ECO100Y5 Lecture Notes - Lecture 6: Deadweight Loss, Economic Surplus, Natural Monopoly

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ECO100Y5 Full Course Notes

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Efficiency requires that factors of production are fully employed. If firms don"t use the least-cost method of producing their chosen outputs. If the marginal cost of production is not the same for every firm in an industry. If too much of one product and too little of another products are produced. Productive efficiency for the firm: requires that the firm produce any given level of output at the lowest possible cost. If any profit maximizing firm will seek to be productively efficient no matter the market structure within which it operates 4 types of competition are productively efficient. Productive efficiency for the industry: requires that the industry"s total output be allocated among its individual firms in such a way that the total cost in the industry is minimized. If marginal costs are not equated across firms, then a reallocation of output is necessary in order for the industry to become productively efficient.

Related Questions

1.Which of the following can be thought of as an adjustment for the risks involved with respect to the cost of a firm acquiring financial capital?

a.Cost of financial capital paid from firm

b.Higher retained earnings from past profits

c.Tax credits for physical capital investments

d.Imposition of hurdle rates of interest

2.If a firm is producing so that the point chosen along the production possibility frontier is socially preferred, then that firm is said to have reached its

a)minimum price efficiency

b)utility-maximizing efficiency

c)allocative efficiency

d)productive efficiency

3.When a firm uses retained profits to invest in more energy efficient equipment, an economist would calculate the _______________ of investing in physical capital.

a.Typical hurdle rate

b.Hurdle rate premium

c.Degree of risk

d.Opportunity cost

4.Deregulation occurs when a government eliminates or scales back rules relating to all but one of the following. Which one is it?

a.Conditions of entry in a certain industry

b.Natural monopoly

c.Prices that can be charged

d.Quantities that can be produced

5.A natural monopoly occurs when the quantity demanded is the minimum quantity it takes to be at the bottom of the long-run average cost curve

a.Greater than

b.Less than

c.Equal to

d. a or c above

6. The demand curve perceived by a perfectly competitive firm

a.Shows that such a firm is a price-maker

b.Shows economies of scale over a large range of output

c.Is horizontal

d. All of the above

rubydolphin112

Marginal Cost, Revenue, and Pure Competition Assignment Worksheet
Directions
This assignment deals with the recognition and application of pure competition cost and revenue information that is graphically presented. Use the graph below to answer the following questions.
Microeconomic Problem

1. How do you know that the firm represented in the graph above is a purely competitive firm?

2. To maximize profits, this firm will produce at what output level(one letter)?

3. Explain why this MR=MC position is the profit-maximizing position for any firm.

4. What is the product price (one letter)?

5. What is this firm's average revenue (one letter)?

6. At profit-maximizing output, what is this firm's average variable cost (one letter)?

7. At profit-maximizing output, what four letters indicate:

Total revenue? (Remember, four letters' a rectangle.)

Total cost?

Total variable cost?

Total fixed cost?

Total economic profit?

8. If price falls below what point, this firm will not operate in the short run? (No letter needed, just an explanation.)

9. What will happen to this firm's price, output, and economic profit in the long run? Why?

10. Where will the price settle in the long run? Remember, all purely competitive firms are theoretically doomed to make an only normal profit in the long run. (Again, no letter answer, just an explanation.)

11. Why is the long-run equilibrium position of a purely competitive firm productively and allocatively efficient?

teallizard995

Q8. To arrive at a logical determination of a firm's optimum output, economists assume that the firm seeks to
a. maximize output
b. minimize cost
c. maximize profit or minimize loss
d. maximize price

Q9. So long as marginal cost is rising, average variable cost must rise.
a. true
b. false

Q10. As output increases, marginal cost increases, reaches a maximum, and then falls.
a. true
b. false

Q11. Which of the following is the best example of variable cost?
a. depreciation on a building
b. property taxes
c. wages
d. rent paid for one's building

Q12. If the AVC is $12, the AFC is $4, the AR is $20, and output is 6,000 units, the total profit is
a. $72,000
b. $48,000
c. $24,000
d. negative $96,000

Q13. Under perfect competition, if a firm is suffering a loss,
a. MR exceeds ATC
b. AR equals AVC
c. AR equals ATC
d. AR is less than ATC

Q14. Elaine's firm is in a perfectly competitive industry. Why doesn't Elaine try to sell more of her product by lowering its price below the market price?
a. her demand curve is not elastic
b. doing so would be considered unethical price chiseling
c. her competitors would not allow it
d. she can sell all she wants at the market price

Q15. In the long run, perfect competition results in firms producing
a. at the minimum point of their long-run average cost curves, which indicates allocative efficiency
b. where price equals marginal cost, which indicates economic efficiency
c. where price equals marginal cost, which indicates the optimal scale of operation
d. at the minimum point of their long-run average cost curves, which indicates economic efficiency

Q16. On a graph of average cost curves, the space between ATC and AVC represents AFC.
a. true
b. false

Q18. If MC equals MR at a point greater than ATC, the perfectly competitive firm will
a. sustain a loss
b. shut down
c. make an economic profit
d. expand output

Q19. Since all producers have the same average revenue under conditions of perfect competition, they all have the same profits in the short run.
a. true
b. false

Q20. If the entry of new firms in a perfectly competitive industry substantially increases the market demand for resources,
a. this reduces the market price of resources
b. this raises the market price of resources
c. the market price of resources does not change
d. this lowers the ATC curves of individual firms

Q22. Under conditions of perfect competition, profits exist whenever AR is above AVC at equilibrium output.
a. true
b. false

Q23. Under perfect competition, market price is determined by market demand and supply.
a. true
b. false

Q24. If one firm in a perfectly competitive industry is somehow able to produce at a lower cost than competing firms in the short run,
a. the competing firms will adopt similar production techniques in the long run
b. the more efficient firm will earn higher profits than the competing firms in the long run
c. the competing firms will earn higher profits than the more efficient firm in the short run
d. the competing firms will go out of business in the long run

ECO100Y5 Lecture Notes - Lecture 6: Deadweight Loss, Economic Surplus, Natural Monopoly

ECO100Y5 Full Course Notes

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