revt4 - Review for Exam 4 Review for Exam 4 Exam Date:...

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Unformatted text preview: Review for Exam 4 Review for Exam 4 Exam Date: April 20, 2006 Exam Date: April 20, 2006 Format Format about 20-22 multiple choice questions about 20-22 multiple choice questions worth 3 points each. worth 3 points each. Short problems similar to those on the Short problems similar to those on the homework. homework. Fill-in-the blanks. Fill-in-the blanks. Industry Structure Industry Structure Perfect Competition: Many firms Perfect Competition: Many firms produce an identical output. No firm produce an identical output. No firm can affect market price. can affect market price. Monopolistic competition: A large Monopolistic competition: A large number of firms produce slightly number of firms produce slightly differentiated products. differentiated products. Oligopoly: An industry is dominated by Oligopoly: An industry is dominated by a few firms. a few firms. Monopoly: A single firm produces all Monopoly: A single firm produces all the output. the output. Profit Profit For all firms: Profit = TR - TC To maximize profit, all firms set MR = MC Perfect Competition Perfect Competition Short-Run Equilibrium: P= MC. May have an economic profit, may break-even, or may have an economic loss. Long-Run Equilibrium: P= MC, P = AC ZERO ECONOMIC profits This is the only industry structure where P=MR and thus the only industry structure where P=MC Monopoly Monopoly Short-Run Equilibrium: We set MR = MC P>MR so therefore P>MC Will usually have an economic profit (e.g. P>AC) Long-Run Equilibrium: Same as short run since no firms can enter the market. Monopolistic Competition Monopolistic Competition Short-Run Equilibrium: We set MR=MC P>MR, P>MC Will usually have an economic profit (e.g. P>AC). Looks like a monopoly. Long-Run Equilibrium: We set MR=MC P>MR, P>MC But P=AC. Zero economic profit. Profit Max and the Monopolist Profit Max and the Monopolist We calculate the MC, which is the change in Total Cost divided by the change in output. It cannot be a negative number. We calculate the MR, which is the change in Total Revenue divided by the change in output. It can be a negative number. We find the point where MR=MC. In a table, we then read across to find price and quantity to define the profit-maximizing point. Study Questions Study Questions Look at this diagram. What sort of firm is this? ______________ What is the profit-maximizing quantity? _______________ What will the price be?______ What is Marginal Cost? _______ What is Average Cost? _______ What is the Marginal Revenue?...
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revt4 - Review for Exam 4 Review for Exam 4 Exam Date:...

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