question
A firm that is making normal profit is covering_____________ and is earning ________ economic profits.
answer
both explicit and implicit costs, zero
question
Zero economic profit is not as bad as it sounds because when the firm earns zero economic profit:
answer
It earns enough revenue to cover both its explicit and implicit costs
question
Total costs equal total variable costs when:
answer
There are no fixed costs
question
As long as the marginal benefit of producing each successive unit is greater than the marginal cost, a firm will increase its total profits by________ its production. So, even after marginal cost begins to rise (as diminishing returns set in), producers are likely to_______ producing until the marginal cost equals the marginal benefit from selling the good.
answer
increasing, continue
question
A billionaire producer, Ms. Bigbucks, is earning zero economic profit but is still wealthy. This must mean that she has generated enough total revenue to exactly cover:
answer
Both explicit and implicit costs
question
Cho is working for an advertising firm making $60,000 per year but considers starting her own advertising company. Cho has determined that to launch the business, she needs to invest $100,000 of her own funds. The annual cost of running the business will include $60,000 for the rent of the office space, $200,000 for employee wages, and $7,000 for materials and utilities. Cho plans to manage the business, which means that she will have to quit her current job. Suppose that the interest rate (or rate of return) on investments in the economy is 6%.
her explicit costs are
her total costs are
her explicit costs are
her total costs are
answer
267,000
333,000
333,000
question
implicit costs
answer
opportunity costs
question
explicit costs
answer
costs that require a firm to spend money
question
normal profit
answer
zero economic profit
question
economic profit
answer
total revenue minus total cost, including both explicit and implicit costs
question
accounting profit
answer
total revenue - explicit costs
question
Average total cost is equal to the sum of average variable cost and average fixed cost.
As output increases, average fixed cost_____ ; therefore, as output increases,______ variable cost makes up a larger portion of average total cost. It follows that the average total cost curve and average variable cost curve would _____each other as output increases.
As output increases, average fixed cost_____ ; therefore, as output increases,______ variable cost makes up a larger portion of average total cost. It follows that the average total cost curve and average variable cost curve would _____each other as output increases.
answer
decreases, average variable cost, get closer to
question
The average fixed cost curve continually declines (as output rises) because:
answer
Total fixed cost is constant as output rises
question
The government says that firm X must pay $1,000 in taxes simply because it is in the business of producing a good.
Which of the firm's cost curves will be affected by this lump-sum tax? Check all that apply.
Marginal cost
Total cost
Total variable cost
Average total cost
Total fixed cost
Average variable cost
Average fixed cost
Which of the firm's cost curves will be affected by this lump-sum tax? Check all that apply.
Marginal cost
Total cost
Total variable cost
Average total cost
Total fixed cost
Average variable cost
Average fixed cost
answer
Total cost, average total cost, total fixed cost, average fixed cost
question
Practice calculating all of the costs
answer
...
question
Sunk Cost
answer
a cost that has already been paid and cannot be recovered
question
If marginal physical product is rising, what does marginal cost look like?
answer
Marginal cost is declining.
question
If the average variable cost (AVC) curve is continually declining, what does this imply about the marginal cost (MC) curve?
answer
The MC curve is below the AVC curve.
question
4 characteristics of Perfect Competition
answer
1) large number of buyers and sellers
2) firms sell identical product
3) no barriers to entry or exit
4) buyers and sellers have perfect information
2) firms sell identical product
3) no barriers to entry or exit
4) buyers and sellers have perfect information
question
If total revenue increases at a constant rate, what does this imply about the marginal revenue curve?
answer
The marginal revenue curve is a horizontal line.
question
Which of the following is true about the short-run production decision of a perfectly competitive firm?
It will not supply output if price is below average total cost.
It will not supply output if price is below average variable cost.
It will supply output only if price is above average fixed cost.
It will not supply output if price is below average total cost.
It will not supply output if price is below average variable cost.
