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Implicit and explicit costs are different in that
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the former refer to non expenditure costs and the latter to monetary payments.
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Normal profit is
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the return to the entrepreneur when economic profits are zero.
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An industry is expected to expand if firms in the industry are earning positive
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economic profits
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Accounting profits are typically
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greater than economic profits because the former do not take implicit costs into account.
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greater than economic profits because the former do not take implicit costs into account.
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in the short run, some inputs are fixed and some are variable.
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If a variable input is added to some fixed input, beyond some point the resulting extra output will decline. This statement describes
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the law of diminishing returns
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The horizontal axis is labeled, inputs of labor. The inputs of labor Q 1, Q 2, and Q 3 are marked on the horizontal axis from left to right. The vertical axis is labeled marginal and average product. The graph shows 2 curves labeled marginal product and average product. The curve labeled marginal product starts at a point on the bottom left, goes up and to the right with increasing steepness until it reaches a point, goes down and to the right, crosses the horizontal axis at (Q 3, 0), and extends below the horizontal axis. A vertical dashed line extends from Q 1 to the maximum point of marginal product. The curve labeled average product starts at the bottom left goes up and to the right, intersects the curve labeled marginal product at Q 2 and, then goes down with decreasing steepness. A vertical dashed line extends from a point near the end of the curve to Q 3.
Refer to the diagram, where variable inputs of labor are being added to a constant amount of property resources. The total output of this firm will cease to expand
Refer to the diagram, where variable inputs of labor are being added to a constant amount of property resources. The total output of this firm will cease to expand
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if a labor force in excess of Q3 is employed.
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The horizontal axis is labeled quantity of labor. Points A, B, C, and D are marked on the horizontal axis. Point A is marked at the origin. The vertical axis is labeled marginal and average product. The vertical axis has no numbers. The graph shows two curves labeled M P subscript L and A P subscript L. The curve labeled M P subscript L starts at the origin, goes up and to the right with increasing steepness, reaches a maximum, goes down and to the right, crosses the horizontal axis at (D, 0), and ends at a point below the horizontal axis. A vertical dashed line extends from the maximum to point B. The curve labeled A P subscript L starts at the origin, goes up and to the right with decreasing steepness, intersects M P subscript L at a point and then goes slightly down and to the right. A vertical dashed line extends from the point of intersection to point C.
Refer to the provided graph showing the marginal product (MPL) and the average product of labor (APL). At which quantity of labor employed is total product maximized?
Refer to the provided graph showing the marginal product (MPL) and the average product of labor (APL). At which quantity of labor employed is total product maximized?
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D
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The law of diminishing returns describes the
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relationship between resource inputs and product outputs in the short run.
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The horizontal axis is labeled Q. The vertical axis is labeled dollars. The graph shows 3 curves M C, A T C, and A V C. The curve labeled M C starts at the bottom left, goes down and to the right with decreasing steepness, reaches the minimum, goes up and to the right with increasing steepness, and ends at the top right. The curve labeled A T C starts at the top left, goes down and to the right with decreasing steepness, and ends at the right-center. The curve labeled A V C starts at the left-center, goes down and to the right with decreasing steepness, and ends at the point slightly below the ending point of A T C. Point of intersection of A V C and M C is marked b, and point of intersection of M C and A T C is marked c. Point a is marked on the curve M C near the minimum point.
Refer to the diagram. If labor is the only variable input, the average product of labor is at a
Refer to the diagram. If labor is the only variable input, the average product of labor is at a
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maximum at point b
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Over the range of output where the slope of the short-run total cost curve becomes steeper,
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marginal cost increasing
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Suppose that, when producing 50 units of output, a firm's AVC is $30, its AFC is $8, and its MC is $40. This firm's
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total cost is $1,900.
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As output increases, average fixed costs
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decrease
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At an output of 1,000 units per year, a firm's variable costs are $5,000 and its average fixed costs are $3. Its total costs per year are
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8000
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The following statements about the "sunk cost fallacy" are true, except
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it refers to the fact that average fixed costs are not a major part of production costs.
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The ability of Intel to spread product development and other "start-up" costs over a larger number of units of output results in
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economies of scale.
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When a firm does more of something, it gets better at it. This learning-by-doing is
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a source of economies of scale.
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A firm encountering economies of scale over some range of output will have a
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falling long-run average cost curve.
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The ABC Corporation decreases all of its inputs by 12 percent and finds that its output falls by 8 percent. This means that initially it was producing
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in the range of diseconomies of scale.
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Many people have turned to the Internet to get the news. This has caused the circulation numbers of newspapers to fall drastically, which in turn caused their
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average fixed costs to increase.
