econ

suppose a firm has an annual budget of $200,000 in wages and salaries

$360,000

table 22.1 the accounting profit is equal to

$925

the shutdown point occurs where price is below the minimum of

AVC

Adam is the owner/operator of a flower shop. Last year he earned $250,000 in total revenue. His explicit costs were $175,000 paid to his employees and suppliers (assume that this amount represents the total opportunity cost of these resources). During the year he received three offers to work for other flower shops with the highest offer being $75,000 per year. Which of the following is true about Adam's accounting and economic profit?

Accounting profit = $75,000; economic profit = $0.

refer to figure 22.2 for a perfectly competitive firm. the profit maximizing quantity output is

D ; that's the answer not the answer choice.

in making a production decision, an entrepreneur

Decides what level of output will maximize profits.

When the short-run marginal cost curve is upward-sloping,

Diminishing returns occurs with greater output.

If diminishing returns exist, then

Each unit produced will cost incrementally more to produce

The demand curve confronting a competitive firm is

Horizontal, while market demand is downward-sloping.

For perfectly competitive firms, price

Is equal to marginal revenue.

the marginal cost curve

Is the short-run supply curve for a competitive firm at prices above the AVC curve.

When a firm minimizes its losses in the short run,

It continues to produce only if price exceeds average variable cost.

A competitive firm should always continue to operate in the short run as long as

MR > AVC.

Profit per unit is equal to

P - ATC

a perfectly competitive firm should expand output when

P > MC

A catfish farmer will shut down production when

Price falls below AVC.

A firm experiencing economic losses will still continue to produce output in the short run as long as

Price is above average variable cost.

If price is less than marginal cost, a perfectly competitive firm should decrease output because

The firm is producing units that cost more to produce than the firm receives in revenue, thus reducing profits (or increasing losses).

marginal revenue is the change in

Total revenue when output is changed.

the long run is

a period long enough for all inputs to be variable

Megan used to work at the local pizzeria for $15,000 per year but quit in order to start her own deli. To buy the necessary equipment, she withdrew $20,000 from her inheritance (which paid 8 percent interest). Last year she paid $25,000 for ingredients and $500 per month rent but had revenue of $50,000. She asked her dad the accountant and her mom the economist to calculate her annual profit for her

dad says her profit is $9,000 and mom says she lost $6,000

in making an investment decision, an entrepreneur

decided the level of output to produce

the difference between the total revenue and the total cost curves at a given output is equal to

either profit or losses depending on the curves relative position

in defining economic costs, economists emphasize

explicit and implicit costs while accountants recognize only explicit costs

the demand curve for each perfectly competitive firm is

horizontal

the short run is the time period

in which some costs are fixed

the supply curve is upward sloping because

increasing marginal costs

profit

is the difference between total revenue and total cost

economic profit is

less than accounting profit by the amount of implicit cost

if tesla is thinking about building a new factory, it is making a

long-run decision that may enhance its profit

short-run profits are maximized at the rate of output where

marginal revenue is equal to marginal cost

market structure is determined by the

number and relative size of the firms in an industry

a firms total revenue can be determined by

price times quantity

short-run supply determinants include

technology

refer to figure 22.3 at quantity level B

the company is minimizing loss

normal profit implies that

the factors employed are earning as much as they could in the best alternative employment

refer to figure 22.3 for a perfectly competitive firm

the firm is experiencing economic losses but should continue to produce

A firm maximizes profit when

total revenue exceeds total cost by the greatest amount.

Lashondra is the owner/operator of an interior design firm. Last year she earned $400,000 in total revenue. Her explicit costs were $200,000 (assume that this amount represents the total opportunity cost of these resources). During the year she received offers to work for other design firms. One offer would have paid her $120,000 per year and the other would have paid her $130,000 per year. Lashondra's economic profit is equal to

$70,000

refer to figure 22.3 for a perfectly competitive firm. the law of diminishing returns takes effect at an output of

13

a perfectly competitive firm is a price taker because

the price of the product is determined by many buyers and sellers

competitive firms cannot individually affect market price because

their individual production is insignificant relative to the production of the industry