ECON110 TEST 3

Implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do

A difference between explicit and implicit costs is that

Is not likely to be concerned with entrants eroding its monopoly power, is taking advantage of economies of scale, would experience a higher average total cost if more firms entered the market

A firm that is a natural monopoly

Variable costs

A firm will shut down in the short run if total revenue that it would get from producing and selling its output is less than its

It's losses exceed its fixed costs, it's total revenue is less than its variable costs, the price of its product is less than its average variable cost

A firm will shut down in the short run if, for all positive levels of output,

$13,000

A monopoly firm maximizes its profit by producing Q=500 units of output. At that level of output, its marginal revenue is $30, it's price is $60, and its average total cost is $34. What is the monopoly's profit?

Price is grater than the minimum average variable cost

A perfectly competitive firm will continue to operate in the short run when the market price is below its average total cost if the

How a firm turns input into output

A production function describes

Quantity of output

A production function is a relationship between inputs and

Sell all he wants at the going price, so he has little reason to charge less.

A seller in a competitive market can

The cost of space in your home used for a home office or home business

An example of an implicit cost of production would be

Implicit costs

As a general rule, when accountants calculate profit they account for explicit costs but usually ignore

Fall

As output increases in the short run, average fixed costs

Average fixed costs are declining pulling ATC downward and average variable costs are rising pulling ATC upwards

Average total costs cost is generally U-shaped because

Operate his business as long as he rents at least 1 boat per month

Bill operates a boat rental business in a competitive industry. He owns 10 boats and pays $1000 per month on the loan that he took out to buy them. He rents each boat for $200 a month. The variable cost for each boat rental is $50. In the off season, Bill should

P=$300 and Q=800

Consider the market for ionic air purifiers. The demand equation is Qd=2000-4P and the supply equation is Qs=-1000+6P. What is the market equilibrium price and quantity?

Output per additional worker declines as more workers are hired

Diminishing marginal product of labor holds that

Average total costs rise as output increases

Diseconomies of scale occur in the long run when

Opportunity cost of producing goods and services

Economic profit is equal to total revenue minus the

Long-run average total costs are decreasing as output increases

Economies of scale occur when a firms

Profits

Economists assume that the goal of the firm is to maximize total

Maximize its profit

Economists normally assume that the goal of a firm is to

Average revenue equals marginal revenue

For a competitive firm,

The $30,000 salary paid to the company bookkeeper

For a construction company that builds houses, which of the following would be a fixed cost?

The cost of steel that is used in producing automobiles

For a large firm that produces and sells automobiles, which of the following costs would be a variable cost?

Price never equals marginal revenue, never exceeds average revenue, and no price-quantity combination will maximize profit.

For a monopoly firm,

To sell more units of output, the price must be lowered.

For a monopoly, why is marginal revenue less than price?

$100

If Kevin's children run a lemonade stand for a day and sell 200 glasses of lemonade at $.50 each, their total revenues is

Decreasing output will increase the firms profit

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then

A one-unit increase in output will increase the firm's profit

If a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost, then

It's average total cost is less than $10

If a competitive firm is selling 900 units of its product at a price of $10 per unit and earning a positive profit, then

Marginal revenue must decrease

If a monopoly lowers its price, its

$630

If a perfectly competitive firm produces 70 units of a good and has marginal revenue $9, what is the firms total revenue?

The output it sells will decrease to zero

If a perfectly competitive firm raised the price of its product

Less than average total cost

If average total costs are declining, marginal cost must be

New firms will enter the market in the long run and the demand curve for existing firms will shift to the left, causing prices and profits to fall

If firms in a monopolistically competitive market are earning positive economic profits in the short run, then

Have a negligible impact on the market price

In a competitive market, the actions of any single buyer or seller will

The best strategy for a player to follow, regardless of the strategies followed by others.

In a game, a dominant strategy is, by definition,

Identical or the same as another farmers wheat

In a perfectly competitive market, one farmers wheat is

More elastic

In comparison to a monopoly, the demand curve for a monopolistically competitive firm is

Will earn zero economic profits but positive accounting profits

In the long run, assuming that the owner of a firm in a competitive industry has positive opportunity costs, she

Zero economic profits

In the long run, each firm in a competitive industry earns

Fixed costs

Some costs do not vary with the quantity of output produced. Those costs are called

Make fewer than 20 wedding cakes per month.

Laura is a gourmet chef who runs a small catering business in a competitive industry. Laura specializes in making wedding cakes. Laura sells 20 wedding cakes per month. Her monthly total revenue is $5,000. The marginal cost of making a wedding cake is $300. In order to maximize profits, Laura should

Change in total cost divided by change in quantity produced and change in the variable cost divided by change in the quantity produced

Marginal cost equals

The amount total cost changes when output changes by one unit

Marginal costs tell us

There are no barriers to entry, marginal revenue is less than price

Monopolistic competition is similar to perfect competition because __________ and also similar to a monopoly because ________

Continue to operate in both the short and long run

Mrs. Smith operates a business in a competitive market. The current market price is $8.50 At her profit-maximizing level of production, the average variable cost is $8, and the average total cost is $8.25. Mrs. Smith should

Horizontal demand curves and they can sell as much output as they want at the market price

Perfectly competitive firms have

Marginal revenue and price

Perfectly competitive firms maximize profits when marginal costs equals

Increase the firms profit by $1

Suppose a certain competitive firm is producing Q=500 units of output. The marginal cost of the 500th unit is $17, and the average total cost of producing 500 units is $12. The firm sells its output for $20. If the marginal cost of producing the 501st unit would be $19, producing and selling the 501st unit would

$32

Suppose a firm in a competitive market produces and sells 8 units of output and has a marginal revenue of $8. What would be the firms total revenue if it instead produced and sold 4 units of output?

