EC 201 Lecture Notes - Lecture 11: Average Variable Cost, Marginal Revenue, Sunk Costs

45 views3 pages

lemonmuskrat285

18 Nov 2016

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

There are many buyers and sellers in the market. The goods offered by the various sellers are largely the same. Firms can freely enter or exit the market. Actions of any single buyer or seller in the market have a negligible impact on the market place. Price takers : buyers and sellers in competitive markets must accept the price the market determines and so are said to be price takers. Total revenue is proportional to the amount of output. Tells us how much revenue a firm receives for the typical unit sold. Average revenue : total revenue divided by the amount of output. For all types of firms, average revenue equals the price of the good. Marginal revenue : change in total revenues from the sale of each additional unit of output. For competitive firm"s, marginal revenue equals the price of the good. Profit maximization and the competitive firm"s supply curve.

Related Questions

11. When firms have an incentive to exit a competitive market, their exit will:

a. drive down market prices.

b. drive down the profits of existing firms in the market.

c. decrease the quantity of goods supplied in the market.

d. All of the above are correct.

12. If a perfectly competitive firm currently produces where the price is greater than the marginal cost, it:

a. will increase its profits by producing more.

b. will increase its profits by producing less.

c. is making positive economic profits.

d. is making negative economic profits.

13. Does a consumer well being vary along a demand curve?

a. Yes. When price increases, consumers move to a lower indifference curve.

b. Yes. When price increases, consumers move to a higher indifference curve.

c. No. When price increases, consumers stay on the same indifference curve.

d. No. When price increases, the higher price has no effect on budget constraints or indifference curves.

e. None of the above

14. If a competitive firm sets its output such that marginal revenue, marginal cost, and average total cost are equal, economic profit must be:

a. Negative

b. positive

c. Zero

d. Indeterminate from the given information

15. Which of the following is a characteristic of a perfectly competitive market?

a. Firms are price setters.

b. There are few sellers in the market.

c. Firms can exit and enter the market freely.

d. All of the above are correct.

beigelouse899

1. Competitive markets are characterized by

a. The interdependence of firms.

b. A small number of buyers and sellers.

c. Free entry and exit by firms.

d. Unique products.

2. A firm that shuts down temporarily has to pay

a. Both its variable costs and fixed costs.

b. Its variable costs but not its fixed costs.

c. Its fixed costs but not its variable costs.

d. Neither its variable costs nor its fixed costs.

3. A profit-maximizing firm will shut down in the short run when

a. Average revenue is greater than the average fixed cost.

b. Price is less than the average total cost.

c. Average revenue is greater than marginal cost.

d. Price is less than average variable cost.

brownsea-lion330

1. Characteristics of competitive markets

The model of competitive markets relies on these three core assumptions:

1.	There must be many buyers and sellers a few players can't dominate the market.
2.	Firms must produce an identical product buyer must regard all sellers' products as equivalent.
3.	Firms and resources must be fully mobile, allowing for free entry into and exit from the industry.

The first two conditions imply that all consumers and firms are price takers. While the third is not necessary for price-taking behaviour, assume for this problem that a market cannot maintain competition in the long run without free entry.

Identify whether or not each of the following scenarios describes a competitive market, along with the correct explanation of why or why not.

Is the scenario	Competitive?
Dozens of companies produce plain white socks. Consumers regard plain white socks as identical and don't care who manufactures their socks.
In a major metropolitan area, one chain of coffee shops has gained a large market share because customers feel its coffee tastes better than that of its competitors.
Scholastik Inc. owns the U.S. copyright to a popular book series. It is the only company with the legal right to publish books in the series in the United States.
In a small town, there are two providers of broadband Internet access: a cable company and the phone company. The Internet access offered by both providers is of the same speed.

amberfly263

EC 201 Lecture Notes - Lecture 11: Average Variable Cost, Marginal Revenue, Sunk Costs

Document Summary

Get access

Related textbook solutions

Calculus

Single Variable Calculus: Early Transcendentals

CALCULUS:EARLY TRANSCENDENTALS

Related Documents

EC 201 Lecture Notes - Lecture 9: Marginal Revenue, Substitute Good

EC 201 Lecture Notes - Lecture 13: Monopoly Profit, Marginal Revenue, Deadweight Loss

EC 201 Lecture Notes - Lecture 12: Perfect Competition, Marginal Revenue, Marginal Cost

Related Questions