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## Exam 4 Lectures 2-4

by: Karlee Castleberry

57

5

11

# Exam 4 Lectures 2-4 Econ 2020

Marketplace > Auburn University > Business > Econ 2020 > Exam 4 Lectures 2 4
Karlee Castleberry
AU
GPA 3.1

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Here are one week's worth of notes for Dr. Finck's exam 4, lectures 2-4 :)
COURSE
Principles of Economics: Microeconomics
PROF.
William M. Finck
TYPE
Class Notes
PAGES
11
WORDS
KARMA
25 ?

## Popular in Principles of Economics: Microeconomics

This 11 page Class Notes was uploaded by Karlee Castleberry on Friday April 1, 2016. The Class Notes belongs to Econ 2020 at Auburn University taught by William M. Finck in Spring 2016. Since its upload, it has received 57 views. For similar materials see Principles of Economics: Microeconomics in Business at Auburn University.

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Date Created: 04/01/16
Econ 2020 Exam 4 Lecture 2 {Lecture 2}  Identifying SR Profit  Q MC ATC d = MR Total Revenue ATC o total revenue = ATC * q o TR = P * q o ∏ = TR – TC ; (∏ > 0 if P > ATC)  Breaking Even (P = ATC)  o TR = P * q o TC = ATC * q o ∏ = 0  Negative Profit Q MC ATC d = MR AFC TR = P * q TC = ATC * q ∏ < 0 if P < ATC  Shutdown Rule Q MC ATC d = MR AVC / AVC AFC  TC = ATC * q  TVC = AVC * q  TFC = TC – TVC  If P >= AVC then the firm should produce q* where MR = MC 2  If P < AVC then the firm should shutdown (q* = 0) o TR = P * q o TC = ATC * q o ∏ = 0  SR Profit Max Summary ∏>0 prod uce ∏<0 prod uce ∏=0 ? MC ATC AVC d1 = MR1 d2 = MR2  Above green ( pi > 0 ; produce)  Between green and purple ( pi < 0 ; produce  Below purple ( Pi = 0 produce o P1 = breakeven price; p = min ATC o P2 = shutdown price; p = min AVC  Long run competitive equilibrium o Necessary conditions:  1. The market clears (Qs = Qd)  2. Profit = 0 ; P = ATC o Reasons for entry and exit  1. Change in Demand  Change in Costs o Decrease in Demand Market Firm 3 S1 S Pe & d = MR = d2 = P2 MR2 P 1 D1 D Q2 Q1 Qe q1 q* = q2 5. Exit (S decreases) 1. D decreases 6. Q falls and P returns to 2. P and Q decreases original 3. d = MR decreases 7. d = MR returns to original 4. q* decreases; ∏ < 0 8. q* returns to original; ∏ = {Lecture 3} o Increase in demand P \$ S P S1 1 Pe = d1 = P2 D1 d = MR = d2 = MR2 D Qe Q1 Q2 q* = q1 Q q2 q 1. D increases 5. entry (S increases) 6. Q rises and P returns to original 4 7. d = MR returns to original 2. P and Q increase 3. d = MR increases 4. q* increases; ∏ > 0 MC1 o increase in costs S ATC1 P d1 = 1 MR1 Pe d = MR D q1 q2q* Q1 Qe 1. MC & ATC increase 5. d = MR increases 2. q* decreases; ∏ < 0 6. q* increases; ∏ = 0 3. Exit (S decreases) 4. Q falls and P rises o o o o o o o Decrease in costs Market Firm MC1 5 Pe d = MR ATC1 d1 = MR1 Qe Q1 q q2 q1 1. MC & ATC decrease * 5. d = MR decreases 2. Q* increases; ∏ > 0 6. q* decreases; ∏ = 0 3. Entry (S increases) 4. Q rises and P falls o LR equilibrium efficiencies min ATC = P d = MR q* Productive efficiency: 1. P = min ATC 2. 2. Opportunity cost of resources is minimized 3. output of all other goods is maximized 6 d = MR MC = P q* Allocative efficiency: 1. P = MC 2. Everyone willing to pay at least MC will get the good 3. Social welfare is maximized {Lecture 3} Monopoly Characteristics Implications 1. Aingle seller 1. Market D = Firm D 2. No close subs 2. Price maker 3. High barriers to entry 3. LR ∏ can be > 0 Price maker- producer that finds the profit-maximizing P/Q combo  Types of Barriers to Entry o 1. Economies of scale  ex. AL power o 2. Government-created Barriers  ex. Patents and licenses o 3. Control of an Essential Resource  ex. NFL  profit maximization: MR /= D 7 TR loss P TR gain P2 Qd Qd2 When demand is downward sloping, producer must lower price in order to increase output. MR < P o Example:  A monopolist can sell 4 units at a price of \$8. To sell 5 units, the thice must be lowered to \$7.50. Find MR of the 5 unit.  MR = ∆TR  TR1 = 4 * 8 = \$32  TR2 = 5 * 7.50 = \$37.50  MR = 37.50 – 32 = \$5.50 Price \$10 \$9 \$8 \$7 \$6 \$5 Q 0 1 2 3 4 5 TR 0 9 16 21 24 25 MR --- 9 7 5 3 1 o MR and P are the same initially, then MR falls twice as fast o Deriving MR from D  D: P = 10 – Q 8  TR = P * Q = (10 – Q) * Q  = 10Q – Q 2  MR is the first derivative of TR w.r.t Q  Using the power rule:  MR = 10 – 2Q  Comparing MR to D:  D: P = a – bQ  MR = a – 2bQ P MR D Q o Monopoly costs  Cost curves look the same for monopoly as for perfect competition o SR profit maximization (monopoly)  P = 46 – 2Q  MC = 1 + Q  Find Q* and P*  MR = 46 – 4Q  46 – 4Q = 1 + Q  45 = 5Q 9  Q* = 9 units  P = 46 – 2Q  P = 46 – 2(9)  P* = \$28 MC P* ∏ ATC MR D Q*  find Q* where MR = MC  Continue to demand to find P*  Due to high barriers to entry SR ∏ = LR ∏ 10 fdsf 11

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