ECON chapter 8 quiz

Fixed costs

Are constant in the short run.

implicit costs

Are the costs to produce a good or service for which no direct payment is made.

explicit costs

Are the sum of actual monetary payments made for resources used to produce a good.

If a perfectly competitive firm wanted to maximize its total revenues, it would produce

As much as it is capable of producing.

If a perfectly competitive firm is producing a rate of output at which MC exceeds price, then the firm

Can increase its profit by decreasing output.

A firm that makes zero economic profits

Covers all its costs, including a provision for normal profit.

Normal profit

Covers the full opportunity cost of the resources used by the firm.

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.

Accounting costs and economic costs differ because

Economic costs include the opportunity costs of all resources used, while accounting costs include actual dollar outlays.

In defining economic costs, economists emphasize

Explicit and implicit costs while accountants recognize only explicit costs.

The demand curve confronting a competitive firm is

Horizontal, while market demand is downward-sloping.

The short run is the time period

In which some costs are fixed.

A competitive firm

Is a price taker.

For perfectly competitive firms, price

Is equal to marginal revenue.

Economic profit is

Less than accounting profit by the amount of implicit cost.

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

Marginal revenue is equal to marginal cost.

All of the following are ways a business can earn economic profits except

Maximize implicit costs but not explicit costs.

In which of the following types of markets does a single firm have the most market power?

Monopoly.

Market structure is determined by the

Number and relative size of the firms in an industry.

If the equilibrium price in a perfectly competitive market for walnuts is $4.99 per pound, then an individual firm in this market can

Sell an additional pound of walnuts at $4.99.

The market price for T-shirts sold in a perfectly competitive market is determined by

Supply and demand.

Which of the following is the best explanation for why individuals own small businesses?

The expectation of profit.

Normal profit implies that

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

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).

Competitive firms cannot individually affect market price because

Their individual production is insignificant relative to the production of the industry.

Perfect competition is a situation in which

There are many firms and no buyer or seller has market power.

A firm maximizes total profit when

Total revenue exceeds total cost by the greatest amount.

Economic profit is the difference between

Total revenues and total economic costs.

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

total profit