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ECON 221 Chapter Notes - Chapter 5: Marginal Cost, Marginal Revenue, Profit Maximization

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School
Cal Poly
Department
Economics
Course
ECON 221
Professor
Jonathan James

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Document Summary

Determinants of the elasticity of supply production will be less elastic, or inelastic. Elasticity determined by how quickly per-unit costs increase with an increase in. If increased production requires much higher per-unit costs, then supply curve. If production can increase with constant per-unit costs, then supply will be elastic. Inelastic goods are costly/hard to reproduce whereas elastic goods are. Supply is more elastic when the industry can be expanded without causing a big. Local supply of a good is much more elastic than the global supply. Supply tends to be more elastic in the long run than in the short run due to increase in the demand for the industry"s inputs cheap/easy to reproduce increased time to adjust. The elasticity of supply is the % change in the quantity supplied divided by the. Using the midpoint method to calculate the elasticity of supply. Chapter 11: costs and profit maximization under competition.

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Related Questions

True/False
If the quantity demanded for a product increases from 100 to 150 units when
the price decreases from $14 to $10, the price elasticity of demand for this product,
using the midpoint formula, in this price range is 1.2


A product with a price elasticity of demand equal to 1.5 is described as price
inelastic.

Demand tends to be inelastic at higher prices and elastic at lower prices.

Multiple Choice
If price rises from $80 to $90 and quantity demanded falls from 250 to 200,
then
a. The demand is inelastic
b. Total receipts rise.
c. Elasticity is equal to 0.625.
d. Elasticity is greater than one.

When Detroit’s bus fare increased from 40 cents to 60 cents, the number of riders
decreased from 800 per week to 620 per week. Over the price range given, the demand
curve for bus service in Detroit is
a. Elastic
b. Unit elastic
c. Inelastic
d. Impossible to determine

Stan’s Discount Tires reduced the price on its Goodyear radial tires from $65
per tire to $55 per tire. The following month, sales of this tire increased from
320 units to 500 units. The coefficient of elasticity for this tire was
a. 1.0
b. 0.63
c. 3.65
d. 1.33

A 20 percent increase in Miss Sarlo’s income resulted in an increase in her
annual consumption of steak from 10 to 15 pounds. Miss Sarlo’s income elasticity
of demand for steak is
a. 0.25
b. 0.50
c. 2.0
d. 2.5

A. A competitive firm

  1. can consider only its location in setting the price.
  2. must base its competitive price on product differentiation.
  3. has the ability to set its own price.
  4. must accept the price determined by the intersection of the market supply and demand curves.
  5. has no supply curve.

B. If a firm is making an economic profit, then

  1. the factors of production are being paid their opportunity costs.
  2. there will be no change in the number of firms if the industry is perfectly competitive.
  3. the factors of production are being paid less than their opportunity costs.
  4. the factors of production are being paid more than their opportunity costs.
  5. the firm will exit the industry

C. Along a downward-sloping monopoly demand curve,

  1. marginal revenue is greater than price.
  2. the elasticity of demand is constant.
  3. marginal revenue decreases when the price decreases.
  4. marginal revenue is equal to zero when the price is equal to zero

D. If, in the short run, a perfectly competitive firm is producing at a point where the total cost is greater than total revenue, then the firm should

  1. shut down because economic profits are negative.
  2. continue to produce as long as P > AVC.
  3. continue to produce because accounting profits are positive.
  4. set a higher price for its output.
  5. set a lower price for its output

E. For a perfectly competitive firm, the demand curve is

  1. the marginal revenue curve.
  2. perfectly inelastic.
  3. always equal to marginal cost.
  4. the same as the market demand curve

F. A firm in a(n) industry will have the most elastic demand curve

  1. monopolistic
  2. oligopolistic
  3. monopolistically competitive
  4. perfectly competitive

G. If the demand curve of a monopolist is in the inelastic range, then

  1. total revenue will fall if the price increases.
  2. total revenue will be unchanged if the price increases.
  3. total revenue will rise if the price increases.
  4. the total supply will increase by an equal amount if demand increases.
  5. the price will be unchanged if total revenue increases

H. Monopolistic competition and oligopoly are examples of

  1. monopoly.
  2. perfect competition.
  3. theories of consumer behavior.
  4. imperfect competition.
  5. the extreme cases on the market structure continuum

I. Under which market structure do firms face the flattest (most elastic) demand curve?

  1. perfect competition
  2. monopolistic competition
  3. oligopoly
  4. monopoly

J. At the point of long-run equilibrium for a perfectly competitive firm,

  1. economic profits are zero.
  2. TR > TC.
  3. TR < TC.
  4. P = AVC.
  5. normal profits are zero.

QUESTION 25

What will happen in a market where a binding price floor is removed?

  a.

There will be upward pressure on the prices.
  b.

The price or quantity of the product sold in the legal market will not change.
  c.

There will be downward pressure on the prices.
  d.

The products sold will become scarcer.
  e.

There will be increased pressure to buy and sell the good on the black market.

1.05000 points

QUESTION 26

The local bakery calculates the price elasticity of demand for its cinnamon rolls to be –1.25. This tells them that demand is ________ and price is ________ to the buyer.

  a.

perfectly inelastic; everything
  b.

perfectly elastic; meaningless
  c.

elastic; more important than the quantity
  d.

inelastic; less important than the quantity
  e.

unitary elastic; on the same level as quantity

1.05000 points

QUESTION 27

Marginal product is the change in:

  a.

total output minus the change in input.
  b.

total output divided by the change in input.
  c.

input divided by the change in total output.
  d.

total output plus the change in input.
  e.

total output times the change in input.

1.05000 points

QUESTION 28

The government imposes a tax on each plastic bag sold such that the producer of the plastic bags must pay the tax to the government. In the market for plastic bags, the:

  a.

supply curve shifts to the left.
  b.

supply curve shifts to the right.
  c.

demand curve shifts to the right.
  d.

demand curve shifts to the left.
  e.

the supply curve and the demand curve shift to the left.

1.05000 points

QUESTION 29

Pepsi and Coke are considered substitute goods. Because of this, one would predict that, holding all else constant, if the price of Pepsi increases, we would see:

  a.

the demand curve for Pepsi shift to the right.
  b.

the demand curve for Coke shift to the right.
  c.

no change in the demand for Coke.
  d.

the demand curve for Coke shift to the left.
  e.

the demand curve for Pepsi shift to the left.

1.05000 points

QUESTION 30

The government has identified a situation where the production of a good is creating a negative externality. The government should enact legislation to require firms to internalize the externality:

  a.

as long as there are positive health benefits associated with this policy.
  b.

as long as it will not increase the price of the good being produced.
  c.

in all such cases.
  d.

if the benefits of doing so outweigh the costs.
  e.

as long as it will not create unemployment in this industry.

1.05000 points

QUESTION 31

The out-of-pocket expenses incurred in producing a good are also known as:

  a.

wages and prices.
  b.

fiduciary costs.
  c.

explicit costs.
  d.

capital costs.
  e.

implicit costs.