question
Explicit costs are
answer
always paid out of pocket
question
Total revenue minus total cost is equal to
answer
profit
question
A firm's inputs are also known as its
answer
factors of production
question
Another term for factors of production is
answer
inputs
question
Marginal product is the change in
answer
total output/change in input
question
A firm expands its scale of production and finds that it is able to negotiate better prices with its suppliers. Which of the curves best applies to this firm?
answer
LRATC 1
question
A firm expands its scale of production and finds that its long-run average total cost curve looks like LRATC3. It might look this way because the firm
answer
adds several additional layers of management, which increase its costs
question
If a firm experiences economies of scale, its long-run average cost curve is
answer
downward sloping
question
Geoffrey owns a wedding dress store. If he increases the size of his store and experiences constant returns to scale as a result, his long-run average total cost curve should be
answer
horizontal
question
Rebecca owns a fitness gym. If she increases the size of her fitness gym and experiences diseconomies of scale as a result, her long-run average total cost curve should be
answer
upward sloping
question
Which of the following is an example of a long-run cost for a manufacturing firm?
answer
an increase in the size of its factory
question
If a firm's average total costs decrease as it increases its scale of production, the firm is experiencing
answer
economies of scale
question
Which of the following statements is FALSE?
answer
an explicit cost is a nonmonetary opportunity cost
question
The production function shows the relationship between the
answer
quantity of inputs and the quantity of the outputs
question
According to the concept of the production function, if a firm is inefficient then it must mean
answer
for the same amount of inputs, the output is less than the production function would have calculated
question
A decade ago, Nino decided to open a used car lot. This car lot required her to hire some sales agents and buy some computers to track the sales of the vehicles. After a few years, Nino opened up a second location and hired more sales agents and purchased more computers. When this expansion occurred, which of the following statements is FALSE?
answer
the production function changed
question
What would cause a firm's production function to change?
answer
the adoption of the new technology
question
What happens when a firm adopts a new technology?
answer
the firm will have a new production function
question
As a firm hires more labor and each worker is able to specialize, what happens to each additional worker's marginal productivity?
answer
it increases first, then decreases
question
Lester owns a candy store that produces, among other things, chocolate fountains. He currently has 5 employees; with 5 employees, his candy store can produce 7 chocolate fountains per day. If he hired a sixth employee, he'd be able to produce 9 chocolate fountains per day. Therefore, the marginal product of the sixth employee is ________ chocolate fountain(s).
answer
2
question
Fathima owns a car shop that repairs, among other things, spoilers. She currently has 6 employees; with 6 employees, her repair shop can repair 9 spoilers per day. If she hired a seventh employee, she'd be able to repair 12 spoilers per day. Therefore, the marginal product of the seventh employee is ________ car spoiler(s).
answer
3
question
Gerald owns a factory that produces, among other things, wheelbarrows. He currently has 7 employees; with 7 employees, his factory can produce 12 wheelbarrows per day. If he hired an eighth employee, he'd be able to produce 16 wheelbarrows per day. Therefore, the marginal product of the eighth employee is ________ wheelbarrow(s).
answer
4
question
If a firm hires another worker and her marginal product of labor is positive, we know that the firm's total output is
answer
increasing
question
If a firm hires another worker and her marginal product of labor is negative, we know that the firm's total output is
answer
decreasing
question
If a firm hires another worker and her marginal product of labor is zero, we know that the firm's total output is
answer
unchanged
question
Is this firm earning positive, negative, or zero economic profits?
answer
we cannot determine the firm's level of profit because we do not know about its revenues
question
Economists assume that the cost of ________ is fixed in the short run.
answer
capital
question
Which of the following costs is fixed in the short run?
answer
capital
question
Lisette owns a bakery. Her total costs are $150,000 per year, and her variable costs are $85,000. This means that her fixed costs are
answer
$65,000
question
Selene owns a craft store. Her total costs are $1.2 million per year, and her variable costs are $750,000 per year. This means that her fixed costs are
answer
$450,000
question
When output is 100 units, the firm's total fixed cost is $500. What will this firm's total fixed cost be if output doubles to 200 units?
answer
$500
question
Vanessa owns a horse ranch. Her total costs are $550,000 per year, and her fixed costs are $205,000 per year. This means that her variable costs are
answer
$345,000
question
Kareem owns a bike store. His total costs are $1.2 million per year, his variable costs are $750,000, and his fixed costs are $450,000 per year. Last year, Kareem sold 1,200 bikes.
