Micro review

The characteristic that causes firms in a perfectly competitive industry to earn zero economic profits in the long run is

There are no barriers to entry or exit

Which of the following statements about short-run costs is true?

Total fixed cost plus total variable cost equals total cost

monopoly's total revenue

Total revenue = price times quantity

If a perfectly competitive firm is producing where marginal cost is rising and greater than marginal revenue, to maximize profits it should

decrease the level of production

The most profitable level of output for any firm operating in the short run is the level of output at which

marginal revenue equals marginal cost

Barriers to entry in a monopoly

monopoly resources, government regulation, production process

If the marginal cost of producing the first unit of some good is $20 and the marginal cost of producing the second unit is $30, the average variable cost of producing 2 units is

$25

The table below is partially filled in with the different types of costs for a firm. Based on the information in the table, what is the marginal cost of producing the second unit? Quality Variable Cost. Fixed Cost Total Cost ATC 0. $0. $60 1. $130 2. $90

$50

A firm produces 400 books and sells each book for $15. If the explicit cost of producing the books is $4,500 and the implicit cost is $1,000, the firm's economic profit is

$500

The table above shows a firm's total cost of producing various units of output. What is the average variable cost of producing three units? Quantity: 0 1 2 3 4 Total Cost: $30 $40 $47 $51 $59

$7

Ryan quit a job with a daily salary and opened a business. On a daily basis, the total revenue of the business is , and the explicit costs of the business are . If Ryan has zero economic profits, what must be the value of Ryan's implicit costs?

$80

Monopoly

- Charges a price that exceeds marginal cost -A high price reduces the quantity purchased

Monopoly pt.2

-Firm that is the sole seller of a product without close substitutes -Price maker -Cause: barriers to entry

Profit maximization

-If MR > MC: increase production -If MC > MR: produce less

Increase in quantity sold

-Output effect •Q is higher: increase total revenue -Price effect •P is lower: decrease total revenue

Competitive firm

-Price taker -One producer of many -Demand is a horizontal line (Price)

monopoly's average revenue

-Revenue per unit sold -Total revenue divided by quantity -Always equals the price

Which of the following statements regarding accounting profits, opportunity costs, and economic profits is true?

Accounting profits are equal to economic profits minus opportunity costs

When output is 3 units, which of the following is correct? Output. TVC. TFC 0. 0. 9 1. 3. 9 2. 8. 9 3. 15. 9 4. 26. 9 5. 38. 9

Average variable cost: 5 Marginal cost: 7

Suppose that price in a perfectly competitive industry decreases and it is now below minimum average total cost but remains above minimum average variable cost. Which of the following will occur in the short run?

Firms will produce the output at which marginal cost equals the new price. As long as you can produce (P is greater than or equal to minimum AVC), you will produce the output at which MC equals MR (which is P in perfect competition).

The graph above shows the short-run cost curves of a firm in a perfectly competitive market. Which of the following are true at the firm's profit-maximizing output level? I. Price exceeds average total cost. II. Economic profits are zero. III. Marginal cost equals average total cost. IV. New firms are likely to enter the market in the long run.

I and IV only

At a perfectly competitive firm's current output level, average total cost is $15, average variable cost is $10, and marginal cost is $8 and increasing. If the product price is $15, what should this firm do to maximize profits?

Increase the quantity of output produced.

Which of the following is true about the marginal revenue of a firm in a perfectly competitive industry?

It is constant.

Assume that the fixed cost is $50. Based on the cost and output data in the table above, what is the marginal cost when the firm increases its output from three to four units and the average total cost of producing 4 units? Quantity of Output: 0 1 2 3 4 5 Total Variable Cost: $0 $40 $50 $65 $90

Marginal Cost: 25 Average Total Cost: 35

Which of the following MUST be true of the long run?

Marginal costs are constant.

In the absence of barriers to entry, a typical firm is currently in long-run equilibrium. Assume there is an increase in the market demand for the good that the firm is producing. Which of the following will happen in the long run?

New firms will enter the market.

Reff Corp is a firm with total revenue of $1,000, marginal cost of $5, and average variable cost of $4. Both the output and the input markets are perfectly competitive, and Reff Corp is currently in long-run equilibrium. Reff Corp's output and total fixed cost of production must be equal to which of the following?

Output: 200 Fixed Cost: 20p

monopoly's marginal revenue

Revenue per each additional unit of output •Change in total revenue when output increases by 1 unit

monopoly's profit

TR - TC = (P - ATC) ˣ Q

Assume that a profit-maximizing, perfectly competitive firm has economic losses in the short run. If the firm continues to produce and sell its goods, then which of the following must be true?

The firm is covering all of its variable costs but not all of its fixed costs of production.

In the short run, which of the following must be true for a perfectly competitive firm that is maximizing profits?

The firm will produce where as long as is greater than average variable cost.

Most economists argue that a monopoly is inefficient because it

produces too little output and sets a price above marginal cost

In the short run, a firm in a perfectly competitive industry will definitely

shut down if total revenue is less than total variable cost

What area shows consumer surplus

the area below the downward-sloping demand curve, or the amount a consumer is willing to spend for given quantities of a good, and above the actual market price of the good, depicted with a horizontal line drawn between the y-axis and demand curve.

Short-run supply curve included what

the individual's marginal cost at all points greater than the minimum average variable cost. It holds true because a firm will not produce if the market price is lesser than the shut-down price.

MR < P

•Downward-sloping demand •To increase the amount sold, a monopoly firm must lower the price it charges to all customers

Maximize profit

•Produce quantity where MR=MC •Intersection of the marginal-revenue curve and the marginal-cost curve •Price: on the demand curve