Here is a first draft of the study guide. I have not included anything from the last two chapters. I will add that over the weekend. Show FIRMS IN COMPETITIVE MARKETS You should understand:
KEY POINTS:
I. What Is a Competitive Market?
D. The Firm’s Long-Run Decision to Exit or Enter a Market
Monopoly KEY POINTS:
Be sure you know what a monopoly is and why they can remain a monopoly. What are the barriers to entry and what are some real-world examples? What is a natural monopoly? Be able to compare the monopoly situation to perfect competition: price, demand, marginal cost, marginal revenue, welfare, and etc. How should we regulate monopolies? Know the graphs! What happens when marginal revenue exceeds marginal cost?If marginal revenue exceeds marginal cost (if MR > MC), the extra revenue from selling one more unit exceeds the extra cost incurred to produce it. Economic profit increases if output increases.
What happens when marginal cost of producing a product continues to be greater than marginal revenue of a product?Marginal cost is an important factor in economic theory because a company that is looking to maximize its profits will produce up to the point where marginal cost (MC) equals marginal revenue (MR). Beyond that point, the cost of producing an additional unit will exceed the revenue generated.
At what level of output does marginal cost equal marginal revenue?Maximum profit is the level of output where MC equals MR.
Would a profitA profit-maximizing firm will not choose to produce at a point where marginal cost exceeds marginal revenue, because when the marginal cost exceeds marginal revenue, the firm's profit started to fall with the production of one additional amount of quantity.
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