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Production is organized within firms in order to
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minimize transaction costs
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An explicit cost for a business that manufactures bicycles would be the
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wages paid to employees
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Say you own a steel mill and notice that as you hire more workers, each one is able to specialize. What happens to the marginal product of labor?
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it increases at first, then decreases
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A firm's production function is similar to a recipe used to make a cake in the sense that the production function shows us the combination of ________ used to produce _______.
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inputs; outputs
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Why should a firm never hire a worker with a negative MP?
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doing so would decrease output
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In the short run, ATC decrease and then increase as more output is produced because
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MC is at first less than ATC, then rises above it
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The LR ATC for a firm are equal to SR ATC when
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the firm has the optimal plant size for the level of output produced
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Liina owns a sports complex with 9 courts for basketball and volleyball tournaments. If she doubles the size of her facility so she has 18 courts and her long-run average total cost per tournament decreases, we know that Liina is experiencing
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economies of scale
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The perfectly competitive firm cannot influence the market price because the firm
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produces a tiny share of market output
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Whenever we go to NYC, my son's fiance loves to get a hotdog from one of the many street vendors. Some would say the market for hotdogs there is a good example of a perfectly competitive market. Because there are so many buyers and sellers of hot dogs
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supply and demand set the price
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Regardless of the number of firms in the industry, all firms
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will attempt to maximize profits
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Imagine you are a consultant and have a client firm producing an output with this data: P = MR = $20, MC = $6, AVC = $10, ATC = $13
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increase output
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The market for watches is perfectly competitive and is currently in equilibrium. What will happen if watches become more popular among college students?
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in the short run, firms will experience economic profits, but in the long run, firms will enter the market, bringing economic profits back down to zero
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We recently spent a little over $70,000 on a remodel of our new home. To get the remainder of the renovations completed, it will cost another $23,000. When we are making decisions about the remaining renovations, we should ignore the $70,000 because
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the $70,000 is a sunk cost
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In the soda industry, production costs per unit continue to fall as the firm expands. In cases like this, smaller rivals trying to enter the industry
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will have much higher average costs
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The demand cost for the product of a firm in a competitive market is ______, and the demand curve for the product of a monopolist is
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perfectly elastic; downward sloping
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Because the demand curve for a monopolist is downward sloping,
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the monopolist chooses a price and quantity combination to maximize profit
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