Kareem's average total cost was ________ per bike.
Kareem's average total cost was ________ per bike.
answer
$1,000
question
Kareem owns a bike store. His total costs are $1.2 million per year, his variable costs are $750,000, and his fixed costs are $450,000 per year. Last year, Kareem sold 1,200 bikes.
Kareem's average variable cost was ________ per bike.
Kareem's average variable cost was ________ per bike.
answer
$625
question
A firm's short-run cost curves show us
answer
the lowest-cost level of output
question
By looking at the full set of short-run cost curves for a firm, we can determine
answer
the level of output with the cost-minimizing level of output
question
If the marginal cost curve is U-shaped
answer
there are productivity gains from specialization before diminishing marginal product
question
Where would we find a firm's minimum efficient scale of production?
answer
at the lowest point on its long-run average total cost curve
question
It is important for a firm to know its minimum efficient scale of production because that is where
answer
long-run costs are minimized
question
Ramona owns a small coffee shop, where she works full-time. Her total revenue last year was $100,000, and her rent was $3,000 per month. She pays her one employee $2,000 per month, and the cost of ingredients and overhead averages $500 per month. Ramona could earn $35,000 per year as the manager of a competing coffee shop nearby. Her total implicit costs last year were
answer
$35,000
question
Jeremy is the owner of a makeup parlor that earns zero economic profit. Last year, his total revenue was $145,000, his rent was $12,000, his labor costs were $65,000, and his overhead expenses were $15,000. From this information, we know that his total implicit costs were
answer
$53,000
question
Accounting profit ignores which of the following?
answer
implicit costs
question
Luciana is the owner of a nail salon. Last year, her total revenue was $145,000, her rent was $12,000, her labor costs were $65,000, and her overhead expenses were $15,000. From this information, we know that her accounting profit was
answer
$53,000
question
Jackie is the owner of a furniture store. Last year, her total revenue was $525,000 and her total labor costs were $200,000. Her overhead expenses, including insurance and legal fees, were $175,000. The rent on the building was $45,000. Jackie could earn $105,000 per year working at a nearby furniture distributor. From this information, we know that her accounting profit was
answer
$105,000
question
Kumar owns a small seafood restaurant, where he works full-time in the kitchen. His total revenue last year was $100,000, and his rent was $3,000 per month. He pays his one employee $2,000 per month, and the cost of ingredients and overhead averages $500 per month. Kumar could earn $35,000 per year as the manager of a competing seafood restaurant nearby. His total accounting profit last year was
answer
$34,000
question
A firm's economic profit is always less than its accounting profit because
answer
economic profit considers implicit costs, which accounting profit does not
question
Karolina owns a small diner, where she works full-time in the kitchen. Her total revenue last year was $100,000, and her rent was $3,000 per month. She pays her one employee $2,000 per month, and the cost of ingredients and overhead averages $500 per month. Karolina could earn $35,000 per year as the manager of a competing diner nearby. Her total economic profit last year was
answer
-$1,000
question
A restaurant owner just found out that his pizza bistro is losing money. What is one possible explanation for this loss?
answer
the revenue isn't being maximized
question
Which of the following is a question that a firm must answer in the long run but not in the short run?
answer
what is the optimal amount of capital to employ?
question
Lukas owns a bookstore. He currently sells 1,200 books per year. If he doubles the size of his store so he can sell 2,400 books per year and his long-run average total cost per book decreases, we know that Lukas is experiencing
answer
economies of scale
question
Josephina owns a boxing gym. She recently expanded the size of her gym by adding another boxing ring and moving into a larger building so that she can serve more clients. How would Josephina know if she is experiencing economies of scale from increasing the size of her boxing gym?
answer
her average cost per client decreases
question
Which is the best example of economies of scale?
answer
the local power company
question
Which is the best example of diseconomies of scale?
answer
a parking garage
question
When firms grow larger, they sometimes add many additional layers of managers between the top executives and the entry-level employees. Because these managers do not actually produce any output themselves, we expect more layers of management to lead to
answer
diseconomies of scale
question
Joshua owns a suit store. He currently sells around 10,000 suits per year. If he increases the size of his store so that he can display and sell even more suits, and his long-run average total cost remains unchanged, we know that Joshua is experiencing
answer
constant returns to scale
question
Rahim owns a candy factory. If he decided to expand the size of his factory so that he could make more candy, how would he know if he is experiencing constant returns to scale?
