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a profit maximizing, perfectly competitive firm is currently producing 400n unites where marginal cost equals it's average total cost of $12 and the average variable cost is $10. if the market price is $8 per unity, which of the following actions should the firm take in the short run
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shut down because the total revenue will be less than total variable cost at the profit maximizing quantity
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Define the law of comparative advantage
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differences in relative costs of production are the key to determining patterns of trade
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what's true about accounting and economic profits
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a firm that earns an economic profit necessarily owns an accounting profit
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if an economy just produces consumer and economic goods, and you can increase both, what is true?
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the economy is inefficient and producing inside the possibilities curve
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what would decrease the price of a normal good
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decrease price of substitute product and improve production technology
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a binding price floor will most likely
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surpluses of products if the price floor is above the equilibrium price
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binding price floor
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occurs when the government sets a required price on a good or goods at a price above equilibrium
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equilibrium price
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where the supply of goods matches demand
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marginal utility of money
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when there's a variance in satisfaction, value or benefit once a good or service is consumed
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price elasticity of demand
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a measurement of the change in the consumption of a product in relation to a change in its price
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if consumption of a good stays the same when price decreases, the following is true of the consumer over the price range
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the consumers demand is price elastic
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improving technology of a good leads to
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increase in supply of the good
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if demand for a product is price elastic, what is true?
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a decrease in the product price will increase the firm's revenue
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if an increase in the price of good X causes a decrease in demand for good Y, good Y is
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a complement to good X
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the price elasticity for product X is equal to -2. the price of product X increases by 10%, what will occur
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the quantity demanded for product X will decrease by 20%
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income effect
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the resultant change in demand for a good or service caused by an increase or decrease in a consumer's purchasing power or real income
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substitution effect
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the decrease in sales for a product that can be attributed to consumers switching to cheaper alternatives when its price rises.
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short run
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some costs of production are fixed
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long run
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all costs are variable
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marginal cost of output
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the additional cost a firm will incur by producing one additional unit of output
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average total cost of a unit
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divide number of units by price of number of units
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market demand curve
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add up two quantities to get the price on two buyers
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marginal revenue is the change in revenue that results in a one unit increase in
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output level
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in the short run, if a product price of a perfectly competitive firm is less than the minimum average variable cost, the firm will
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incur larger losses by continuing to produce than by shutting down
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if a business permit cost increases, what is the effect on a firms short run cost
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marginal cost: no effect | average total cost: increase | average variable cost: no effect
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marginal cost
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the change in total production cost that comes from making or producing one additional unit
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average total cost
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the combination of total fixed and variable costs, which is divided by the total number of units that are produced by the firm.
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Average Variable Cost (AVC)
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total variable costs divided by quantity of output
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what is true of perfectly competitive firms in long run equilibrium
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average total cost it at a minimum
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Constant cost, perfectly competitive industry is a long run equilibrium. a permanent increase in product demand will eventually result in
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an increase in output
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what is true in a perfectly competitive market
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a firm's marginal revenue equals price
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a competitive firm sells a product at $100. at the firm's current rate marginal cost is increasing and is equal to $110. to maximize profits, the firm should change output and price how?
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output: decrease | price: no change
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The typical firm in a monopolistically competitive industry earns zero economic profit in the long run because:
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there is no significant restrictions on entering or exiting the industry
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in the long run, compared with a perfectly competitive firm, a monopolistically competitive firm with the same costs will have
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a higher price and a lower output
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which of the following describes what will happen to market price if firms in an oligopolistic market for a cartel
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price: increase | output: decrease
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imperfectly competitive firms may be allocatively inefficient because they produce at a level of output such that
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price is greater than marginal cost
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in a market economy public goods are unlikely to be provided in sufficient quantity by the private sector because
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the use of public goods cannot be withheld from those who do not pay for them
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Assume that both input and product markets are competitive. If capital is fixed and the product price rises, in the short run firms will increase production by increasing
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labor until the marginal revenue product of labor equals the wage rate
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what is an important attribute of the market economy
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protection of property rights
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if hiring an additional worker would increase a firm's total revenue by less than it would increase it's total revenue, the firm should
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hire that worker
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If a firm wants to produce a given amount of output at the lowest possible cost, it should use each resource in such a manner that
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the marginal products per dollar spent on each resource are equal
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If the firms in an industry polulte the environment and are not charged for the pollution, which of the following is true from the standpoint of the efficient use of resources
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too much of the industry's product is produced, and the price of the product is lower and the marginal social cost
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a firm in monopolisitic competition cannot
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prevent new firms from entering the market
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what is a necessary condition for a firm to engage in price discrimination
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a firm is able to set it's own price
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if total utility is maximized
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marginal utility is equal to zero
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cross-price elasticity of demand
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a measure of how much the quantity demanded of one good responds to a change in the price of another good
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if cross price elasticity is negative
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goods are complements
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if cross price elasticity is positive
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goods are substitutes
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assume that a firm hires workers in a perfectly competitive labor market. as the firm hires additional workers, the marginal factor cost is
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constant
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marginal factor cost
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The incremental costs incurred by employing one additional unit of input
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Marginal Revenue Product
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the marginal revenue created by using one additional unit of resource
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oligpoly
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is a market structure with a small number of firms, none of which can keep the others from having significant influence. The concentration ratio measures the market share of the largest firms.
