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Module 6 Microeconomics

This document contains a table with production data for a firm, including total product, total variable cost, total cost, average fixed cost, average variable cost, and average total cost. It asks the reader to draw the relevant curves from the data and provide algebraic expressions for the short-run average cost curves. It also asks the reader to explain why normal profit is included in average total costs and to draw and explain a long-run average total cost curve demonstrating economies, diseconomies, and constant returns to scale. Sample multiple choice and true/false questions are also provided related to concepts like purely competitive markets, profit maximization, and oligopoly.

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Christian Villanueva
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108 views3 pages

Module 6 Microeconomics

This document contains a table with production data for a firm, including total product, total variable cost, total cost, average fixed cost, average variable cost, and average total cost. It asks the reader to draw the relevant curves from the data and provide algebraic expressions for the short-run average cost curves. It also asks the reader to explain why normal profit is included in average total costs and to draw and explain a long-run average total cost curve demonstrating economies, diseconomies, and constant returns to scale. Sample multiple choice and true/false questions are also provided related to concepts like purely competitive markets, profit maximization, and oligopoly.

Uploaded by

Christian Villanueva
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Palawan State University

El Nido, Palawan
Microeconomics-module-6

Villanueva, Christian
BS Entrepreneurship 1

Food for Thought:


Complete the following table then draw the relevant curves from the data (fixed cost is $200).
TOTAL TOTAL TOTAL AVERAGE AVERAGE AVERAGE
MARGINAL
PRODUCT VARIABLE COST COST FIXED COST VARIABLE COST TOTAL COST COST

0 0 $200 $200 $0 $200

1 20 $220 $200 $20 $220 >+20

2 38 $238 $100 $19 $119 >-101

3 58 $258 $66.6 $19.3 $86 >-33

4 64 $264 $50 $16 $66 >-20

5 78 $276 $40 $15.2 $55.2 >-10.8

6 93 $293 $33.3 $15.5 $48.8 > -6.4

7 114 $314 $28.6 $16.3 $44.8 >-4

8 139 $339 $25 $17.4 $42.4 >-2.4

Give the algebraic expression of each of the short run average cost curves and explain (in
word) what each means and what its relation is to total product.
For example, the 3x represent quantity of labor used than the 5x represent capital then the a
represents source of product. Their relation in the total product is that all variable is the sum of
variable cost which represent as expenses of total product.
Explain, in detail, why normal profit is included in average total costs?
-Normal profit is including in average total cost because it fill out or cover in the revenue all
the implicit cost and explicit cost, for example, Chibbie Motorbike Rental owner went out of
business because their own resources (their labor, money invested in the business, property own
by the business) would earn more in their next best used than they could in their current used. In
other words, they weren’t earning a normal profit. A Chibbie Motorbike rental could earn more
working than the profit they generate running their own business.
Draw a LRATC demonstrating diseconomies, economies and constant returns to scale. Explain why
each range of the LRATC curve is observed. What does this have to do with planning? Explain.
 Constant large range of operation where the firm size matters little.
 Economies are benefits obtain from a compony becoming large.
 Diseconomies are additional cost inflicted because a firm has become too large.
Sample Question:
Multiple Choice:

Which of the following does the marginal cost curve NOT intersect at its minimum?
Answer: C

Which of the following is not a potential cause of economies of scale?


Answer: D

TRUE – FALSE
When marginal cost is below average variable cost, average variable cost must be rising. {FALSE}

Long Range Average Total Cost reaches its minimum where short run marginal cost is equal to LRATC.
{FALSE}

Economies costs include implicit costs, whereas accounting cost do not. {TRUE}

Marginal costs are the change in costs associated with the addition of one more unit of output. {TRUE}

CHAPTER 8
Food for Thought:
Outline and critically evaluation the assumption underpinning the purely competitive model.

-The assumption of purely competitive model has large number of buyer and seller and they have
advertisement has homogeneous product, no discrimination, has perfect knowledge about the product, has
free entry or exit of the firms, has perfect mobility, has profit maximization and no selling cost.

Why is the profit maximizing (loss minimizing) point where marginal cost equal marginal revenue? EXPLAIN,
FULLY.

-Because the maximum profit is the level of output where marginal cost equals to marginal revenue
as long as revenue of producing unit of output or the marginal revenue the firm will increase its profit by
using more variable input to produce more output, because in the reality of diminishing marginal
productivity demonstrates that adding input will eventually reduce production and increase cost. When
production level reaches a point that cost of producing an additional unit of output of marginal cost exceeds
the revenue from the unit of output or the marginal revenue, it will be producing the additional unit of output
and producing the additional unit of output will reduce the profit.

Sample Questions: Multiple Choice:


A purely competitive firms short-run supply curve it its marginal cost curve, for all:
Answer: D. Output where marginal cost exceeds minimum average total cost.

If all of the firms producing a commodity in a purely competitive market are required to adopt anti-pollution
devices that increase their costs of production (even though it cleans up the air), one would expect:
Answer: B. The market supply curve to shift to the left

TRUE-FALSE
If all industries within an economy where pure competitors, the economy would be economically efficient.
{TRUE}

Oligopoly is an industry with a large number of suppliers, but few buyers. {FALSE

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