Posted by Jason on Wednesday, October 11, 2006 at 5:05am.
Hey just needed some pointers on the following questions.
True or False? Explain..
1. As long as the firm has to pay for an input, it would be wasteful not to use all input services purchased?
2. A profit-maximising competitive firm will never produce in the region
where average variable cost is declining.
3. A monopolist is best off operating on the inelastic portion of the demand
curve, where it can increase its price without losing many customers.
4. A monopolist attempts to maximise the difference between price and
average cost.
Thanks Guys!
1. Many goods have "secondary" markets, where an unused item is re-sold to somebody else. Further, many items are purchased by speculators in active futures markets. Thes speculators have no intention of using a particular purchase.
2. In a competitive market, price=marginal revenue; what is the shape of the demand curve faced by a firm? A competitive firm will produce where MC=MR, (and MC is rising). What can you say about marginal costs when average variable costs are falling. That is, can marginal costs be rising when average costs are falling? (hint: yes).
3. Use a linear example of a demand line (and thus a linear marginal revenue line) faced by a monopolist. Will the monopolist ever operate in the bottom right area of the demand curve? (hint: no) Calculate an elasticity in an area that is in the top left portion of the demand curve. Is the elasticity elastic or inelastic?
4) a monpolist, like all firms, maximizes profits by operating where MC=MR.
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