Econ final pt. 2

Greater-than-normal profit represents:

Compensation for risks incurred, Payment for entrepreneurship, Above-average returns to capital.

A market comes close to meeting (but does not perfectly meet) all the assumptions of the theory of perfect competition. It follows that

the theory of perfect competition still may be able to predict behavior in the market.

Which of the following is characteristic of a perfectly competitive market?

zero economic profit in the long run

In the short run, when a firm produces zero output, total cost equals:

zero.

Comparing marginal revenue to marginal cost (i) reveals the contribution of the last unit of production to total profit. (ii) is helpful in making profit-maximizing production decisions. (iii) tells a firm whether its fixed costs are too high.

(i) and (ii) only

The marginal cost curve intersects the minimum of the curve representing:

ATC

In a competitive market, economic profits will:

Attract profit-maximizing entrepreneurs.

Which of the following is a barrier to entry in a monopoly market?

Difficulty in obtaining resources.

What happens in a perfectly competitive industry when economic profit is greater than zero?

Existing firms may get larger, New firms may enter the industry, Firms may move along their LRAC curves to new outputs, There may be pressure on prices to fall.

Which of the following statements is false?

For a price searcher, price equals marginal revenue for all units except the first.

When a firm minimizes its losses in the short run:

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

Economies of scale over the entire range of market output:

Lead to natural monopoly, long-run average total cost curve is downward-sloping, that marginal costs are below average costs.

A perfectly competitive market promotes efficiency by pushing prices to the minimum of:

Long-run ATC.

Total revenue of a competitive firm equals

MR × Q

The entry of additional firms into a market, ceteris paribus:

Shifts the market supply curve to the right, Reduces the equilibrium price, Forces the typical producer to reduce output.

For a perfectly competitive firm in the short run, the profit maximization rule requires:

That price equal marginal cost

For a perfectly competitive firm in the short run, the profit maximization rule requires:

That price equal marginal cost.

Which of the following is true?

The MC curve is eventually upward-sloping.

Which of the following is a short-run decision?

The production decision.

Which of the following statements about a perfectly competitive firm is necessarily false?

There are few substitutes for the firm's product.

Economic losses are a signal to producers that:

They are not using society's scarce resources in the best way.

If a competitive firm's MC is greater than the market price, the firm should

decrease the level of output.

When a firm earns zero economic profit, it has

definitely earned an accounting profit if implicit costs are positive.

Which of the following is not an example of a legal barrier to entry?

exclusive ownership of raw materials

A farmer uses M units of machinery and L hours of labor to produce C tons of corn, with the following production function Q = L^0.5*M^0.75, where "^" is the exponential operator. This production function exhibits

increasing returns to scale

If a factory has a short-run capacity constraint (e.g., an auto plant can only produce 800 cars per day at maximum capacity), the marginal cost of production becomes ________ at the capacity constraint.

infinite

For a monopoly firm, marginal revenue equals marginal cost at 100 units (of output). At 100 units, price is above marginal cost. It follows that the monopoly firm

is not resource-allocative efficient.

In the short run, a perfectly competitive firm earning negative economic profit

is on the upward-sloping portion of its AVC.

In the short run, a perfectly competitive profit maximizing firm that has not shut down

is operating on the upward-sloping portion of its AVC curve.

The perfectly competitive firm will shut down in the short run if price is

less than average variable cost.

The average-marginal rule states that if the marginal magnitude is

less than the average magnitude, the average magnitude falls.

If firms are earning zero economic profits, they must be producing at an output level at which

price equals average total cost.

To maximize profits, a competitive firm will seek to expand output until:

price equals marginal cost

When the perfectly competitive firm produces the quantity of output at which marginal revenue equals marginal cost, it naturally

produces the quantity of output at which marginal cost equals price, since for the perfectly competitive firm price equals marginal revenue.

Which of the following production functions exhibits constant returns to scale?

q = K + L

The short run is the time period in which the amount(s) of

some inputs are fixed

If the law of diminishing returns applies to labor then

the MPP of labor will eventually fall.