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THE A-B-C of microeconomics analysis
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ECONOMICS can be funny if broken down to its A-B-C
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The figure below shows the price, marginal cost and average cost curves facing a
perfectly competitive firm.
What is the firm's profit-maximising daily output?
Profit maximisation rule is always MC = MR,
and this happens at 100 units where MC = MR.
NB: in a perfectively competitive situation P= MR = AR, and in this case P is given and we
known that P = MR
Question text
In the short run, when should a firm continue with production according to the shut
down rule.
when average revenue (AR) is equal to, or greater than, average variable cost (AVC).
This is called the short-run shut down rule, according t this rule, in the short, although
losses can be made, the form will continue to produce if it is making a positive
contribution (AR > AVC) towards covering some fixed costs
Question text
A monopoly is a
single seller of a product that has no close substitutes.
,BMZ 0743895097 blardyb@gmail.com
This is a one-seller market where the supplier is effectively the market and its products
do not have substitutes, for example eskom
Question text
Which one of the following statements is incorrect? Under perfect competition
firms may earn an economic profit in the long run.
In the long run, firms under PC earn normal profits, the market is in equilibrium and
there is nor motivation for new entrants to enter, neither for existing firms to leave
Question text
If a perfectly competitive firm’s marginal cost is greater than its marginal revenue at its
current level of production, what must the firm do to increase its profit?
Decrease its output.
For profit-maximization, MC must always be equal to MR
To the right of this point MCis rising while P = MR is constant, and output must be
reduct to maximise profit
To the left of the maximising point, MC is falling while MR is constant, and the firm can
increase output as additional output reduces total costs ie MC falling
, BMZ 0743895097 blardyb@gmail.com
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