answer
his long-run average cost of making each piece of candy remains unchanged
question
Jamal owns a coffee roasting company. He buys raw coffee beans, roasts them, grinds them, and sells them to stores. He recently moved into a larger factory so that he can sell coffee to more stores. How would Jamal know if he is experiencing constant returns to scale from increasing the size of his factory?
answer
his long-run average cost per pound of coffee remains the same
question
Hubert owns a scooter store. Last year his average cost of selling a scooter was $1,000. If he expands the size of his store this year and sees his average cost remain the same, his long-run average total cost curve should be
answer
horizontal
question
Ting owns a diamond shop. Last year her average cost of selling a diamond was $900. If she expands the size of her store this year and sees her average cost decrease to $850, her long-run average total cost curve should be
answer
downward sloping
question
If a firm adds multiple layers of management as it increases its scale of production, thus adding to its costs, we would expect its long-run average cost curve to be
answer
upward sloping
question
All firms, no matter what type of firm structure they are producing in, make their production decisions based on the point where their
answer
marginal revenue = marginal costs
question
Kimiko owns a cupcake shop in Newport Beach, California. The market for cupcakes is very competitive. At Kimiko's current production level, her marginal cost is $25 and her marginal revenue is $29. To maximize profits, Kimiko should
answer
increase production
question
Marcy owns a photography business in Mobile, Alabama. The market for photography is very competitive. At Marcy's current production level, her marginal cost is $15 and her marginal revenue is $12. In order to maximize profits, Marcy should
answer
decrease production
question
Refer to the accompanying figure. Point ________ corresponds to the profit-maximizing quantity that a competitive firm would produce.
answer
point C
question
If this firm is maximizing profits, total revenue is represented by the area
answer
A x C
question
If the firm is maximizing profits, profit is represented by the area
answer
(A - B) x C
question
Total revenue minus total cost equals
answer
profit
question
Profit maximization occurs when
answer
a firm expands output until marginal revenue is equal to marginal cost
question
If a perfectly competitive firm is maximizing profits in the short run, what does this mean?
answer
the profit can be negative, zero, or positive
question
The presence of many buyers and sellers is an important characteristic of competitive markets because it allows
answer
the price and quantity in the market to be determined by market forces
question
The market for hot dogs on the streets of New York City can be considered close to a perfectly competitive market. Because there are so many individuals buying and selling hot dogs
answer
market forces set the price in the market
question
In a competitive market, if one firm raises its price relative to the other firms in the market, consumers are willing to go to another firm because
answer
the products are similar, which makes them substitutes
question
Many economists believe that the market for wheat in the United States is an almost perfectly competitive market. If one firm discovers a technology that makes its wheat taste better and have fewer calories than all other wheat offered in the market, the wheat market would become less competitive because
answer
the products would no longer be similar in the wheat market
question
All of the following are characteristics of perfect competition EXCEPT
answer
product differentiation
question
In competitive markets
answer
market forces are much stronger than individual firms are
question
Real-life examples of competitive markets
answer
are usually far short of perfection
question
Each firm in a perfectly competitive industry
answer
is a price taker
question
Which of the following is NOT a characteristic of a perfectly competitive industry?
answer
Sellers have better information about the product than consumers
question
What is the consequence of a firm in a competitive market selling a homogenous product?
answer
The product sold by one firm is a perfect substitute for the products sold by other firms in the same industry
question
Which of the following is the closest example of a perfectly competitive market?
answer
the market for bread
question
A farmers' market is close to being a perfectly competitive market. Which characteristic of a perfectly competitive market do most farmers' markets violate?
answer
many sellers
question
When marginal revenue is greater than marginal cost, the firm should
answer
increase the level of output
question
If the price is greater than both the marginal cost and the average variable cost, what should the firm do?
answer
increase its production level
question
At what point does the profit-maximizing perfectly competitive firm produce?
answer
where marginal revenue is equal to marginal cost
question
If Tamsin's Tank Tops is a perfectly competitive firm and is currently making positive economic profits of $1,000,
answer
firms will enter the market
question
You can tell a firm is operating in a market that is in long-run competitive equilibrium if
answer
economic profits are zero
question
If Kang's Knick-Knacks is a perfectly competitive firm and is making zero economic profits,
answer
Kang's Knick-Knacks will stay in the market
question
If firms in a competitive market are making positive economic profits, you would expect firms to ________ the market, causing the ________ curve to shift to the ________.
answer
enter; market supply; right
question
The market for candles is perfectly competitive and is currently in equilibrium. What will happen if candles are later linked to more houses catching on fire?