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(Consider This) A fast-food company spends millions of dollars to develop and promote a new hamburger on their menu only to find that consumers won't buy it because they don't like the taste. From an economic perspective, the company should
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pull the hamburger off the menu and treat the development and promotion expenditures as a sunk cost.
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(Last Word) Which of the following gadgets is hoped to deliver a Third Industrial Revolution?
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3D printers
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The mass affordability of the iPhone is the result of the following, except
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the law of diminishing returns in manufacturing.
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(Last Word) Which of the following is predicted to deliver a Third Industrial Revolution characterized by low production and transportation costs?
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new technology in additive manufacturing
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In which market model are the conditions of entry into the market easiest?
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pure competition
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An industry comprising a very large number of sellers producing a standardized product is known as
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pure competition
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In which market model are the conditions of entry the most difficult?
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pure monopoly
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Mutual interdependence would tend to limit control over price in which market model?
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oligopoly
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Which idea is inconsistent with pure competition?
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product differentiation
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Which of the following is not a basic characteristic of pure competition?
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considerable nonprice competition
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Price is taken to be a "given" by an individual firm selling in a purely competitive market because
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each seller supplies a negligible fraction of the total market.
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Which characteristic would best be associated with pure competition?
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price takers
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A purely competitive firm can be identified by the fact that
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its average revenue equals its marginal revenue.
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The demand curve in a purely competitive industry is ______, while the demand curve to a single firm in that industry is ______.
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downsloping; perfectly elastic
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Which of the following statements is correct?
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The demand curve for a purely competitive firm is perfectly elastic, but the demand curve for a purely competitive industry is downsloping.
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The total revenue of a purely competitive firm from selling 5 units of output is $50. Based on this information, the unit price of the output must be
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$10
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In the standard model of pure competition, a profit-maximizing firm will shut down in the short run if price is below
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average variable cost.
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Total Revenue$5,000per WeekTotal Variable Cost$2,600per WeekTotal Fixed Cost$2,400per Week
Let us suppose Harry's, a local supplier of chili and pizza, has the revenue and cost structure shown here.
Let us suppose Harry's, a local supplier of chili and pizza, has the revenue and cost structure shown here.
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Harry's should stay open in the short run.
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OutputTotal RevenueTotal Cost0$ 0$ 501457429094313511741801425225172
The table gives data for a purely competitive, profit-maximizing firm. Based on this information, in the short run how much is this firm earning in economic profit (or losing, as reflected by negative numbers)?
The table gives data for a purely competitive, profit-maximizing firm. Based on this information, in the short run how much is this firm earning in economic profit (or losing, as reflected by negative numbers)?
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53
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The horizontal axis is labeled quantity. The vertical axis is labeled dollars. The axes have no numbers. The graph shows a downward-opening curve labeled 1, a concave upward curve labeled 4, a horizontal line labeled 2 and a rising line labeled 3. The horizontal line starts at a point on the vertical axis that is slightly above the origin. The concave upward curve starts from a point on the vertical axis that is slightly above the horizontal line, rises with increasing steepness, and ends at the top-right. The rising line starts from the origin, passes through a point on the horizontal line, intersects the concave upward curve at a point on the bottom left and top-right, and ends at a point that is at the bottom right to the ending point of the concave upward curve. The downward-opening curve begins at a point on the horizontal axis near the origin, goes up and intersects the horizontal line at a point, further goes up and to the right with decreasing steepness, reaches the maximum, goes down and to the right and again intersects the horizontal line at a point, further goes down and ends at a point near the right end of the horizontal axis.
Refer to the diagram. Other things equal, an increase of product price would be shown as
Refer to the diagram. Other things equal, an increase of product price would be shown as
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an increase in the steepness of curve (3), an upward shift in curve (2), and an upward shift in curve (1).
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On a per-unit basis, economic profit can be determined as the difference between
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product price and average total cost.
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A firm finds that at its MR = MC output, its TC = $1,000, TVC = $800, TFC = $200, and total revenue is $900. This firm should
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produce because the resulting loss is less than its TFC.
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The resource cost falls in a purely competitive industry. This change will result in a(n)
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decrease in marginal cost for firms in the industry and an increase in the industry supply curve.
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Assume that labor is a variable input. The average wage of workers increases in a purely competitive industry. This change will result in a(n)
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increase in marginal cost for firms in the industry and a decrease in the industry supply curve.
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Increasing the share of your income that you save is good for you. Therefore, it would be good for the whole economy if everyone saved more. This exemplifies the
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fallacy of composition.