$50

Suppose a monopolist charges a price of $27 for its product and sells 10 units at that price. At 10 units of production the firm has average fixed cost equal to $10 and average variable cost equal to $12. How much total profit is the firm earning at this price?

Less market power than it would otherwise

Suppose most people regard emeralds, rubies, and sapphires as close substitutes for diamonds. The DeBeers, a large diamond company, has

(i) and (iii) only

Suppose that a firm operating in perfectly competitive market sells 400 units of output at a price of $4 each. Which of the following statements is correct? (i) Marginal revenue equals $4. (ii) Average revenue equals $100. (iii) Total revenue equals $1,600.

New firms will enter the market, shifting the market supply curve to the right

Suppose that a perfectly competitive market is in the short-run with firms earning positive economic profit. What change is most likely to occur in this market in the long run?

$60

Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that when the firm hires 2 workers, the total cost of production is $100. When the firm hires 3 workers, the total cost of production is $120. In addition, assume that the variable cost per unit of labor is the same regardless of the number of units of labor that are hired. What is the firm's fixed cost?

Exactly $2.50

Suppose that in a competitive market the equilibrium price is $2.50. What is the marginal revenue for the last unit sold by the typical firm in this market?

Cause the market supply to decline and the price of organic produce to rise

Suppose that the organic-produce industry is composed of a large number of small firms. In recent years, these firms have suffered economic losses, and many sellers have left the industry. Economic theory suggests that these conditions will

$32,500

The Carolina Christmas Tree Corporation grows and sells 500 Christmas trees. The average cost of production per tree is $50. Each tree sells for a price of $65. The Carolina Christmas Tree Corporation's total revenues are

$20

The Wacky Widget company has total fixed costs of $100,000 per year. The firm's average variable cost is $10 for 10,000 widgets. At that level of output, the firm's average total costs equal

Total Revenue

The amount of money that a firm receives from the sale of its output is called

The natural monopoly has falling ATC over the relevant range of output

The defining characteristic of a natural monopoly is

Decrease market supply and increase market price

The exit of firms from a perfectly competitive market will

Marginal revenue equals marginal cost

The firm will make the most profits if it produces that quantity of outputs for which

Increases by $7.95

The information below applies to a competitive firm that sells its output for $40 per unit. • When the firm produces and sells 150 units of output, its average total cost is $24.50. • When the firm produces and sells 151 units of output, its average total cost is $24.55. When the firm increases its output from 150 units to 151 units, its profit

When all of the firms inputs are variable

The long run in a time period is that is

Is the portion of it's marginal cost curve that lies above its average total cost

The long-run supply curve for a firm in a perfectly competitive market

The portion of its marginal cost curve that lies about its average variable cost

The short-run supply curve for a firm in a perfectly competitive market is

Average total cost

To determine whether a monopoly is earning an economic profit at a particular level of output, we compare price with

$110

Tom's Tent Company has total fixed costs of $300,000 per year. The firms average variable cost is $80 for 10,000 tents. At that level of output, the firms average total costs equal

Accounting profits

Total revenue minus explicit costs is called

Produces a lower output and charges a higher price

Unlike a perfectly competitive market, a monopoly creates a deadweight loss because it

Produce fewer skateboards

When Zumies produces 10 skateboards a week, the marginal cost of the 10th skateboard is $84 and the marginal revenue of that skateboard is $70. What would you advise Zumies to do?

Willingness to pay for a movie ticket

When a movie theater price discriminates by offering a student discount, the movie theater is discriminating based on the students

Fixed costs are sunk in the short run and if revenue exceeds variable cost, the restaurant owner is making a smart decision to remain open for lunch

When a restaurant stays open for lunch service even though few customers patronize the restaurant for lunch, which of the following principles are best demonstrated?

Raise the profits of the firms that remain in the market

When firms have an incentive to exit a competitive market, their exit will

Average total cost is falling

When marginal cost is less than average total costs,

Shut down

When total revenue is less that variable costs , a firm in a competitive market will

As the quantity of output increases, marginal cost eventually rises.

Which of the following about costs is correct?

Accounting profit=total revenue-explicit costs

Which of the following expressions is correct?

A technological advance resulting in increased productivity

Which of the following factors is most likely to shift IBM's total cost and marginal cost curves downward?

profit = (price - average total cost) × quantity

Which of the following formulas would correctly calculate a monopolist's profit?

Pepsi

Which of the following goods would be considered to be in a monopolistically competitive market?

Cooperation among cartel members is difficult to maintain because members have an incentive to cheat on other members of the group

Which of the following is a characteristic of a cartel?

Buyers and sellers are price takers

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

Forgone rent on office space owned and used by the firm

Which of the following is an example of an implicit cost?

Monthly wage payments for hired labor

Which of the following is the best example of a variable cost?

Economic profit is zero because marginal revenue equals the minimum ATC

Which of the following is true in the long-run equilibrium under perfect competition?

A monopoly firm has no supply curve and its marginal revenue is never greater than the price

Which of the following statements is true?

More firms will enter the market

Willie's Wading Adventures sells hip waders for fishing and duck hunting in a perfectly competitive market. If hip waders sell for $100 each and average total cost per unit is $95 at the profit maximizing output level, then in the long run