econ test 2

Under what conditions would a perfectly competitive cotton farmer who is incurring an economic loss temporarily stay in business?

if the total revenue exceeds the total variable cost

A cost incurred in the production of a good or service and for which the firm does not need to make a direct monetary payment, is referred to as ________ cost.

implicit

Normal profit is a(n) ________ cost because ________.

implicit; it represents the cost of not running another firm

Mark owns a cattle ranch near Hugo, Oklahoma. Mark is currently producing beef at an output level where marginal revenue exceeds marginal cost. In order to maximize his profit, Mark should

increase his output

The marginal cost curve is U-shaped. Over the range of output for which the marginal cost is falling as output increases, the marginal product is

increasing

The firm's supply curve is its

marginal cost curve above the average variable cost curve.

If average variable costs increase as output increases, then

marginal cost must be greater than average variable cost

If marginal cost increases when output increases, then

marginal product must decrease when output increases.

A firm maximizes its profit by producing the amount of output such that

marginal revenue equals marginal cost

The above figure illustrates a perfectly competitive firm. If the market price is $40 a unit, to maximize its profit (or minimize its loss) the firm should

produce 40 units

Bill owns a lawn-care company in Windermere, Florida, Florida, whose cost curves are illustrated in the above figure. The market equilibrium price in this perfectly competitive market equals $32 per lawn mowed. If Bill's average total cost curve is ATC, his total economic ________ equals

profit; $480 per week

The above table shows the total product schedule for Hair Today, a hair styling salon. Based on the table, the marginal product for Hair Today

reaches a maximum with the 3rd worker.

When new firms enter a perfectly competitive market, the market supply curve shifts ________ and the price ________.

rightward; falls

A perfectly competitive firm can

sell all of its output at the prevailing market price

The above figure illustrates a perfectly competitive firm. If the market price is $10 a unit, to maximize its profit (or minimize its loss) the firm should

shut down

Marginal cost equals

the change in total cost that results from a one-unit increase in output.

Marginal revenue is

the change in total revenue from a one-unit increase in the quantity sold.

Total cost includes

the cost of both variable and fixed resources

Which of the following is an example of an implicit cost?

the economic depreciation of capital equipment the business owns

Suppose Pat's Paints is a perfectly competitive firm. If Pat's Paints' marginal revenue equals $5 per can, and Pat decides to sell 100 cans of paint, Pat's total revenue equals

$500

Paulette owns a pizza parlor. Her total cost schedule is in the above table. Her marginal cost of producing the fifth pizza is

$8

Jill runs a factory that makes lie detectors in Little Rock, Arkansas. This month, Jill's 34 workers produced 690 machines. Suppose Jill adds one more worker and, as a result, her factory's output increases to 700. Jill's marginal product of labor from the last worker hired equals ________.

10

The cost that a firm pays in money to hire a resource is referred to as ________ cost.

an explicit

In the long run, perfectly competitive firms produce at the output level that has the minimum

average total cost

A perfectly competitive firm will shut down when the price is just below the minimum point on the

average variable cost curve

The U-shape of the average variable, average total, and marginal cost curves reflects

both increasing and decreasing marginal returns

In the short run, a perfectly competitive firm

can possibly make an economic profit or possibly incur an economic loss.

When a firm adopts new technology, generally its

cost curves shift downward.

A perfectly competitive firm is producing at the quantity where marginal cost is $6 and average total cost is $4. The price of the good is $5. To maximize its profit, this firm should

decrease its output

The corn market is perfectly competitive, with thousands of corn farmers. In the 2000s, the price of corn soared so that new farmers entered the corn market. Initially, entry ________ the economic profit of the initial corn farmers and in the long run the initial corn farmers ________.

decreased; made zero economic profit

As a typical firm increases its output, its marginal cost

decreases at first and then increases.

The short run is the time frame

during which the quantities of some resources are fixed.

