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Costs to an economist
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May or may not involve monetary outlays.
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Accounting profits
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Are greater than economic profits because accounting profits do not take implicit costs into account.
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What do wages paid to blue-collar workers,interest paid on a bank loan,forgone interest, and the purchase of component parts have in common?
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All are opportunity costs.
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Economist would describe the automobile industry as
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An oligopoly
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What is the basic characteristic of the short run?
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The firm does not have sufficient time to change the size of its plant.
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What is the basic difference between the short run and the long run?
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That at least one resource is fixed in the short run,while all resources are variable in the long run.
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What is an example of a long-run adjustment?
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Whenever a firm is unable to meet foreign competition,a U. S. mfgr. will sell off one of its branch plants.
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What is normal profit?
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It is the return to the entrepreneur when economic profits are zero.
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Name the characteristics of a purely competitive firm's total revenue?
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It is price times quantity sold, it increases by a constant absolute amount as output expands ,and it graphs as a straight upsloping line from its origin.
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A purely competitive seller is Known as
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a "price taker".
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What industry closely resembles pure competition?
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Agriculture
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Note:the demand curve or schedule confronted by the individual purely competitive firm
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is Perfectly Elastic.
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Marginal revenue for a purely competitive firm
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Is equal to price.
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What affect will an increase in resource costs have in a purely competitive industry?
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It will result in a decrease in the short-run supply curve for a firm in the industry.
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What constitutes an implicit cost to any company?
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The use of savings to pay operating expenses instead of generating interest income.
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Note: for a purely competitive seller
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.price = average,marginal,and total revenue divided by output.
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Note: Firms seek
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to maximize total profit.
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In the short run a purely competitive seller will shut down if
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Price is less than average variable cost at all outputs.
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What constitutes an implicit costs to a company?
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A good example is the use of savings to pay operating expenses instead of generating interest income.
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For a purely competitive firm total revenue has all these characteristics:
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Total Revenue is price times quantity sold,increases by a constant absolute amount as output expands and graphs as a straight up-sloping line from the origin.
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A purely competitive firm is in long-run equilibrium whenever
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Price equals Marginal Costs.
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In a typical graph for a purely competitive firm,the intersection of the total cost and total revenue curves would be
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A break-even point.
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What does a pure monopoly refer to?
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It refers to a single firm producing a product for which there are no close substitutes.
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Note:if a purely competitive firm is maximizing profit at some output at which the long- run average total cost is at a minimum
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There is no tendency for the firm's industry to expand or contract.
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What do economies of scale,the ownership of essential raw materials and patents have in common?
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They are all barriers to entry.
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Where does the marginal revenue curve lie in a demand curve?
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It lies below "The Demand Curve "because any reduction in price applies to all units sold.
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What happens when a monopolist produces in its inelastic demand curve?
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The firm will not be maximizing profit.
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What is creative destruction?
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It is the process by which new firms and new products replace existing dominant firms and products.
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The MR=MC rule applies
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in both the short run and the long run.
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What distinguishes the short run from the long run in pure competition?
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Firms can enter and exit the market in the long run,but not in the short run.
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Note:Both allocative efficiency and productive efficiency are achieved under pure competition in the long run.
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and A purely competitive firm is in long-run equilibrium when its price equals marginal cost.
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What best approximates a pure monopoly?
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The only supermarket in a small town.
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Note the following relationships existing between TP (total product),AP (average product), and MP (marginal product):
answer
AP reaches a maximum before TP reaches a maximum, TP reaches a maximum when the MP of the variable output becomes zero, and MP cuts AP at the maximum Ap.
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