Econ 202 final

At what price will the firm shown in the accompanying graph make just a normal profit? Graph (Q8 N9)

7

In the long run for a purely competitive market, firms will earn only normal profits. TF

True

Fixed cost is

any cost that does not change when the firm changes its output.

The MR = MC rule

applies both to pure monopoly and pure competition.

Marginal cost can be defined as the

change in total cost resulting from one more unit of production.

Broadly defined, technological advance

comprises new and improved goods and services and/or new and improved ways of producing or distributing them.

The MR = MC rule can be restated for a purely competitive seller as P = MC because

each additional unit of output adds exactly its price to total revenue.

The primary force encouraging the entry of new firms into a purely competitive industry is

economic profits earned by firms already in the industry.

Long-run adjustments in purely competitive markets primarily take the form of

entry or exit of firms in the market.

The corporate decision on type and level of R&D activity is difficult because

expected returns lie in the future and are highly uncertain.

The marginal benefit to a firm from its R&D expenditures is depicted by its

expected-rate-of-return curve.

To the economist, total cost includes

explicit and implicit costs.

Real wages in the United States in the long run

have increased at about the same rate as increases in output per worker.

To economists, the main difference between the short run and the long run is that

in the long run all resources are variable, while in the short run at least one resource is fixed.

U.S. firms collectively devote the largest portion of their total R&D spending to

innovation and diffusion.

A profit-maximizing firm should not undertake an R&D project for which the

interest-rate cost of funds exceeds the expected rate of return.

The diagram shows the average total cost curve for a purely competitive firm. At the long-run equilibrium level of output, this firm's total revenue GRAPH (Q9 N10)

is 400

The modern view of technological advance is that it

is an internal element of capitalism, occurring in response to profit incentives.

The marginal revenue curve of a purely competitive firm

is horizontal at the market price.

The nondiscriminating monopolist's demand curve

is less elastic than a purely competitive firm's demand curve.

The nondiscriminating pure monopolist's demand curve

is the industry demand curve.

As it relates to the R&D decision, the interest-rate cost-of-funds curve

is the marginal cost element in the MB = MC decision framework.

In the short run, the individual competitive firm's supply curve is that segment of the

marginal cost curve lying above the average variable cost curve.

A firm will find it profitable to hire workers up to the point at which their

marginal resource cost is equal to their MRP.

Assuming a competitive resource market, a firm is hiring resources in the profit-maximizing amounts when the

marginal revenue product of each resource is equal to its price.

If a purely competitive firm is producing at the MR = MC output level and earning an economic profit, then

new firms will enter this market.

Pure monopolists may obtain economic profits in the long run because

of barriers to entry.

The total product curve graphically shows how much

output the firm can produce with various quantities of its variable input.

One major barrier to entry under pure monopoly arises from

ownership of essential resources.

Production costs to an economist

reflect opportunity costs.

Long-run competitive equilibrium

results in zero economic profits.

As it relates to R&D, a firm's expected-rate-of-return-curve, r,

slopes downward because the firm arrays, highest to lowest, the rates of return on R&D activities.

Marginal product is

the change in total output attributable to the employment of one more worker.

The marginal revenue product schedule is

the firm's resource demand schedule.

If a variable input is added to some fixed input, beyond some point the resulting extra output will decline. This statement describes

the law of diminishing returns.

In a purely competitive industry,

there may be economic profits in the short run but not in the long run.

The idea of compensating differences is used

to explain wage rate differences based on differing nonmonetary aspects of jobs.

The MR = MC rule applies

to firms in all types of industries.

In a purely competitive labor market, a profit-maximizing firm will hire labor up to the point where the marginal revenue product of labor equals the

wage rate or price of labor.

In the short run, a purely competitive firm that seeks to maximize profit will produce

where total revenue exceeds total cost by the maximum amount.

Which of the following distinguishes the short run from the long run in pure competition?

Firms can enter and exit the market in the long run but not in the short run.

Which of the following will not hold true for a competitive firm in long-run equilibrium?

P equals AFC.

In the graph, unemployment created by the minimum wage is GRAPH (Q12 N 10)

B-A

A pure monopolist will maximize profits by producing at that output where price and marginal cost are equal. TF

False

Pure monopoly is the best market structure for encouraging R&D and innovation. TF

False

Marginal revenue is the addition to total revenue resulting from the sale of one more unit of output. TF

True

The law of diminishing returns explains why short-run marginal cost curves are upsloping. TF

True

The theory that R&D expenditures as a percentage of firms' sales first rise, reach a peak, and then fall with increases in industry concentration is called the inverted-U theory of R&D. TF

True

Variable costs are costs that change directly with output. TF

True

The demand schedule or curve confronted by the individual, purely competitive firm is

perfectly elastic.

Refer to the diagram. To maximize profits or minimize losses, this firm should produce GRAPH (Q10 N 7)

E units and charge price A.

Which is a major criticism of a monopoly as a source of allocative inefficiency?

A monopolist fails to expand output to the level where the consumers' valuation of an additional unit is just equal to its opportunity cost.

If this diagram represents a typical firm in the industry and the firm is producing at the profit-maximizing level of output in the short run, then in the long run we would expect more firms to enter the market. TF Graph (Q9 N8)

True

In the accompanying diagram, at output C, production will result in an economic profit. TF Graph (Q8 N8)

True

Which of the following is not a barrier to entry?

X-inefficiency

A purely competitive seller is

a "price taker."

Pure monopoly refers to

a single firm producing a product for which there are no close substitutes.

Marginal revenue product measures the

amount by which the addition of one more worker increases a firm's total revenue.

When economists say that the demand for labor is a derived demand, they mean that it is

related to the demand for the product or service labor is producing.

The minimum wage in the U.S. is

set at the federal level, but many states set their own minimums that are higher than the federal level.