.2Q, its total cost function is TC = 40 + 4Q + Q2, and its marginal cost function is MC = 4 + 2Q. If the firm uses a uniform pricing strategy, then rounded to the nearest unit of output and to the nearest dollar the firm will:
| produce 48 units of output, charge a price of $110, and earn a total profit of $5280 |
| produce 48 units of output, charge a price of $110, and earn a total profit of $2744 |
| produce 52 units of output, charge a price of $134, and earn a total profit of $5322 |
| produce 52 units of output, charge a price of $134, and earn a total profit of $4016 |