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In the long run in a purely competitive industry,
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entry and exit of firms can occur.
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Profits encourage entry into purely competitive industries and losses encourage exit from purely competitive industries because
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when profits are zero, firms are earning sufficient revenue to cover their opportunity costs. Correct
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The entry and exit of firms in a purely competitive industry help to improve resource allocation because
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losses result in firms exiting an industry, causing resources to flow to markets where there are profits
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The equality of MR and MC is essential for profit maximization in all market structures because if
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MR and MC are equal, any other output level will result in reduced profits
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Price can be substituted for marginal revenue in the MR = MC rule when an industry is purely competitive because
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price is constant regardless of the quantity demanded
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In long-run equilibrium, P = minimum ATC = MC. The equality of P and minimum ATC means the firm is achieving
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productive efficiency.
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The equality of P and MC means the firm is achieving
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allocative efficiency, since the industry is producing the amount of product that equates society's valuation of that product and the price of the product.
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According to the basic model of pure competition, in the long run all firms in a purely competitive industry will earn normal profits. If all firms earn only a normal profit in the long run, why would any firms bother to develop new products or lower-cost production methods?
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To innovate and possibly earn an economic profit in the short run
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Consider the following statement: "Ninety percent of new products fail within two years—so you shouldn't be so eager to innovate."
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false, because a firm could capture enough expected economic profit in the short run to cover its initial investment.
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When discussing pure competition, the term long run refers to a period of time long enough to allow:
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firms already in an industry to either expand or contract their capacities.
new firms to enter or existing firms to leave.
new firms to enter or existing firms to leave.
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Suppose that the pen-making industry is perfectly competitive. Also suppose that all current firms and any potential firms that might enter the industry have identical cost curves, with minimum ATC = $1.25 per pen.
If the market equilibrium price of pens is currently $1.50, what would you expect the equilibrium price to be in the long run?
If the market equilibrium price of pens is currently $1.50, what would you expect the equilibrium price to be in the long run?
answer
$1.25
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Suppose that as the output of mobile phones increases, the cost of touch screens and other component parts decreases. If the mobile phone industry is purely competitive, we would expect the long-run supply curve for mobile phones to be:
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downward sloping
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a. If the firms continued producing q1 units each, would their combined output of cashews be too little, too much, or just right to achieve allocative efficiency?
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too little
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In the long run, what will happen to the supply of cashews and the price of cashews?
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The industry's supply of cashews will exceed Q1 and the price of cashews will equal P1.
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In a constant-cost industry, an increase in demand will result in economic
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profits
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As a result, firms will enter _________ industry, resulting in an increase in supply __________ time.
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enter, and increase in supply
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A long-run adjustment will eventually cause the price level to decrease ________, causing it to return to a level where it was __________before the demand shift.
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decrease, return to a level where it was
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There will be more ___________firms in the industry, and the long-run industry supply curve will be horizontal ___________.
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more, horizontal
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Which of the following is correct?
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A purely competitive firm is a "price taker," while a monopolist is a "price maker."
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One feature of pure monopoly is that the firm is
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a price maker.
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A market where there are many firms, but one firm dominates and has the bulk (85 percent) of sales in the market, is called a
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near-monopoly
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Consider This) In the middle ages, the French government auctioned off monopoly rights to the sale of salt. Economic theory predicts that the highest bids would
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equal the economic profits the winning bidder would expect to earn by owning the monopoly rights to sell salt.
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Which of the following is a barrier to entry?
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patents and licenses
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In many large U.S. cities, taxicab companies operate as near monopolies because of
answer
licenses
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Refer to the diagram for a nondiscriminating monopolist. Demand is elastic
answer
for all levels of output less than q2.
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Refer to the graphs of D and MR for a monopolist. Which of the following statements is true?
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A price cut from P1 to P2 would lead to an increase in the amount of dollars consumers spend on the product.
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Refer to the graph, which shows the revenue curves for a monopolist. If it wants to sell quantity Q1, it must charge at price
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p1
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Refer to the two diagrams for individual firms. Line A represents the firm's
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total revenue curve in both figures.
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A profit-maximizing firm should shut down in the short run if the average revenue it receives is less than
answer
average variable cost
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Refer to the diagram. At the profit-maximizing level of output, the firm will realize
answer
an economic profit of A-B-H-J.
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If a pure monopolist is producing at that output where P = ATC, then
answer
its economic profits will be zero.
question
A pure monopolist's short-run profit-maximizing or loss-minimizing position is such that price
answer
will vertically intersect demand where MR = MC.
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