ECON1001 Lecture Notes - Lecture 4: Marginal Revenue, Marginal Product, Ceteris Paribus

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browngrasshopper715

13 Aug 2018

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Competitive markets: supply decisions are related to costs. We use costs to derive a(cid:374) i(cid:374)dividual fir(cid:373)"s supply function and the market supply function. When p=mc, the price taking firm is maximising profit. Therefore, a firm should sell up until p = mc. If a firm is producing where p < mc for the last unit made, the firm can increase profit by not making that last unit. If price changes from p1 to p2, the fir(cid:373)"s mr (marginal revenue) rises too as we continue to produce until p = mc. A fir(cid:373)"s supply (cid:272)urve is give(cid:374) (cid:271)y its mc (cid:272)urve. As the mc curve is upward sloping due to diminishing marginal product, there is a positive relationship between the price of a good and that quantity of that good supplied. This positive relationship is known as the law of supply. If there is a change in price, there will be a movement along the supply curve itself.

Related Questions

1. Suppose that a perfectly competitive firm's Total Cost function is given by:
TC = 50 + 80q - 10q² + 0.6q³
a. What is fixed cost equal to? What is Variable Cost equal to?
b. What is Marginal Cost equal to? What is the Average Variable Cost equal to?
c. Find an equation for the inverse supply curve of the firm. Hint: the supply curve presumes profit-maximizing outputs at any market price.
d. Below which market price (a number) will this firm choose to produce 0 output?
e. Choose a market price that is between Average Cost and Average Variable Cost. Will, the firm choose to produce a positive output level?
Depict this output level in a graph that includes all the
appropriate curves. Explain verbally (and with numbers) why this firm would choose to produce the output you chose.
f. What does it mean for a firm to be a price taker? What is the
implication of this for the individual firm's demand curve? You must also mention in your answer the term elasticity (correctly of course).
g. If the firm's cost curve shifted down, what would this do to?
the firm's supply curve? Justify your answer with an example using the short-run total cost curve above.
Q2. Suppose there are two demand curves (e.g two different sets of consumers) for a particular product (two distinct markets that can be segmented-so somehow the consumers in one market cannot buy in the other market and resale from lower-priced consumers to higher-priced consumers is not possible).
The two demand curves are given by the following equations:
Q1 = 14 - P1 (group 1)
Q2 = 12 - 2P2 (group 2)
a. Solve for the inverse demand curve for group 1 and then graph the inverse demand curve with P on the vertical and Q on the horizontal axis.
b. Calculate MR for each group above and graph on the graphs in part a.
c. Suppose MC=AC is constant and equal to 2 for the firm (So the MC curve applies for both groups (because it is the same supplier of a single product for the two groups), although demand and MR are unique to each group since the markets can be segmented. Find the profit-maximizing output, price, and profits in each market. You may assume that TC = AC*Q (cost per unit*number of units). Label the correct price and quantity for each graph in part a.
d. What are the elasticities at the profit-maximizing quantities that you found in part c?
e. Can you say anything about how the price charged in each market relates to the relative price elasticities of demand you calculated in part d? Try to explain intuitively using an example of a real product that you might consume, in which the supplier of a single product can segment the market and in fact charge different prices to two different groups.
f. Now suppose that the above firm cannot segment the two markets. Solve for the single profit-maximizing price and quantity. What are profits equal to?

greenimpala359

Globo Public Supply has $1,000,000 in assets. Its demand curve is: P= 206 - .20 * Q and its total cost function is: TC = 20,000 + 6 * Q where TC excludes the cost of capital. If Globo Public Supply is UNREGULATED, find Globos optimal price.

A. $206

B. $107

c. $56

D. $6

e. $3

A monopolist faces tge follownig demand curve: P= 12- .3Q with marginal costs of $3. What is the monopolistic price?

a. P=$5.50

B. P=$6.50

c. P=$7.50

d. P=$8.50

e. P=$9.50

A monopoly will always produce less than a purely competitive industry, ceteris paribus.

a. true

b. false

The demand curve facing the firm in _____ is the same as teh industry demand curve.

a. pure competition

b. monopolistic competition

c. oligopoly

d. pure monopoly

e. none of the above

Suppose that in a perfectly competitive industry the equilibirum industry quantity is 10,000 units. Suppose that the monopoly output is 5,000. For a 2 firm Cournot Oliopoly (N=2) known as a duopoly, what is a likely Cournot QUANTITY for the industry?

a. 3000 units

b. 5000 units

c. 6667 units

d. 10000 units

e. 15000 units

A manufacturer produces two types of computer softwware, Word processing (W) and spreadsheet (S), which is offered to two different retail outlets (#1 and #2). The following table shows the max price each retail outlet is willing to pay for each individual software product.

Retail #1 Product W $170 Product S $105

Retail #2 Product W $95 Product S $135

What is the optimal pricing strategy that will maximizerevenue for the manufacturer, given the maximum the retail outlets are willing to pay?

a. budnel both products (W and S) and sell them at $230

b. price product w at $170 and product s at $135

c. price product w at $170 and product s at $170

d. price product w at $95 and product s at $105

e. bundle both products (w and S) and sell them at $275