ECON 221 Chapter Notes - Chapter 11: Marginal Revenue, Demand Curve, Marginal Cost
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13 Aug 2018
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Chapter 11: costs and profit maximization under competition. You sell at the market price (intersection of market supply and demand) The demand for a firm"s product is perfectly elastic at the market price. There are many potential sellers so a perfectly elastic demand curve can be a reasonable assumption even in a market with a few firms, at least in the long run or after all exit and entry has occurred. In the short run, or before exit or entry can occur, a firm with a unique product has control over how high he can set the price until competitors enter the market. Profit = = total revenue - total cost. Total revenue, tr = p x q (price times quantity sold) Total cost is the cost of producing a given quantity of output (includes explicit. Don"t forget: opportunity costs and implicit costs) An explicit cost is a cost that requires a money outlay (what you pay)
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____ 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. |
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