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Implicit revenue refers to
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any increase in the value of the assets owned by the firm
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¬Robert withdrew $100,000 from an account that paid 10 percent annual interest and used the funds to purchase real estate. After one year he sold the property for $120,000. Robert's economic profit on this deal was
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10,000
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In the long run
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all inputs are variable
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When labor is the variable input, marginal product is defined as
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the additional output produced by an additional worker
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The law of diminishing marginal productivity states that as more units of a variable input are added to a fixed input, the additional output the firm gets will
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eventually decrease
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What is a production function?
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The relationship between any combination of inputs and the maximum output obtained from that combination.
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Average total cost is equal to
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total cost divided by total output
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The increase in cost associated with a one unit increase in output is called
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marginal cost
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Other things equal, when marginal productivity falls
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marginal costs must rise
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In a competitive market
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: the number of firms is large
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A firm is a price taker if it chooses its
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output in response to a market-determined price
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A perfectly competitive seller faces a
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horizontal demand curve
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Because the marginal cost curve tells us how much output a perfectly competitive firm will produce at a given price, the marginal cost curve is the perfectly competitive firm'
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supply curve
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The market supply curve is
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equal to the horizontal sum of all the firms' marginal cost curves
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The zero profit condition for a perfectly competitive market exists in the long run because
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competitive firms can freely enter or exit industries in the long run
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There is no incentive for firms to enter or leave an industry when
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firms just cover their total explicit and implicit costs
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The profit maximizing rule for perfectly competitive firms is
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p=mc
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Suppose a license fee of $1,000 per year is levied on building contractors in all regions of a nation. Assuming that the building contractor industry was in equilibrium prior to the initiation of the new fee, in the long-run the fee will
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decrease the supply of building contractor services
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A pure monopoly
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can influence the price of its product by controlling output
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For a monopolist, marginal revenue is
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below price
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If the marginal revenue of the monopolist's sixth unit is $3 and its marginal cost is $10, the firm should
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decrease production
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A price-discriminating monopolist
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charges a different price to different customers
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As compared to a perfectly competitive industry, a monopolist produces a
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lower output at a higher price
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For a natural monopoly
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average total costs are always falling
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Because monopolistic competition is similar to ________ in that there are many sellers and entry is easy, firms in monopolistic competition will tend to ________.
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perfect competition; earn zero economic profit in the long run
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Because monopolistic competition is similar to ________ in that products are differentiated and competition occurs on dimensions other than price, firms in monopolistic competition will tend to ________.
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monopoly; charge a price that is greater than marginal cost
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If a businessperson directly takes into account rivals' likely responses when making a decision, that businessperson is engaging in
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Strategic Behavior
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If an industry is an oligopoly
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firms will consider the reactions of their rivals when setting prices or adjusting output.
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The model that assumes that oligopolies act jointly as if they were monopolists is the
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cartel model
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Which of the following characterizes the two extremes that an oligopoly model can take?
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The cartel model in which firms set a monopoly price and the contestable market model in which firms set a competitive price when there are no barriers to entry.
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In the airline industry one airline sometimes announces a change in their air fares. After the change in their air fares are announced, other airlines in the industry usually react by changing their air fares in the same way. This is an example of
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mplicit collusion
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