answer
In the short run, firms will incur economic losses, but in the long run, firms will leave the market, bringing economic profits back up to zero
question
Holding all else constant, a decrease in the market demand for a product in a competitive market would cause
answer
the marginal revenue (MR) curve of the firms to shift downward
question
When firms enter a market, the ________-run market supply curve shifts ________, causing individual firms' profits to ________.
answer
short; right; decrease
question
When firms exit a market, the ________-run market supply curve shifts ________, causing individual firms' profits to ________.
answer
short; left; increase
question
Costs that have been incurred as a result of past decisions are known as ________ costs.
answer
sunk
question
Sunk costs
answer
are costs that have been incurred as a result of past decisions
question
Firms will always suffer a loss only if the price they charge is
answer
less than their minimum average total cost (ATC)
question
In the short run, a competitive firm may choose to operate at a loss
answer
to recover a portion of its fixed costs
question
Calvin's Campgrounds is a firm conducting business in a competitive market. Calvin realizes he is making a loss and is trying to decide whether to shut down or stay open. He should stay open
answer
if his revenues cover his variable costs
question
Refer to the accompanying table. A firm participating in a competitive market with these costs would break even if the price is
answer
$6
question
If the price is $8, the firm is making
answer
a profit and more firms will enter the market in the long run
question
This firm would shut down in the long run if the price
answer
fell below $5
question
Where is a perfectly competitive firm's break-even output level?
answer
at the minimum point of the average total cost curve
question
If a competitive firm can make enough revenue to cover its variable costs, the firm will
answer
choose to remain open
question
Which of the following conditions will result in the firm making an economic profit?
answer
P > ATC
question
Which of the following conditions will result in the firm making zero economic profits?
answer
P = ATC
question
A company produces at an output level where marginal cost is equal to marginal revenue and has the following revenue and cost levels: Total revenue = $1,450Total cost = $1,500Total variable cost = $1,300What would you suggest?
answer
continue to produce because the loss is less than the total fixed cost
question
A company produces at an output level where marginal revenue is equal to marginal cost and has the following revenue and cost levels: Marginal cost curve intersects the average variable cost curve at $150.Marginal cost curve intersects the average total cost curve at $200.Marginal cost curve intersects the marginal revenue curve at $170.What would you suggest this firm should do in the short run?
answer
The firm should continue to produce at a loss
question
A company produces at an output level where marginal revenue is equal to marginal cost and has the following revenue and cost levels: Marginal cost curve intersects the average variable cost curve at $140.Marginal cost curve intersects the average total cost curve at $150.Marginal cost curve intersects the marginal revenue curve at $200.What would you suggest this firm should do in the short run?
answer
The firm should continue to produce at a profit level of $50 per unit
question
What is true for the perfectly competitive firm's output level at the break-even point?
answer
price = marginal revenue = average total cost
question
The perfectly competitive firm's short-run shutdown price equals
answer
the minimum of average variable cost
question
What should the firm do if there is no possible output where the price would at least be equal to average variable costs?
answer
The firm should shut down in the short run
question
A firm would produce in the long run only if the market price is
answer
at or above $20
question
This firm's short-run supply curve is represented by the
answer
marginal cost (MC) curve above $15
question
A firm will shut down in the long-run if the
answer
price is anywhere below the minimum average total cost (ATC)
question
In the long run, if a firm is making a loss, it will
answer
stop producing and exit the market
question
It's easy to determine if a firm is making long-run production decisions by looking at its cost structure because, in the long run, a firm does NOT have any ________ costs.
answer
fixed
question
A firm's willingness to supply its product in the short run is represented on a graph by the
answer
part of the marginal cost (MC) curve above minimum average variable cost (AVC)
question
A firm's short-run supply curve is equal to the firm's
answer
marginal cost curve above minimum average variable cost (AVC)
question
The marginal cost curve is the short-run supply curve
answer
as long as the firm is operating
question
Babak owns a sports practice facility called Boston Batting Cages in Boston, Massachusetts. During the first year of operation, Boston Batting Cages incurred many costs. In that year, Babak spent $5,000 on labor, $2,000 on maintenance, and $1,000 on electricity. Babak took out a loan to open his business, in which he would have earned $1,500, and his previous job, which he could get back at any time, paid him $50,000.Boston Batting Cages incurred ________ in explicit costs.
answer
$8,000
question
The perfectly competitive firm's short-run supply curve is the
answer
region of the firm's marginal cost curve above the average variable cost curve
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