Life in Isla Vista?
How satisfied are you with IV restaurants?
140
120
N
u 100
m
b
e
r
o
f
r
e
s
p
o
n
s
e
s
80
60
40
20
0
Fine
Not too bad
Not very good
Terrible
Distribution of Monthly Rent For UCSB Econ 1 Students
70
60
N
u
m
b 50
e
r
o
f
40
s 30
t
u
d
e 20
n
t
s
10
0
0
500
1000
1500
Monthly rent
2000
2500
3000
Are you thinking of going to
graduate school some day?
A) No
B) Yes, to an MBA program.
C) Yes, to some kind of masters program
other than MBA.
D) Yes, to a Ph. D. program.
E) Undecided among options B,C and D.
A competitive firm can sell its output at
$10 per unit. The firm’s total costs are
shown below. To maximize its profits
how many units should it produce?
A) 2
B) 3
C) 4
D) 5
E) More than 5
Output
1
2
3
4
5
Total cost
$5
$14
$27
$36
$48
Why is that ?
For a competitive firm, producing an extra
unit will increase profit if marginal cost is
smaller than price and decrease profit if
marginal cost is larger than price.
Marginal cost of first unit $5, second unit $9,
third unit $13, etc..
Price of output is $10.
For a monopoly that faces a downward
sloping demand curve, marginal revenue
from selling an extra unit is equal to the
price at which it can sell that unit.
A) True
B) False
Why is that?
• Listen to today’s lecture go find out.
If a monopolist faces a downward
sloping demand curve, then its
marginal revenue from selling an
extra unit is less than the price at
which it sells that unit.
A) True
B) False
A profit-maximizing monopolist will
not choose to sell at a price where
demand is inelastic.
A) True
B) False
If a monopolist faces an inelastic
demand curve, then its marginal
revenue is negative.
A) True
B) False