Firms, costs and market structures
| English | 中文 | Pinyin |
|---|---|---|
| marginal cost/ˈmɑːdʒɪnl kɒst/ | 边际成本 | biān jì chéng běn |
| contestability/kənˌtestəˈbɪlɪti/ | 可竞争性 | kě jìng zhēng xìng |
A decision you can investigate
- A firm can sell more only by reducing its price.
- Extra sales add revenue, but may also reduce revenue on units already sold.
Build the explanation
- Average cost is total cost divided by output; marginal cost 边际成本 is the change in total cost for one more unit.
- In the standard model, a profit-maximising firm chooses output where MR = MC with the appropriate rising MC condition.
Match the terms to their precise meanings.
Use these definitions in the particular context of Firms, costs and market structures.
Work through the evidence
- At Q = 100, total revenue is 1,000 and total cost is 800, giving profit 200. At Q = 101, revenue is 1,006 and cost is 809.
- The extra unit adds MR = 6 and MC = 9, so profit falls by 3; expansion is not justified by revenue alone.
Should the firm add the 101st unit under these figures?
At Q = 100, total revenue is 1,000 and total cost is 800, giving profit 200. At Q = 101, revenue is 1,006 and cost is 809. The extra unit adds MR = 6 and MC = 9, so profit falls by 3; expansion is not justified by revenue alone.
Test the limits
- Market concentration does not prove collusion. Contestability 可竞争性 depends on entry and exit barriers, including sunk costs.
- Separate short-run shutdown decisions from long-run exit and distinguish profit from cash flow.
Which caution belongs to this particular task?
Market concentration does not prove collusion. Contestability depends on entry and exit barriers, including sunk costs. Separate short-run shutdown decisions from long-run exit and distinguish profit from cash flow.
The explanation in this lesson makes a conditional claim; relevant context and evidence still matter.
Separate short-run shutdown decisions from long-run exit and distinguish profit from cash flow.
Apply and explain your answer
- Should the firm add the 101st unit under these figures?
- No: marginal cost exceeds marginal revenue, reducing profit.
Choose the two statements supported by this lesson.
The concept and worked evidence support these claims; the stated limits rule out the universal shortcut.
Use the terms precisely
- marginal cost: The increase in total cost from one additional unit.
- contestability: The extent to which potential entry disciplines existing firms.
At Q = 100, total revenue is 1,000 and total cost is 800, giving profit 200. At Q = 101, revenue is 1,006 and cost is 809. The extra unit adds MR = 6 and MC = 9, so profit falls by 3; expansion is not justified by revenue alone.
Market concentration does not prove collusion. Contestability depends on entry and exit barriers, including sunk costs. Separate short-run shutdown decisions from long-run exit and distinguish profit from cash flow.
Average cost is total cost divided by output; marginal cost is the change in total cost for one more unit.