1.
It happens in prefect competition market system where firms are price taker but not price setter – the price (P) is fixed in the market and it becomes perfectly elastic.
We take an example as below for understanding.
Let the price is $5 and there are 1, 2, 3, 4, and 5 quantities (Q). Marginal revenue (MR) is the difference of TR in two successive units.
Q |
P |
TR = Q × P |
MR = TR(n) – TR(n-1) |
1 |
5 |
5 |
5 – 0 = 5 |
2 |
5 |
10 |
10 – 5 = 5 |
3 |
5 |
15 |
15 – 10 = 5 |
4 |
5 |
20 |
20 – 15 = 5 |
5 |
5 |
25 |
25 – 20 = 5 |
Since there is no price discrimination, the price becomes equal to MR and parallel to horizontal axis.
2.
In perfect competition the average revenue (AR) becomes equal to price and MR, since price is fixed in the market it sometimes below the average cost (AC) establishing an economic loss, sometimes above the average cost establishing an economic profit, and sometimes equal to average cost establishing a normal profit.
3.
Required condition is (P = MC) and AC must be atleast equal to price.
It is shown in the above graph, where (P = MC) happens at E point; there may not be any economic profit but there is normal profit.
q1 Assignment 9 (Due next class) 1. 2. Explain why price-marginal revenue? Explain why average revenue...
What do a firm’s Marginal Revenue (MR) and Demand curves look like in perfect competition? Draw them in a Quantity-Price/MR diagram (don’t forget to label the axes). Why do the MR and Demand curves look the way you draw? Briefly explain. Now add a Marginal Cost curve (MC) to the diagram you drew above. How is the profit-maximizing output in perfect competition determined? Mark this output as q* in the diagram. What is the price a firm in perfect competition...
need help with all of them
Question 6 (1 point) In perfect competition, marginal revenue is the change in revenue from selling an additional unit of output the revenue in excess of what can be earned in the next-best alternative the last dollar needed to make zero economic profit the extra revenue generated by a $1 change in price the last dollar needed to make maximum profit Question 7 (1 point) In which of the following situations should a profit-maximizing...
Let P = price, MR = marginal revenue, MC = marginal cost, and ATC = average total cost. In monopolistic competition, which of the following most accurately describes the long-run equilibrium conditions for a firm? Group of answer choices P > ATC, MR = MC, and P > MC P > ATC, MR > MC, and P = MC P = ATC, MR = MC, and P > MC P = ATC, MR = MC, and P = MC P...
Exhibit 7-17 Marginal revenue and cost per unit curves DMC ATC Price and costs per unit (dollars) AVC 0 20 100 40 60 80 Quantity of output (units per day) 16. As shown in Exhibit 7-17, the price at which the firm earns zero economic profit in the short-runis a. $10 per unit. b. $15 per unit. c. $40 per unit. d. more than $20 per unit. e. $20 per unit. 17. In long-run equilibrium, the typical perfectly competitive firm...
Describe why in perfect competition the market price of a good becomes the marginal revenue (MR) associated with a given individual firm producing and selling one more unit.
Explain why in perfect competition marginal revenue must equal price.
4. For a monopoly firm, marginal revenue (MR) is price (greater/less) than 5. To maximize profits, a monopoly firm picks the quantity at which revenue average revenue) equals {marginal cost/average cost) (marginal (Game Theory/Consumer Theory) is a method for analyzing strategic behavior of oligopoly firms 7. The entry of the second firm under monopolistic competition structure of market shifts the demand curve of the first firm to the (right left). D Focus ch De 9 W 11. Firms in a...
3. Why is the equality of marginal revenue and marginal cost essential for profit maximization in all market structures? Explain why price can be substituted for marginal revenue in the MR - MC rule when an industry is purely competitive. 4. Many firms in the United States file for bankruptcy every year, yet they still continue operating. Why would they do this instead of completely shutting down? Explain using concepts covered in class
The graph below shows a monopolist's demand (D), marginal
revenue (MR), marginal cost (MC), and average total cost (ATC)
curves. Management wants to adjust the production output quantity
to maximize the firm's profits. What quantity should the firm aim
for?
Give your answer by dragging the Q line to a new position to mark
the quantity at which profit is as large as possible.
Price and cost ATC MC MR Quantity
3. The market illustrated below has inverse demand p(Q) = 130 - 3Q and industry-wide marginal cost MCQ) = 10 + 2Q. If production is competitive, this is the market (inverse) supply curve. If production is consolidated under a monopolist, this is the monopolist's MC curve. a. Suppose there is a monopolist. Explain how marginal revenue for a monopolist is different than for a firm under perfect competition. Then derive the profit-maximizing market outcome (including the monopoly price and quantity...