A monopoly is a market with only one producer, a duopoly has two firms, and an oligopoly consists of two or more firms. There is no precise upper limit to the number of firms in an oligopoly, but the number must be low enough that the actions of one firm significantly influence the others.
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production possibilities curve
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a curve on a graph that illustrates the possible quantities that can be produced of two products if both depend upon the same finite resource for their manufacture.
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what will cause the price of a product to increase
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an increase in the price of a byproduct of the original product
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in long-run equilibrium, the price charged by a monopolistically competitive firm is
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equal to it's average total cost, but greater than it's marginal cost
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derived demand
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a demand for a commodity, service, etc. which is a consequence of the demand for something else.
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economists calls a firms demand for a labor a derived demand because
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the number of workers hired depends mainly on the demand for the product the workers produce
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what is true of a pure public good
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it is difficult to determine a person's marginal valuation of it
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average total cost
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average fixed cost + average variable cost
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a production possibilities curve is typically bowed outward because of the
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law of increasing opportunity costs
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a firm is currently producing at a level of output where marginal cost is increasing and greater than average variable cost, and marginal revenue is greater than marginal cost. to maximize profits the firm should
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increase output
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total variable cost
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the aggregate amount of all variable costs associated with the cost of goods sold in a reporting period
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short-run supply curve
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the individual's marginal cost at all points greater than the minimum average variable cost
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The short-run supply curve for a firm in a perfectly competitive market is
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horizontal at the market price
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average fixed cost
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the fixed cost that does not change with the change in the number of goods and services produced by a company
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short run average total cost
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average fixed costs plus average variable costs
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long run average total cost
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business metric that represents the average cost per unit of output over the long run
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which of the following continuously decreases as the firm's output increases
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average fixed cost
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Lorenz Curve
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studies the inequality in the distribution of income
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demand elasticity
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the extent to which a change in price causes a change in the quantity demanded
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supply elasticity
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responsiveness of quantity supplied to a change in price
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suppose the government decides to impose a 10% tax on all sugar-based beverages. under which of the following scenarios will buyers pay the least amount of this tax
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demand: elastic | supply: inelastic
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demand curve shifts right if
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demand rises
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supply curve shifts right if
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supply increases
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if negative externalities exist in an industry when producing a good, what must be true
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the market price fails to reflect the full cost of production
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downward facing supply curve
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indicates that a greater quantity will be demanded when the price is lower
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what best explains the reason for a downward-sloping demand curve for a product
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the marginal utility decreases as additional units of the product are consumed
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what would lead one to conclude that an electric utility company is a natural monopoly
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economies of scale make it cheaper for a single firm to produce than for multiple firms to produce
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what type of labor market is characterized by a single employer of labor with significant hiring power
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monopsony
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Sam and Ellie are preparing for a party. in one hour, same can make either 4 pizzas or 5 plates of nachos. in the same amount of time ellie can make either 3 pizzas or 4 plates of nachos. what is true?
answer
sam has a comparative advantage in making pizzas
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if a firm is a natural monopoly, which of the following policies could regulators use to make a firm earn normal profit?
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set price equal to average cost
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if the price of an inferior good increases, which of the following represents the direction of change due to the substitution effect and the income effect on quantity demanded
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substitution effect: decreases | income effect: increase
question
if the suppy of workers in a geographic area falls, which will be the most likely effect on the wage rate, number of workers employed, and price of goods produced by the workers
answer
wage rate: increase | number of employed workers: decrease | price of goods: increase
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