MICRO EXAM 2

A perfectly competitive firm will earn a profit and will continue producing the profit-maximizing quantity of output in the short run if the price is:

greater than average total cost

In a perfectly competitive industry, the firm's demand curve is:

horizontal

If a perfectly competitive firm is producing a quantity where P > MC, then the firm can increase profit by:

increasing production

(Figure: Total Cost for Tomato Producers) Look at the figure Total Cost for Tomato Producers. The market for tomatoes is perfectly competitive. The market price of a bushel of tomatoes is $14. The farmer's total cost at the profit-maximizing number of bushels is:

56

Figure: A Perfectly Competitive Firm in the Short Run) Look at the figure A Perfectly Competitive Firm in the Short Run. The minimum price that the firm must receive to produce in the short run is:

P

Economic profit may be negative even when accounting profit is positive.

T

T/F: If accounting profit is negative, then economic profit is also negative

T

T/F: Opp. Costs include BOTH explicit and implicit costs

T

economic profit is usually less than accounting profit

T

The demand curve for a monopoly is:

above mr curve

A perfectly competitive industry is said to be efficient because the:

average total cost of production of the industry's output is minimized

Which of the following is MOST likely to cause firms to exit a perfectly competitive industry?

consumer income falls

accounting profit is:

difference between revenue and explicit costs

If firms are taking economic losses in the short run, firms will leave the industry, industry output will _____, and economic losses will _____ in the long run.

fall; fall

Producer surplus is a measure of the satisfaction a consumer derives from consuming a good or service.

false

The GoSports Company is a profit-maximizing firm with a monopoly in the production of school team pennants. The firm sells its pennants for $10 each. We can conclude that GoSports is producing a level of output at which:

marginal cost equals marginal revenue.

In the short run, if P < AVC at the quantity where MR = MC, a perfectly competitive firm produces _____ and takes an economic _____.

no output; loss

Suppose that some firms in a perfectly competitive industry are earning positive economic profits. In the long run, the:

number of firms in industry will increase

If the price is greater than the average variable cost and less than the average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:

produce at an economic loss

When the price of a good changes, the substitution effect is the amount of the:

quantity change due to the fact that the consumer will substitute relatively cheaper goods in place of more expensive ones.

economic profit is

the firms revenue minus the opportunity costs of all resources used

The relationship between the long-run industry supply curve and the short-run industry supply curve is such that

the long-run supply curve is more elastic than the short-run supply curve.