A firm's total revenue minus its total opportunity cost is called its

economic profit

Decreasing marginal returns

affect all firms, but at different production levels.

A perfectly competitive firm is producing 50 units of output and selling at the market price of $23. The firm's average total cost is $20. What is the firm's total cost?

$1,000

Anna owns a dog grooming salon in Brunswick, Georgia. The above table has Anna's total product schedule. Anna pays each worker $300 per week and she pays rent of $600 a week for her salon. These are her only costs. When Anna has a staff of 2 workers, her average total cost equals

$12:00

A perfectly competitive firm is producing 50 units of output and selling at the market price of $23. The firm's average total cost is $20. What is the firm's economic profit?

$150

The Jerry-Berry Ice Cream Shoppe's total cost schedule is in the above table. Based on the table, the marginal cost of producing the fourth gallon of ice cream is

$3

The table above shows the total product schedule for The X Firm. Decreasing marginal returns occur with the ________ worker because ________.

5th; the marginal product of labor for the 5th worker is less than the marginal product of the 4th worker

Average total cost is equal to

Answers A and B are correct.

What is the difference between perfect competition and monopolistic competition?

In perfect competition, firms produce identical goods, while in monopolistic competition, firms produce slightly different goods

A market is classified as an oligopoly when

a few firms compete

Keith is a perfectly competitive carnation grower. The market price is $2 per dozen carnations. Keith's average total cost to grow carnations is $2.50 per dozen. In the long run, Keith will

exit the industry if the price and his costs do not change

In the short run, a firm cannot change the amount of capital it uses. Therefore the cost of capital is a

fixed cost

In perfect competition, marginal revenue

is equal to the market price.

If a perfectly competitive firm finds that the price exceeds its ATC, then the firm

is making an economic profit

The long run is a time period that is

long enough to change the size of the firm's plant and all other inputs.

Technological change allows perfectly competitive firms to ________ and leads to ________.

lower their costs; lower prices for consumers

The firm's over-riding objective is to

maximize economic profit

the primary goal of a business is to...

maximize profit

Which of the following market types has the fewest number of firms?

monopoly

When firms in a perfectly competitive market are earning an economic profit, in the long run

new firms will enter the market

In the long run, existing firms exit a perfectly competitive market

only if they incur an economic loss.

In which market structure do firms exist in very large numbers, each firm produces an identical product, and there is freedom of entry and exit?

only perfect competition

When an economist uses the term "cost" referring to a firm, the economist refers to the

opportunity cost of producing a good or service, which includes both implicit and explicit cost.

A perfectly competitive firm will continue to operate in the short run when the market price is below its average total cost if the

price is at least equal to the minimum average variable cost.

To increase its profit, a perfectly competitive firm will produce more output when

price is greater than marginal cost

The total product curve shows the relationship between total product and

the quantity of labor

The Jerry-Berry Ice Cream Shoppe's total cost schedule is in the above table. Based on the table, which of the following is correct?

the total fixed cost is $1

The marginal product of labor is the change in

total output from employing one more worker.

If a perfectly competitive wheat farmer is maximizing its profit and then increases its output, the farmer's

total revenue increases, but total cost rises by more so that the farmer's total profit decreases.

Chuck owns a factory that produces leather footballs. His total fixed cost equaled $86,000 last year. His total cost equaled $286,000 last year. Hence Chuck's

total variable cost equaled $200,000

If a firm does not produce any output, its

total variable cost must be zero.

If a firm in a perfectly competitive market faces an equilibrium price of $5, its marginal revenue

will also be $5

The above figure shows a perfectly competitive firm. If the market price is $5 per unit, the firm

will definitely shut down to minimize its losses

The above figure shows a perfectly competitive firm. If the market price is more than $20 per unit, the firm

will stay open to produce and will make an economic profit

The above figure shows a perfectly competitive firm. If the market price is $20 per unit, the firm

will stay open to produce and will make zero economic profit.

In the long run, a perfectly competitive firm makes

zero economic profit