My Econ Lab Test #3
Ernie's Earmuffs produces 200 earmuffs per year at a total cost of $2,000 and $400 of this cost is fixed. What is Ernie's average total cost?
$2,000/200= $10
The table shows some of the costs for a perfectly competitive firm. The firm will produce 9 units of output if the price per unit is
$200?
A company could produce 99 units of a good for $316 or produce 100 units of the same good for $320. The marginal cost of the 100th unit
$4.00 (320-316)/(100-99)
If the firm sells 5 units of output (each unit costing $15), its total revenue is
$75
Tammy sells woolen hats in a perfectly competitive market. The marginal cost of producing 1 hat is $24. The marginal cost of producing a second hat is $26 and the marginal cost of producing a third hat is $28. The market price of a hat is $26. To maximize profit, Tammy produces ________ a day.
2 hats
Perfect competition implies that
A. There are many firms in the industry. B. All firms are producing the same identical product. C. All firms are price takers.
An example of a variable resource in the short run is
An employee
A perfectly competitive firm's short−run supply curve is the same as its
MC curve above the minimum of the AVC curve.
Which of the following is always true for a perfectly competitive firm?
P = MR
An example of a perfectly competitive industry is
The market for corn in the United States. An oat farmer in the United States.
The LRAC curve generally is
U-shaped
The law of diminishing returns states that as
a firm uses more of a variable input, given the quantity of fixed inputs, the marginal product of the variable input eventually diminishes.
Kansas Power and Light, the only supplier of electricity in Kansas, is an example of a firm in what type of market?
a monopoly market
A market with the characteristics of many firms selling an identical product, many buyers, and no restrictions on entry or exit to the market is
a perfectly competitive market
The market for wheat is an example of
a perfectly competitive market
The section of the marginal cost curve that lies above the average variable cost curve is
a perfectly competitive firm's supply curve.
In perfect competition, each individual firm faces ________ demand curve.
a perfectly elastic
A firm's long−run average cost curve is derived from
a series of short−run average cost curves.
The short−run supply curve for a perfectly competitive firm is its marginal cost curve
above its shutdown point.
The long run is a period of time in which
all factors of production are variable.
In perfect competition,
all firms in the market sell their product at the same price.
As output increases, average fixed cost
always decreases
The air travel market, which is dominated by a few large firms, is an example of
an oligopolistic market.
Economists define the short run as a period of time so short that
at least one factor of production cannot be varied.
The short- run supply curve for a perfectly competitive firm is its marginal cost curve above the minimum point on the
average variable cost curve.
The owners will shut down a perfectly competitive firm if the price of its good falls below its minimum
average variable cost.
Under oligopoly, there are ________ firms selling products that are ________
a few; either identical or different
A firm's average total cost is $80, its average variable cost is $75, and its output is 50 units. Its total fixed cost is
between $200 and $300.
In the long run, a firm can vary
both its labor and its capital.
An example of a short−run fixed factor of production is
capital equipment
The marginal product of labor is the
change in output resulting from a one−unit increase in labor
A perfectly competitive firm maximizes its profit by
choosing to produce the quantity that sets MC equal to MR.
The largest share of the U.S. private economy is
competitive or monopolistically competitive.
Farmer Seth has a perfectly flat long−run average total cost curve over the range of output from 10,000 bushels of wheat to 100,000 bushels of wheat. Hence, over this range of output, Farmer Seth definitely experiences
constant returns to scale.
Total fixed cost is the sum of all
costs of the firm's fixed inputs.
In perfect competition, an individual firm
determines the quantity it sells in the marketplace but has no influence over its price.
When long-run average cost increases as output increases there are
diseconomies of scale.
Total fixed cost
does not change as output changes.
If the price exceeds the average variable cost, by producing the level of output such that marginal revenue equals marginal cost, the firm ensures that it will
earn the largest profit possible.
A perfectly competitive industry is characterized by
easy entry into the industry.
When long−run average costs decrease as output increases, there are
economies of scale
Electric utility companies have built larger and larger electric generating stations and, as a result, the long−run average cost of producing each kilowatt hour decreased. This is an example of
economies of scale.
A firm experiences ________ when its ________ downward at larger outputs.
economies of scale; long−run average cost curve slopes
In perfect competition, the marginal revenue of an individual firm
equals the price of the product
Which type of cost is does not change as the quantity of output produced changes?
fixed cost
The costs incurred even when no output is produced are called
fixed costs.
A common source of diseconomies of scale is the
growing complexity of management and organizational structure.
A firm has fixed costs
in the short run but not in the long run.
The marginal product of labor is equal to the
increase in the total product that results from hiring one more worker with all other inputs remaining the same
One reason for diseconomies of scale is that, at very large scales, management systems can become
increasingly complex and inefficient.
The long run
is a period of time in which all factors of production can be varied. is different for different firms.
In perfect competition, each firm ________.
is a price taker
In perfect competition, the firm's marginal revenue curve
is the same as its demand curve.
