Econ chapter 15

Malia earns a yearly salary of $130,000 in her job and earns $1,000 per year in interest on her savings. After she quits her job to start a company, she uses all her savings to purchase manufacturing equipment for her company. Given the above information and the data summarizing her first year in business in the table, how much economic profit or loss does Malia earn?

$19,000

What is the profit margin for this firm if it produces a quantity of six?

$7 - $4 = $3

Miller's current job pays $A/yr and provides $B in benefits like insurance. He can start a business using the $C he has in the bank earning 1.2% interest. The start-up would have $X in revenue and cost $Y/yr for rent, payroll, and materials. What would his opportunity costs be if he started this business?

(A + B) + (C × 1.2%)

Based on the figure, which of the following represents the average cost curve for the marginal supplier?

A

Which of the following statements is true?

A firm with economic profits will also have accounting profits.

Jerome's current job pays $X/yr and provides $Y in benefits like insurance. He can start a business using the $Z he has in the bank earning 1.4% interest. The start-up would have $A in revenue and cost $B/yr for rent, payroll, and materials. What would Jerome's economic profit be if he started this business?

A − B − [(X + Y) + (Z × 1.4%)]

In the short run, firms can earn economic profits by charging a price between points _____.

B and C

If the graph is representative of a free-entry market, what behavior can be expected?

Existing firms will exit the market.

Latoya's current job pays $A/yr and provides $B in benefits like insurance. She can start a business using the $C she has in the bank earning 1.2% interest. The start-up would have $X in revenue and cost $Y/yr for rent, payroll, and materials. What would her accounting profit be if she started this business?

X − Y

Abuela's current job pays $A/yr and provides $B in benefits like insurance. She can start a business using the $C she has in the bank earning 1.2% interest. The start-up would have $X in revenue and cost $Y/yr for rent, payroll, and materials. What would her economic profit be if she started this business?

X − Y − [(A + B) + (C × 1.2%)]

Based on the figure, what is the economic profit of a company that is considered a marginal supplier?

Zero

Mario's company definitely has economic losses in which of the following situations?

Total costs exceed total revenue

If the graph is representative of a free-entry market, what behavior can be expected?

New firms will enter the market.

Michelle owns the largest florist shop in her town. Each week, she orders a truckload of flowers from the flower wholesaler. The other two florists in town order only one-third as many flowers. Because Michelle's order fills the delivery truck, the wholesaler sells flowers to her at a lower price than the other florists must pay. How will this situation impact potential new entrants?

New florists will be discouraged from entering the market because of the difficulty of competing on cost.

Which of the following is NOT a strategy used by a company to "lock-in" customers to ensure demand for its product?

Pressuring the government to require a license for entry into the market

Your business's _____ is the _____ divided by the units produced.

average cost; sum of fixed and variable costs Challenge

The toothpaste aisle at a large store that sells personal care products contains many versions of toothpaste produced by a small number of sellers. This indicates that toothpaste producers are engaging in _____ to _____.

brand proliferation; deter new entrants

Because _____ profit is calculated based on _____ costs, it allows firm owners to make better decisions about _____.

economic; total; entering and exiting a market

Markets will _____ until the demand curve just touches the average cost curve.

either expand or contract

Adhika is deciding whether to open a company to produce step stools. He should start the company if he expects that:

his price will exceed his average cost.

The exit of a firm from a market _____ the demand for products from remaining firms, which _____ economic profits.

increases; increases

A business wanting to use supply-side barriers against new rivals entering its market might _____ or _____.

invest in research and development; limit access to key suppliers

If a seller can create switching costs for its product, then:

it is difficult or costly for customers to switch to another seller of the product.

When government regulations are influenced by lobbyists for the producers in a market, the regulations often:

make it more difficult for new producers to enter the market.

The strong incentive of sellers to deter the entry of new sellers is a major reason that:

most markets are imperfectly competitive.

When the typical seller in a market has economic profits, then:

new sellers will enter the market.

Sellers try to avoid the entry of new rivals through the use of demand-side strategies. These demand-side strategies do NOT include:

raising the market demand for the product

All the following are examples of regulatory barriers to entry EXCEPT:

research and development.

Sierra's Sub Shop learns that a rival, Hasana's Hoagies, is thinking of opening a restaurant across town. Sierra had been considering opening a second shop near the site where Hasana might build her restaurant. Sierra _____ build the second shop because it would show commitment to the market and _____ Hasana from entering the market.

should; deter

When firms in a market with free entry and exit experience economic losses, then:

some sellers will exit the market, reducing average seller losses.

When economic profits are negative, _____ says that a firm should shut down or shift to other markets.

the Rational Rule for Exit

As output rises, average fixed costs:

to fall

The average revenue is equal to:

total revenue divided by quantity sold

All the following are examples of demand-side barriers to entry EXCEPT:

brand proliferation.

All the following establish regulatory barriers to entry EXCEPT:

brand proliferation.

If the graph is representative of a free-entry market, what behavior can be expected?

No firms will enter or exit the market.

The highest profit margin occurs where the average cost curve is farthest _____ the _____.

below; demand curve

In the long run, prices are determined by _____.

entry and exit dynamics

The formula for calculating accounting profit is total revenue minus _____ costs.

explicit financial

A business wanting to use supply-side barriers against new rivals entering its market might _____ or _____.

exploit mass production benefits; create relationships with suppliers

The two main types of implicit opportunity costs are:

forgone wages and forgone interest.

To create barriers to free entry in a market, existing firms can employ any of the following strategies EXCEPT:

give their employees a higher wage than competitors (regulatory strategies).

When market leaders produce on a mass scale, new entrants:

have a hard time competing

When new sellers enter a market, existing sellers will:

have less market power.