Chapter 7 and 8

The long-run average total cost curve is unique because

it allows all factors of production to change.

The difference between Economic profit & Accounting profit is & Economic Profit = Total Revenue - Explicit cost - Implicit cost

-Economic profit incorporates implicit costs into the cost models when calculating profit -Accounting profit = Total Revenue - Explicit cost -Accounting profit can overstate the profits if the business owner has spent a lot of money on implicit costs for the business

In the market structure of perfect competition, if firms are making profits within an industry, in the long-run we would expect to see

-More firms enter the industry -The market price of the product will decrease until it reaches long-run equilibrium -The quantity produced by each individual firm will decrease and the total amount produced in the market increases

In Economics, the Short run is

A time horizon within which output can be adjusted only by changing the amounts of variable inputs used while fixed inputs remain unchanged; At least one cost is a fixed cost

____________________________ occur when the marginal gain in output (quantity produced) diminishes as each additional unit of variable input is added.

Diminishing marginal returns

_____________ is calculated by taking the quantity of everything that is sold and multiplying it by the price it was sold at.

Total revenue

True or False: A market with only a few sellers is known as a monopoly.

False

Which of the following is an assumption regarding costs in perfect competition?

Firms exhaust economies of scale at a low level of output.

Variable inputs are

Inputs that can be varied within a short time in order to increase or decrease output

Fixed inputs are

Inputs that cannot be increased or decreased in a short time in order to increase or decrease output

Within a perfectly competitive market structure: The demand curve for an individual firm ___________ & the demand curve for a the market as a whole ___________ .

Is horizontal; slopes downward and to the right

Which of the following are in perfect competition?

Many small firms selling a homogeneous product.

________________________ arises where many firms are competing in a market to sell differentiated products.

Monopolistic competition

A market in which there is more than one firm, but not very many (a few), is known as

Oligopoly

True or False: A perfect competitor may sometimes continue to operate in the short run even if its total costs exceed its total revenue.

True

True or False: A perfect competitor will have an incentive to shut down in the short run if its average variable costs exceed the price that the product is sold for.

True

True or False: Economists assume that under perfect competition all firms in the market have access to the same technology and know where to buy inputs at the same prices.

True

True or False: For perfectly competitive firm to be in long run equilibrium, the firm will produce at the minimum of the long run average total cost curve.

True

True or False: In long run equilibrium, a perfectly competitive firm earns no economic profit.

True

True or False: Perfectly competitive firms are price takers?

True

True or False: The market supply curve is based on the sum of the marginal cost curves for the individual perfect competitors.

True

rue or False: Oligopoly is characterized by a few large firms with some barriers to entry.

True

In economics, a firm that faces no competitors is referred to as

a monopoly

In order to determine ____________, the firm's total costs must be divided by the output.

average total cost

The term __________________ describes a situation where in the long-run, the quantity of output rises yet the average cost of production falls.

economies of scale

The amount spent on wages for the employees is an

explicit cost

The cost for the delivery truck is an

explicit cost

The rent for the store is an

explicit cost

The mortgage on the factory is a

fixed costs

The payment for the input of raw materials is usually a

fixed costs

A firm's ___________ consist of expenditures that must be made before production starts that typically, over the short run, ______________, regardless of the level of production.

fixed costs; do not change

The sacrificed $3,000 in interest that the business owner gave up when he removed $100K from his bank to start the business is an

implicit cost

The sacrificed wage that the business owner cannot earn from their old job because they have started a new full-time business is an

implicit cost

The term _____________ is used to describe the additional cost of producing one more unit.

marginal cost

In the short run, the perfectly competitive firm maximizes profits by producing the quantity for which

marginal revenue equals marginal cost.

When the market structure is one of perfect competition,

marginal revenue is equal to the price of the product.

Fixed costs are important because, at least in the ___________, the firm _______________.

short run; cannot alter them

Whatever the firm's quantity of production, _____________ must exceed total costs if it is to earn a profit.

total revenue