ECON 2150 FINAL EXAM QUESTIONS AND CORRECT ANSWERS

ECON 2150 FINAL EXAM QUESTIONS AND CORRECT
ANSWERS

P > MC - Answers - Profit rises if output is increased

P < MC - Answers - Profit falls if output is increased

Profit maximization condition for a price-taking firm - Answers - P = MC

At profit maximizing point: - Answers - 1. P=MC=MR
2. MC rising

In the short run π(q) = - Answers - TR(q) - STC(q)

STC(q) = - Answers - TFC + TVC(q)
SFC + NSFC + TVC(q)

SFC - Answers - Sunk fixed cost (unavoidable at q = 0)

NSFC - Answers - Non-sunk fixed cost (avoidable if q=0)

TVC - Answers - Total variable cost (avoidable if q=0)

For q > 0, STC(q) = - Answers - SFC + NSFC + TVC(q)

For q = 0, STC(q) = - Answers - SFC

The firm will produce a positive output only if: π(q) > π(0)
Assume all fixed costs are sunk (NSFC=0) - Answers - Pq - (SFC + NSFC + TVC(q)) >
0 - SFC
Pq - (NSFC + TVC(q)) > 0 P > NSFC+TVC(q)
P > ANSCq ...ANSC is "average nonsunk cost"

Assume all (fixed) costs are non-sunk:
The firm will produce a positive output only if: π(q) > π(0) - Answers - Pq - (TFC +
TVC(q)) > 0
Pq - STC(q) > 0
P > STC(q) / q
P > SAC(q)

In the short run market supply curve is the... - Answers - Horizontal sum of the individual
firm supply curves