ECN 212 Exam 3 Questions with 100% Correct
Answers
Firms in a competitive market
maximize proft
Profit
total revenue minus total cost
Average revenue
AR = TR/ Q
Marginal revenue
MR = ∆TR / ∆Q
For Competitive firms
AR = P
MR = P
Maximize Profit
- Produce quantity where total revenue minus total cost is greatest
- Compare marginal revenue with marginal cost
- If MR > MC: increase production
- If MR < MC: decrease production
- Maximize profit where MR = MC
Shutdown
,- Short run decision not to produce anything
- During a specific period of time
- Because of current market conditions
- Firm still has to pay fixed costs
Exit
Long run decision to leave the market
-Firm doesn't have to pay any costs
The firm's short run decision to shut down
Shut if TR < VC (or P < AVC)
Firms long run decisions
Exit the market if P < ATC
Enter the market if P > ATC
Short Run: Market supply with a fixed number of firms
-Short run: number of firms is fixed
-Each firm supplies quantity where P = MC
- For P > AVC: supply curve is MC curve
- Market supply
-Add up quantity supplied by each firm
Long Run: Market supply with a fixed number of firms
-Firms can enter and exit the market
-If P > ATC firms make positive profit
- New Firms enter the market
, - If P < ATC, firms make negative profit
- Firms exit the market
Long run
-Process of entry and exit ends when
- Firms still in market make zero economic profit (p= ATC)
- Because MC = ATC: Efficient scale
- Long run supply curve is perfectly elastic
- Horizontal at minimum ATC
Market in long run equilibrium
- p = minimum ATC
- zero economic profit
Increase in demand
- Demand curve shifts outward
-Short run
-Higher quantity
- higher price: P > ATC, positive e economic profit
Positive economic profit in short run
- Long run - firms enter the market
- Short run supply curve - shifts right
- Price - decreases back to minimum ATC
- Quantity - increases
- Because there are more firms in the market
- Efficient scale
Answers
Firms in a competitive market
maximize proft
Profit
total revenue minus total cost
Average revenue
AR = TR/ Q
Marginal revenue
MR = ∆TR / ∆Q
For Competitive firms
AR = P
MR = P
Maximize Profit
- Produce quantity where total revenue minus total cost is greatest
- Compare marginal revenue with marginal cost
- If MR > MC: increase production
- If MR < MC: decrease production
- Maximize profit where MR = MC
Shutdown
,- Short run decision not to produce anything
- During a specific period of time
- Because of current market conditions
- Firm still has to pay fixed costs
Exit
Long run decision to leave the market
-Firm doesn't have to pay any costs
The firm's short run decision to shut down
Shut if TR < VC (or P < AVC)
Firms long run decisions
Exit the market if P < ATC
Enter the market if P > ATC
Short Run: Market supply with a fixed number of firms
-Short run: number of firms is fixed
-Each firm supplies quantity where P = MC
- For P > AVC: supply curve is MC curve
- Market supply
-Add up quantity supplied by each firm
Long Run: Market supply with a fixed number of firms
-Firms can enter and exit the market
-If P > ATC firms make positive profit
- New Firms enter the market
, - If P < ATC, firms make negative profit
- Firms exit the market
Long run
-Process of entry and exit ends when
- Firms still in market make zero economic profit (p= ATC)
- Because MC = ATC: Efficient scale
- Long run supply curve is perfectly elastic
- Horizontal at minimum ATC
Market in long run equilibrium
- p = minimum ATC
- zero economic profit
Increase in demand
- Demand curve shifts outward
-Short run
-Higher quantity
- higher price: P > ATC, positive e economic profit
Positive economic profit in short run
- Long run - firms enter the market
- Short run supply curve - shifts right
- Price - decreases back to minimum ATC
- Quantity - increases
- Because there are more firms in the market
- Efficient scale
