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economic problem set

economic problem set - decreasing or increasing When...

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The perfectly competitive firm is a price taker, which makes its individual demand perfectly elastic. The profit-maximizing perfectly competitive firm produce where marginal revenue is equal to marginal cost, provided that price exceeds the minimum of average variable cost. And the price is equal to marginal revue since its perfectly competitive market. Economic rent is equal to the amount a producer is willing to pay for an input minus the minimum amount the firm would have to pay to obtain the input. In long run, a perfectly competitive firm makes zero economic rent. When marginal cost is increasing, the return to labor decreases (that’s, marginal product per labor decreases). We have diminishing marginal return. When average total cost or average variable cost is increasing, marginal cost is increasing; When average total cost or average variable cost is decreasing, marginal cost is
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Unformatted text preview: decreasing or increasing; When marginal cost is increasing, the average total cost or average marginal cost is either increasing or decreasing. When marginal cost is decreasing, the average total cost and average variable cost is decreasing. • When ATC or AVC is larger than MC, AVC or ATC is decreasing. • When ATC or AVC is smaller than MC, AVC or ATC is increasing. • In long run, there is no fixed factor (even fixed cost is changing). • APL is always at its maximum point when it equals to MPL because if MPL is bigger than APL, APL will increase as we add additional units of labor; but if MPL is smaller than APL, APL decreases as we add additional labor. • Profit Maximization occurs at: MC=MR if economic profit is bigger than fixed cost; 0 in long run, or the cost of fixed cost in short run if economic profit is smaller than fix cost....
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