ECON 201 Lecture Notes - Lecture 8: Production Function, Fixed Cost, Opportunity Cost

Question 21

At least in theory, the more competition there is in the market, the greater also is the efficiency in the economy.

True

False

Question 22

Total fixed cost curve shows that fixed costs vis-Ã -vis production levelsdon't change.

True

False

Question 23

A firm's economic profit is usually higher than its accounting profit.

True

False

Question 24

The short run is a period of time when all factor inputs are fixed.

True

False

Question 25

In general, the product price is higher in an oligopolistic market than thatof monopolistic competition.

True

False

The market for wheat consists of 500 identical firms, each with the total and marginal cost functions shown:

TC = 90,000 + 0.00001Q2

MC = 0.00002Q,

where Q is measured in bushels per year. The market demand curve for wheat is Q = 90,000,000- 20,000,000P, where Q is again measured in bushels and P is the price per bushel.

a. Determine the short-run equilibrium price and quantity that would exist in the market.

b. Calculate the profit-maximizing quantity for the individual firm. Calculate the firm's short-run profit (loss) at that quantity.

c. Assume that the short-run profit or loss is representative of the current long-run prospects in this market. You may further assume that there are no barriers to entry or exit in the market. Describe the expected long-run response to the conditions described in part b. (The TC function for the firm may be regarded as an economic cost function that captures all implicit and explicit costs.)