In perfect competition, the market demand for the good ________ perfectly elastic and the demand for the output of one firm ________ perfectly elastic.
is not; is
A perfectly competitive firm shuts down if the price of its product is
less than its minimum average variable cost.
A period of time in which the quantity of all factors of production used by a firm can be varied is called the
long run
Diseconomies of scale definitely means that as the firm increases its output, its
long-run average total cost increases.
When a firm experiences economies of scale, its ________ cost curve slopes ________.
long-run average; downward
In perfect competition, there are
many firms, each selling an identical product Perfect competition arises when there are many firms, each selling an identical product, many buyers, and no restrictions on the entry of new firms into the industry. The many firms and buyers are all well informed about the prices of the products of each firm in the industry. The worldwide markets for corn, rice, and other grain crops are examples of perfect competition.
The firm's supply curve is its
marginal cost curve, at all points above the minimum average variable cost curve.
"Diminishing marginal returns" refer to a situation in which the
marginal product of the last worker hired is less than the marginal product of the previous worker hired.
At that amount of output where diminishing marginal returns first sets in,
marginal product will begin to decline.
In perfect competition, at all levels of output the market price is the same as the firm's ________.
marginal revenue
A perfectly competitive firm's economic profit is maximized by producing the amount of output such that
marginal revenue equals marginal cost.
A perfectly competitive firm maximizes its economic profit if it produces so that
marginal revenue = marginal cost.
A market structure in which many firms compete by making similar but slightly different products is called
monopolistic competition
Under ________, there are many firms selling slightly different products.
monopolistic competition
Which market type has characteristics as follows: large number of firms, differentiated product?
monopolistic competition
In a given market, a large number of firms sell a similar product. Consumers think that each firm's product is somewhat different from that of its competitors. This market is
monopolistically competitive.
A market structure in which one firm produces a good or service that has no close substitutes is called
monopoly
Which market type has characteristics as follows: one firm, good or service produced has no close substitutes, barriers to entry prevent new firms from entering into the industry?
monopoly
In the long run, a firm has
no factors of production that are fixed.
In the short run
no firm experiences economies of scale.
A market structure in which a small number of firms compete is called
oligopoly
The marginal product of labor is the increase in total product from a
one unit increase in the quantity of labor, while holding the quantity of capital constant.
A market structure in which many firms are selling an identical product is called
perfect competition
A perfectly competitive firm will shut down rather than produce if its
price is less than average variable cost.
When long-run average cost remains constant as output increases there are constant
returns to scale
When the demand for electricity peaks during the hottest days of summer, Florida Power and Light Company can generate more electricity by using more fuel and increasing the working hours of many of its employees. The company cannot, however, increase electric power production by building additional generating capacity. This means that the company is in the
short run
If the price of its product falls below the minimum point on the AVC curve, the best a perfectly competitive firm can do is to
shut down and incur an economic loss equal to its total fixed cost.
Total cost is equal to the
sum of the total fixed cost and the total variable cost.
In perfect competition, the price of the product is determined where the market
supply curve and market demand curve intersect.
A firm's long−run average cost curve
tells the firm which plant size to use and which quantity of labor to use to minimize the cost of producing any level of output. Shows the lowest attainable average total cost of producing any level of output when capital and labor are variable. Is U−shaped.
A firm's total fixed cost (TFC) is defined as a cost
that does not change as output changes.
When a firm is experiencing economies of scale,
the LRAC curve slopes downward.
Marginal cost is equal to
the change in total cost divided by the change in quantity.
Marginal revenue is defined as
the change in total revenue that results from a one−unit increase in the quantity sold.
Economies of scale refer to the range of output over which
the long-run average cost falls as output increases.
"Diseconomies of scale" occur in
the long run, but not the short run.
A perfectly competitive firm will operate and incur an economic loss in the short run if
the loss is smaller than its total fixed costs.
A company could produce 100 units of a good for $320 or produce 101 units of the same good for $324. The $4 difference in costs is
the marginal cost of producing the 101st unit.
The long run is a time frame in which
the quantities of all resources can be varied.
The short run is a period of time in which
the quantities of some (at least one) resources the firm uses (factor of production) are fixed.
Economies to scale refer to
the range of output over which the long-run average cost falls as output increases.
In perfect competition, ________.
there are many firms that sell identical products
A firm that shuts down and produces no output incurs a loss equal to its
total fixed costs.
Average total costs are total costs divided by
total output
A firm's total cost (TC) equals the sum of its fixed cost plus its
variable cost.
In the above table, if the quantity sold by the firm rises from 5 to 6 ($15 dollars per unit), its marginal revenue is
$15
Ernie's Earmuffs produces 200 earmuffs per year at a total cost of $2,000 and $400 of this cost is fixed. What is Ernie's total variable cost?
2,00-400= $1,600
Marginal cost is the increase in total ________ that results from a one−unit increase in ________.
cost; output
Firms in perfectly competitive industries have a ________ individual demand curve when the price is on the vertical axis and the quantity is on the horizontal axis. The shape of the curve is result of the firm being a ________.
horizontal; price taker