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Economic cost can best be defined as
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a payment that must be made to obtain and retain the services of a resource.
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Implicit and explicit costs are different in that
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the former refer to nonexpenditure costs and the latter to monetary payments.
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Accounting profits equal total revenue minus
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total explicit costs.
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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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The basic difference between the short run and the long run is that
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at least one resource is fixed in the short run, while all resources are variable in the long run.
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Marginal product is
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the change in total output attributable to the employment of one more worker.
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The law of diminishing returns indicates that
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as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.
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Diminishing marginal returns become evident with the addition of the
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third worker.
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Which of the following is most likely to be a fixed cost?
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Which of the following is most likely to be a fixed cost?
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Marginal cost is the
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change in total cost that results from producing one more unit of output.
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Which of the following is correct as it relates to cost curves?
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Marginal cost intersects average total cost at the latter's minimum point.
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Which of the following industries most closely approximates pure competition?
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agriculture
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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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A purely competitive seller is
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a "price taker."
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The demand schedule or curve confronted by the individual, purely competitive firm is
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perfectly elastic.
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A purely competitive firm finds that the market price for its product is $20. It has a fixed cost of $100 and a variable cost of $10 per unit for the first 50 units and then $25 per unit for all successive units.
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a. Does price equal or exceed average variable cost for the first 50 units? YES
What about for the first 100 units? YES .
b. What is the marginal cost per unit for the first 50 units? $10 per unit.
What is the marginal cost for units 51 and higher? $25 per unit.
c. For each of the first 50 units, does MR exceed MC? YES .
What about for units 51 and higher? MR<MC .
d. What output level will yield the largest possible profit for this purely competitive firm? 50 units.
What about for the first 100 units? YES .
b. What is the marginal cost per unit for the first 50 units? $10 per unit.
What is the marginal cost for units 51 and higher? $25 per unit.
c. For each of the first 50 units, does MR exceed MC? YES .
What about for units 51 and higher? MR<MC .
d. What output level will yield the largest possible profit for this purely competitive firm? 50 units.
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a. Consider the statement: "Even if a firm is losing money, it may be better to stay in business in the short run." This statement is
b. The firm should produce in the short run as long as price
b. The firm should produce in the short run as long as price
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true, if the loss is less than fixed costs.
exceeds the average variable cost.
exceeds the average variable cost.
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Refer to the diagram for a purely competitive producer. The firm will produce at a loss at all prices
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between P2 and P3.
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Refer to the diagram for a purely competitive producer. If product price is P3,
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economic profits will be zero.
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Pure monopoly refers to
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a single firm producing a product for which there are no close substitutes.
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Which of the following best approximates a pure monopoly?
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the only grocery store in a small isolated town
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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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Refer to the two diagrams for individual firms. Figure 1 pertains to __________, while Figure 2 refers to ________.
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a purely competitive firm; an imperfectly competitive firm
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Refer to the two diagrams for individual firms. In Figure 2, line B represents the firm's
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demand curve only.
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With respect to the pure monopolist's demand curve, it can be said that
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price exceeds marginal revenue at all outputs greater than 1.
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The MR = MC rule
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applies both to pure monopoly and pure competition.
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Refer to the data for a non discriminating monopolist. This firm will maximize its profit by producing
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4 units.
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Refer to the data for a nondiscriminating monopolist. At its profit-maximizing output, this firm's total profit will be
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$82.
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Refer to the diagram. To maximize profits or minimize losses, this firm should produce
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E units and charge price A.
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Monopolistic competition is characterized by a
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large number of firms and low entry barriers.
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Which of the following statements concerning a monopolistically competitive industry is correct?
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If there are short-run losses, firms will leave the industry and the demand curves of the remaining firms will shift to the right.
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An important similarity between a monopolistically competitive firm and a purely competitive firm is that
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economic profit tends toward zero for both.
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In which of these continuums of degrees of competition (lowest to highest) is oligopoly properly placed?
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pure monopoly, oligopoly, monopolistic competition, pure competition
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a. The difference between monopolistic competition and pure competition is that in comparison to pure competition, monopolistic competition has
b. The difference between monopolistic competition and pure monopoly is that in comparison to monopolistic competition, pure monopoly has
c. Product differentiation
d. Firms will enter a monopolistically competitive industry when there are
b. The difference between monopolistic competition and pure monopoly is that in comparison to monopolistic competition, pure monopoly has
c. Product differentiation
d. Firms will enter a monopolistically competitive industry when there are
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A. fewer firms, product differentiation, some price control, and relatively easy but not barrier-free entry.
B. one firm, a unique product, price control, and entry barriers
C. provides an advantage in the market.
D. economic profits. This will shift demand to the left, reducing the firm's market share and its economic profit.
B. one firm, a unique product, price control, and entry barriers
C. provides an advantage in the market.
D. economic profits. This will shift demand to the left, reducing the firm's market share and its economic profit.
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The term oligopoly indicates
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a few firms producing either a differentiated or a homogeneous product.
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Oligopolistic industries are characterized by
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a few dominant firms and substantial entry barriers.
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The automobile, household appliance, and automobile tire industries are all illustrations of
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differentiated oligopoly.
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The copper, aluminum, cement, and industrial alcohol industries are examples of
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homogeneous oligopoly.
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Differentiated oligopoly exists where a small number of firms are
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producing goods that differ in terms of quality and design.
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Which of the following is a unique feature of oligopoly?
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mutual interdependence
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