Formulas
Average Fixed Cost + Average Variable Cost = ?
Average Total Cost
A cost that does not change, regardless of the quantity output
Fixed Cost
What are the 4 market types
Perfect Competition
Monopolistic Competition
Oligopoly
Pure Monopoly
In order to sell a quantity of 10 units, a pure monopoly must set the price at $8.00. This means that the Marginal Revenue will be...
Less than $8.00
You have $52.00 to spend on two products. Product-A costs $8 and provides 16 utils, which decreases by 2 utils for each additional unit. Product-B costs $4 and provides 8 utils, which decreases by 1 util for each additional unit. How many of each will you buy
4 units of A & 5 units of B
The Formula for Marginal Utility per Dollar is
MU/P
What is variable cost
A cost that changes based on the output quantity of a product
This type of company sells a unique product and has barred competition from entering the market
Pure Monopoly
What is a natural monopoly
An industry where the economies of scale are so extensive that the market is better served by a single firm
The extra or additional revenue associated with the production of an additional unit of output
Marginal Revenue
The formula for revenue is
P*Q
What is the difference between explicit and implicit costs?
Explicit costs require a monetary exchange and implicit costs have no monetary exchange
This market has a high number of firms that sell a standardized product. It is the easiest market for new sellers to enter and is the only market that is a price taker
Perfect Competition
A pure monopoly may generate economic profits because of
Barriers to entry
If a perfectly competitive firm sells 50 units of a product at $10 each, what is its marginal revenue
$10
The formula for marginal product is
Change in total product / Change in resources (Labor)
What is the difference between accounting and economic profit
Accounting Profit = Revenue - Explicit Cost
Economic Profit = Revenue - Economic Cost
What are the 4 characteristics of an Oligopoly
1. Low number of firms
2. Includes Standardized & Differentiated Products
3. Price Maker
4. Difficult for competition to enter the market
Because monopolies have _____ power & can influence the price of goods they sell, they tend to produce _____ output and charge a _____ price
1. Market power
2. Less output
3. Higher price
When deciding what to buy to maximize utility, the consumer should choose the good with the
Highest marginal utility per dollar
Which of the following are correct?
1. MC = Change in TC / Change in Q
2. MC = Change in TVC / Change in Q
(1, 2, both, or neither)
Both
Suppose you left a job that paid $50,000/yr to open a furniture store. The furniture store brings in $250,000/yr in revenue and has $175,000/yr in expenses.
What is your economic profit?
$25,000/yr
What are the key differences between perfect competition and monopolistic competition
Perfect competition markets have a standardized product and are price takers
Monopolistic competition markets have a differentiated product and are price makers
What are the 4 characteristics of a Monopoly
1. One firm
2. Unique Products
3. Price Maker
4. Entrance into the market is nearly impossible
A firms MR=MC at 66 units. The price corresponding to this quantity is $18. If ATC=$16.55 at this output, then the total profit is
$95.70
Revenue = P*Q = 18*66 = $1188
Total Cost = ATC*Q = 16.55*66 = $1092.30
Profit = R-C = 1188-1092.30 = $95.70