ECON 20A Study Guide - Final Guide: Marginal Product, Perfect Competition, Monopolistic Competition
Document Summary
Consider a monopolist firm that cannot price discriminate. [recall that elasticity is the percentage change in quantity divided by the percentage change in price, and demand is inelastic if the elasticity is close to 0. ] Answer: no: if demand is inelastic, then a reduction in quantity sold (thereby resulting in a price increase) increases total revenue. So the firm could increase profits by producing less---it increases revenue and reduces costs: suppose an assistant professor of economics is earning a salary of ,000 per year. One day she quits her job, withdraws money from the bank that had been paying ,000 of interest a year, and uses the funds to open a bookstore. At the end of the year, she shows an accounting profit of ,000. Answer: economic profit is total revenue minus total cost, where cost includes opportunity cost. Accounting profit does not include the opportunity cost of the foregone salary of.