It will supply output only if price is above average fixed cost.
answer
It will not supply output if price is below average variable cost.
question
When marginal cost is greater than average total cost, the average total cost will be______. When marginal cost is less than average total cost, the average total cost will be_______
Therefore, the marginal cost curve intersects the average total cost curve__________
Therefore, the marginal cost curve intersects the average total cost curve__________
answer
pulled up, pulled down, at its minimum
question
True or False: The perfectly competitive firm's entire marginal cost curve is its short-run supply curve.
answer
False
question
In the short run, a perfectly competitive firm will maximize profits (minimize losses) by producing the level of quantity at which____ . The firm will only operate at the lowest per-unit cost if the firm is________even and P=MR=MC=_______
answer
MR=MC, breaking even, minimum atc
question
You read in a business magazine that computer firms are reaping high profits. With the theory of perfect competition in mind, what do you expect to happen over time?
Complete the following sentences to describe the long-run adjustment.
The number of computer firms in the market will_____
The number of computers in the market will____
Computer prices will____
The profits of computer firms will_____
Complete the following sentences to describe the long-run adjustment.
The number of computer firms in the market will_____
The number of computers in the market will____
Computer prices will____
The profits of computer firms will_____
answer
increase, increase, fall, fall
question
The term price taker can apply to buyers as well as sellers. A price-taking buyer is one who cannot influence price by changing the amount he or she buys.
In which of the following scenarios would you most likely be a price taker? Check all that apply.
A smartphone costs $200 regardless of the service plan you purchase with it.
A can of soda costs $1 at the store.
A house costs $500,000, but the price is subject to bidding and negotiation.
A used car costs $10,000, but you can negotiate with the car salesperson.
In which of the following scenarios would you most likely be a price taker? Check all that apply.
A smartphone costs $200 regardless of the service plan you purchase with it.
A can of soda costs $1 at the store.
A house costs $500,000, but the price is subject to bidding and negotiation.
A used car costs $10,000, but you can negotiate with the car salesperson.
answer
A can of soda costs $1 at the store.
question
In the short run, a perfectly competitive firm should continue to produce as long as it can cover its variable costs. Which of the following conditions describes this rule?
answer
P>AVC
question
The demand curve is the same as the marginal revenue curve for a perfectly competitive firm because:
answer
Price is equal to marginal revenue
question
Explain why the MRMR curve lies below the demand curve for a single-price monopolist.
answer
The monopolist faces a downward-sloping demand curve, so price must be lowered in order to sell more units of its product. Marginal revenue is then below the price charged for the product.
question
Under what condition will a monopoly firm incur losses?
answer
ATC>P
question
The perfectly competitive firm exhibits resource allocative efficiency, but the single-price monopolist does not. What is the reason for the difference?
answer
The monopolist firm faces a downward-sloping demand curve, and the perfectly competitive firm faces a horizontal demand curve.
question
True or False: There is deadweight loss if a firm produces the quantity of output at which price equals marginal cost.
answer
False
question
A perfectly competitive firm will produce____ output and charge a____ (per unit) price than a single-price monopoly firm.
answer
more, lower
question
Why is rent seeking individually rational but socially wasteful?
answer
Rent-seeking activity reflects the actions of individuals who spend resources trying to influence public policy in the hope of redistributing income to themselves from others; it is simply a transfer activity, not a production activity.
question
In general, coupons are more common and easier to find for small-ticket items than for big-ticket items.
Which of the following explains why?
The statement is not true. Coupons are actually more common for big-ticket items.
This is because of X-inefficiency resulting from the absence of competitive pressure.
This is because of rent seeking by companies that use coupons in an attempt to influence public policy.
This is because of price discrimination. Potential purchasers of small-ticket items vary more in their willingness to spend time trying to save money. Coupons help sellers determine which customers have a high willingness to spend time to save money and which customers do not.
Which of the following explains why?
The statement is not true. Coupons are actually more common for big-ticket items.
This is because of X-inefficiency resulting from the absence of competitive pressure.
This is because of rent seeking by companies that use coupons in an attempt to influence public policy.
This is because of price discrimination. Potential purchasers of small-ticket items vary more in their willingness to spend time trying to save money. Coupons help sellers determine which customers have a high willingness to spend time to save money and which customers do not.
answer
This is because of price discrimination. Potential purchasers of small-ticket items vary more in their willingness to spend time trying to save money. Coupons help sellers determine which customers have a high willingness to spend time to save money and which customers do not.
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