economics chapter 8

Which of the following best describes perfect competition?

An industry involving a large number of firms producing identical products and in which new firms can enter or exit the industry very easily

A change in a determinant of supply results in a movement along the supply curve.

False

Which of the following best explains why a firm would not stop producing if the loss is less than its fixed costs?

Fixed costs are paid regardless of whether something or nothing is produced, and the firm receives enough revenue per unit to cover AVC and some FC.

______ (Marginal/Total/Average) revenue is the additional revenue that an additional unit of output would add to total revenue.

Marginal

Which of the following best defines economic costs?

The value of all resources used to produce a good or service.

Which of the following reasons could be given as an obstacle for a perfectly competitive firm in entering or exiting an industry?

There are no obstacles.

Select all that apply If property taxes decrease, then (select all that apply):

average total costs decrease. fixed costs decrease.

Surveys indicate that the general public _____ the profit motive.

is suspicious of

The demand curve for a perfectly competitive firm is perfectly horizontal because:

it cannot obtain a higher price by restricting its output, nor does it need to lower its price to increase its sales volume

A firm should not produce a unit of output when the marginal cost is ______ (larger/smaller) than the price of its product.

larger

if the price _____ (more/less) than a firm's minimum average variable cost, the firm will not operate in the short run.

less

A time period during which a firm can adjust the quantities of all the resources that it employs, including plant capacity, is known as the:

long run

Which of the following motivate firms to produce? Select all that apply.

Gaining profits Feeling important Gaining social status

Select all that apply The determinants of a firm's supply include (select all that apply):

Taxes and subsidies Technology The price of factor inputs Expectations

Select all that apply Which of the following factors will alter costs and shift the marginal cost or short-run supply curve to a new location? (Select all that apply.)

Technology Factor prices Expectations

True or false: In general, a producer will want to build, buy, or lease a plant that's the most efficient for the anticipated rate of output.

True

Which of the following best describes why a firm continues to operate even though it incurs an economic loss?

Whenever price exceeds average variable costs but is less than average total costs, the firm can pay part, but not all, its fixed costs by producing.

Select all that apply If property taxes increase, then ______. (Select all that apply.)

average total costs increase fixed costs increase

Marginal revenue is the ______ in total revenue that results from selling one more unit (extra unit) of output. (Place one word in the blank.)

change

The inducement to take on the added responsibilities of owning and operating a business is the potential for _______ profit.

economic

The ______ is the value of all resources used to produce a good or service.

economic cost

Entrepreneurs see economic profit as the extra income over and above the normal ______ payments.

factor

True or false: Profit is the only thing that motivates producers.

false

A firm will not stop producing if the loss is less than its ______ costs.

fixed

The profit motive is viewed negatively by about one in _____ people.

four

Whenever price is ______ than average variable costs but is ______ than average total costs, the firm can pay part of, but not all of, its costs by producing.

greater; less

Because a perfectly competitive firm cannot raise price (it will lose all of its customers if it does) and has no incentive to cut price (it can sell all it wants at the market price), the demand curve it faces is

horizontal

Firms in perfectly competitive markets will have sufficient time to alter their production capacities in the:

long run

_____ cost equals the change in total cost divided by the change in output.

marginal

A firm would not produce a unit of output where ______.

marginal cost exceeds price

A firm that produces the entire market supply of a particular good or service is a(n) _____.

monopoly

When the marginal cost of an additional unit of output exceeds the price, the firm should

not produce that additional unit of output.

An identical product will be produced by which of the following market structures?

perfect competition

A firm's total revenue is calculated as _____ (one word) multiplied by quantity sold.

price

In perfect competition, a firm's total profit is equal to its product _____ minus average total cost, all multiplied by output.

price

In perfectly competitive markets, individual firms do not exert control over ______.

price

A firm should produce if

price is equal to or greater than minimum average variable cost, meaning that the firm is profitable or that losses are less than fixed costs.

Profit is the _____ that flows to the owners of a business.

residual

In part, profit represents compensation for the great _____ someone undertakes in owning or operating a business.

risk

The risks attached to starting and operating a business are

substantial

A perfectly competitive firm is a price _____.

taker

Firms within perfect competition are considered to be price _____ (makers/takers).

takers

Select all that apply The determinants of a firm's supply do not include (select all that apply):

tastes and preferences. demand.

Select all that apply For any firm, the marginal cost equals:

the added cost of producing one more unit of a good. the added variable cost of producing one more unit of a good.

Economic costs are defined as

the value of all resources used in production.

A firm's price multiplied by the quantity of output or goods sold equals:

total revenue

The _____ (short/long) run refers to a period of time too brief for a firm to alter its plant capacity yet long enough to permit a change in the degree to which the fixed plant is used.

short

A period of time too brief for a firm to alter its plant capacity yet long enough to permit a change in the degree to which the plant is used is called the

short run

In general, a producer will want to build, buy, or lease a plant that's the _______ for the anticipated rate of output.

most efficient

In perfect competition, a firm's total profit is equal to:

price minus average total cost, all multiplied by quantity

The difference between total revenue and total cost is

profit

The difference between total revenue and total cost is _____.

profit

A firm should stop producing if its average ______ cost is ______ price.

variable; greater than