ECON EXAM 3

Profit

total revenue minus total cost

Average Variable Cost (AVC)

VC/Q

Total Cost (TC)

FC + VC

At P >_ ATC (truly competitive)

MR= MC

Total Revenue (TR)

Price x Quantity

A long-run supply curve is flatter than a short-run supply curve because a. firms can enter and exit a market more easily in the long run than in the short run. b. long-run supply curves are sometimes downward sloping. c. competitive firms have more control over demand in the long run. d. firms in a competitive market face identical cost structures.

a. firms can enter and exit a market more easily in the long run than in the short run.

Which of the following represents the firm's long-run condition for exiting a market? a. exit if P < MC b. exit if P < FC c. exit if P < ATC d. exit if MR < MC

c. exit if P < ATC

A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will a. fall in the short run. All firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. b. fall in the short run. No firms will shut down, but some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. c. fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. d. not fall in the short run because firms will exit to maintain the price.

c. fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. d. not fall in the short run because firms will exit to maintain the price.

Suppose that a "doggie day care" firm uses only two inputs: hourly workers (labor) and a building (capital). In the short run, the firm most likely considers a. both labor and capital to be fixed. b. both labor and capital to be variable. c. labor to be variable and capital to be fixed. d. capital to be variable and labor to be fixed.

c. labor to be variable and capital to be fixed

When fixed costs are ignored because they are irrelevant to a business's production decision, they are called a. explicit costs. b. implicit costs. c. sunk costs. d. opportunity costs.

c. sunk costs

When price exceeds average variable cost in the short run, a competitive firm's marginal cost curve is regarded as its supply curve because a. the position of the marginal cost curve determines the price for which the firm should sell its product. b. among the various cost curves, the marginal cost curve is the only one that slopes upward. c. the marginal cost curve determines the quantity of output the firm is willing to supply at any price. d. the firm is aware that marginal revenue must exceed marginal cost in order for profit to be maximized.

c. the marginal cost curve determines the quantity of output the firm is willing to supply at any price. d. the firm is aware that marginal revenue must exceed marginal cost in order for profit to be maximized.

The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above average a. fixed cost. b. variable cost. c. total cost. d. revenue.

c. total cost

Grace is a self-employed artist. She can make 20 pieces of pottery per week. She is considering hiring her sister Kate to work for her. Both she and Kate can make 35 pieces of pottery per week. What is Kate's marginal product? a. 55 pieces of pottery b. 35 pieces of pottery c. 22.5 pieces of pottery d. 15 pieces of pottery

d. 15 pieces of pottery

marginal product of labor

the change in output from hiring one additional unit of labor

Marginal Cost (MC)

the change in total costs associated with a one-unit change in output

Marginal Revenue (MR)

the change in total revenue from selling one more unit of a product

Average Total Cost (ATC)

total costs / by quantity