Econ 201 WVU exam 3

Temperatures have persisted below freezing levels in Florida throughout the months of December and January. As a result, demand for electricity sharply increased and the price of electricity rose sharply. The price of coal also rose. In these circumstances, any resulting shifts in the supply curves for coal miners and electricity producers

can also be interpreted as shifts of their respective marginal cost curves.

Economic profit can be derived from calculating total revenues minus all of the firm's costs,

including its opportunity costs.

In microeconomics, the term _____________________ is synonymous with economies of scale.

increasing returns to scale

The fact that a consumer is not required to buy the goods that a given firm produces, as well as the fact that the consumer might want the goods a firm produces, but may choose to buy from other firms instead

are two stark realities any business firm must recognize.

If the price that a firm charges is higher than its ________________ cost of production for that quantity produced, then the firm will earn profits.

average

. ____________ tells a firm whether it can earn profits given the price in the market.

average cost

A firm's ___________ consist of expenditures that must be made before production starts that typically, over the short run, _______________ regardless of the level of production.

. fixed costs; do not change,

If accounting profits for a firm are 20% of output, and the opportunity cost of financial capital is 8% of output, then what do the firm's economic profits equal?

12% of output

The term _____________ is used to describe the additional cost of producing one more unit.

Marginal cost

In economics, a firm that faces no competitors is referred to as _________________.

a monopoly

If a firm is producing so that the point chosen along the production possibility frontier is socially preferred, then that firm is said to have reached its

allocative efficiency

If a firm is experiencing _____________________, then as the quantity of output rises, the average cost of production rises.

decreasing returns to scale

Fixed costs are important because, at least in the ___________, the firm _______________.

short run, can't alter them

Whatever the firm's quantity of production, _____________ must exceed total costs if it is to earn a profit.

total revenue

The marginal cost curve is generally ______________, because diminishing marginal returns implies that additional units are ________________________

upward-sloping; more costly to produce

. If a paper mill shuts down its operations for three months so that it produces nothing, its __________________ will be reduced to zero?

variable cost

. ______________ include all of the costs of production that increase with the quantity produced

variable cost

Why are some producers forced to sell their products at the prevailing market price?

they can increase output without affecting quality

I'MaPizzaCo. produces and sells specialty pizzas. Last year, it produced 8,000 mushroom, sausage and spinach pizzas and sold each one for $8. To produce these 8,000 specialty pizzas, the company incurred variable costs of $24,000 and a total cost of $40,000. I'MaPizzaCo's average fixed cost to produce 8,000 specialty pizzas was

2 dollars

An _________________ is calculated by subtracting the firm's costs from its total revenues, _______________________________ .

accounting profit; excluding opportunity cost

. According to the definition of profit, if a profit-maximizing firm will always attempt to produce its desired level of output at the lowest possible cost, then it will

do so regardless of what type of competition exists in a market.

The term __________________ describes a situation where the quantity of output rises, but the average cost of production falls.

economies of scale

When __________________ exist, doubling of all inputs will result in more than doubling output, which means __________________________________________

economies of scale; a larger factory can produce at a lower average cost than a smaller company

A manufacturer would likely make an ___________ in a market following the long-run process of beginning and expanding production in response to ________________ .

entry; a sustained pattern of profits

The term "constant returns to scale" describes a situation where

expanding all inputs does not change the average cost of production

9. In the ________, the perfectly competitive firm will react to profits by __________________________ .

long run; increasing its production

In the ________, the perfectly competitive firm will react to losses by __________________________ .

long run; reducing production or shutting down

Under perfect competition, any profit-maximizing producer faces a market price equal to its

marginal cost

______________________ refers to the additional revenue gained from selling one more unit.

marginal revenue

What happens in a perfectly competitive industry when economic profit is greater than zero?

new firms may enter the industry and all of the above

Marcella operates a small, but very successful art gallery. All but one of the following can be classified as a variable cost arising from the physical inputs Marcella requires to operate her business. Which is it?

physical space for the gallery

If a perfectly competitive firm is a price taker, then

pressure from competing firms will force acceptance of the prevailing market price.

The term _________________ refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product.

price taker

In the _________, the perfectly competitive firm will seek out ________________________ .

short run; the quantity of output where profits are highest

For a perfectly competitive firm, the marginal cost curve is identical to the firm's ________________ .

supply curve

In order to determine the average variable cost, the firm's variable costs are divided by _______________________.

the quantity of output