ECON 1116 Chapter Notes - Chapter 14: Average Variable Cost, Sunk Costs, Marginal Revenue

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lilacmule890

14 Mar 2016

School

Northeastern University

Department

Economics

Course

ECON 1116

Professor

Pritchard Robert

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Document Summary

A competitive market has two characteristics: there are many buyers and many sellers in the market, the goods offered by the various sellers are largely the same, firms can freely enter or exit the market. Each seller has a negligible impact on the market. Buyers and sellers takes the market price as given (price takers) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) Firms can double output without the price changing. Total revenue is proportional to amount of output. Average revenue = total revenue (pxq) divided by the amount of output (q: all firms average revenue equals the price of the good. Marginal revenue is the change in total revenue from the sale of each additional unit of output: because price is fixed, for competitive firms, marginal revenue equals the price of the good. As long as marginal revenue exceeds marginal cost, increasing the quantity produced raises profit. The marginal-cost curve and the firm"s supply decision.

Related Questions

70) In a monopolistically competitive industry, the long-run equilibrium output corresponds to the tangency of the firm's LRAC and its demand curve. This output is also where marginal revenue equals marginal cost because A) firms will have negative profits at any other level of output. B) the average total cost is equal to average revenue at that output. C) firms are price takers in this market structure. D) marginal cost is above price. E) firms prefer it this way.

1.Profit maximizing firms should increase output to the point where:

a.Total revenue is largest

b.Total revenue just exceeds total costs

c.An increase in revenue is just offset by an increase in cost.

d.Fixed costs are covered

e.Total cost is minimized

2.The Golden Rule of Output Determination for a perfectly competitive firm is to:

a.Choose the output rate at which price is greatest.

b.Choose the output rate at which marginal revenue equals marginal cost.

c.Produce to the point of diminishing marginal returns

d.Produce until total revenue exceeds total cost.

e.Choose the output rate at which total cost is the lowest.

3.Which of the following conditions would indicate that a perfectly competitive firm should expand output to increase its profit?

a.Marginal cost equals average cost

b.Total cost exceeds marginal cost

c.Price exceeds marginal cost

d.Total revenue exceeds total costs

e.Total revenue equal price

4. It would not pay a firm to produce anything in the short run if the price were:

a.Above average total costs

b.Equal to marginal cost and above the average variable cost.

c.Equal to total revenue divided by output

d.Below average variable cost

e.Below marginal average cost

rubydolphin297

The MR = MC rule can be restated for a purely competitive seller as P = MC because:

A. Each additional unit of output adds exactly its price to total revenue.

B. The firm’s average revenue curve is downsloping.

C. The market demand curve is downsloping.

D. The firm’s marginal revenue and total revenue curves will coincide.

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ECON 1116 Chapter Notes - Chapter 14: Average Variable Cost, Sunk Costs, Marginal Revenue

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