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ECON 1116 Chapter Notes - Chapter 18: Marginal Revenue, Marginal Product, Demand Curve

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lilacmule890
14 Mar 2016
School
Northeastern University
Department
Economics
Course
ECON 1116
Professor
Pritchard Robert

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Document Summary

Chapter 18: the markets for the factors of. Capital the economy"s stock of equipment and structures. Factors of production are the inputs used to produce goods and services (cid:1) (cid:1) (cid:1) The basic tools of supply and demand apply to goods and to labor services. Panel (a) shows how the supply and demand for apples determine the price of apples. Panel (b) shows how the supply and demand for apple pickers determine the wage of apple pickers. (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) Just competitive firms are price takers when selling their product, they are price takers determining the wages for workers. An individual firm has little influence over what they can pay their workers. Competitive firms are profit maximizing they do not care how many people they hire or how much they produce as long as they at their profit maximizing point. The production function and the marginal product of labor.

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Related Questions

Assume that apples are produced in a perfectly competitive market. Columbia’s Orchard is a typical firm that grows and sells apples. Currently, Columbia earns zero economic profit, and the market price of apples is $10 per bushel.

a) Draw a correctly labeled graph showing Columbia’s demand curve, average total cost curve, and marginal cost curve, and show the profit-maximizing quantity, labeled Qc.

b) Suppose an increase in the popularity of apple, the demand for apple increases.

How will the increase in the demand for apples affect Columbia’s economic profit in the short run? Explain.

c) What will happen to Columbia’s economic profit in the long run? Explain.

I believe I have figured out a-c, but I cannot get d.

I found that p=3

2.

Consider a perfectly competitive firm that faces the following market demand and market supply curves:

Demand : Qd = 10,000 -10,000P + 2M

Supply: Qs =40,000 +10,000P -4,000Pi

M=25,000 and Pi=10

The firm has also estimated its AVC function to be equal to :

AVC = 3.0 -.0027Q +.0000009Q2

And Fixed Costs =1600.

a. Find the profit maximizing output for this firm. What are profits?

b. Suppose demand shifts down and the new market price is $1.50. What is the profit maximizing output at this price? What are profits in this case?

c. Given your result in part b, should this firm produce or shut down? Graph the result in part b, assuming the price of $1.50, and label your SRMC, AVC and SRATC curves. Justify your answer graphically and numerically.

d. How far can market price fall before the profit maximizing perfectly competitive firm should shut down?

1. A firm that is a pure competitor has P > ATC and P > MC on the output (Q) it is presently producing and selling. Is this firm maximizing its profits? If not, which direction should it change its output if it wants to maximize its total profit?

2. Is a pure competitor in short-run or long-run equilibrium if it has P=MC=ATC? Explain.

3. There is free entry in the model of pure competition. Assuming that P > ATC for a vast number of firms producing a standardized product for a given market, what will happen to market supply as the consequence? What will happen to the market price (P) of the product these firms are producing?

4. Firms in the pure competition have horizontal demand functions. (The market determines product price, so firms in this competitive market are price takers.) Do firms in this model have to lower prices if they want to sell more output? Why or why not?