Econ test 2

Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were

$200,000 and its economic profits were $0.

In the short run, a purely competitive firm will always make an economic profit if

P > ATC

In which market model are the conditions of entry into the market easiest?

Pure competition

In which market model would there be a unique product for which there are no close substitutes?

Pure monopoly

Which of the following statements is correct?

The demand curve for a purely competitive firm is perfectly elastic, but the demand curve for a purely competitive industry is downsloping.

Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?

Use of savings to pay operating expenses instead of generating interest income

An explicit cost is

a money payment made for resources not owned by the firm itself.

Fixed cost is

any cost which does not change when the firm changes its output

Marginal cost is the

change in total cost that results from producing one more unit of output

Suppose you find that the price of your product is less than minimum AVC. You should

close down because, by producing, your losses will exceed your total fixed costs.

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.

Economic profits are calculated by subtracting

explicit and implicit costs from total revenue.

Which of the following is a reason why individual firms under pure competition would not find it gainful to advertise their product?

firms produce a homogeneous product

Accounting profits are typically

greater than economic profits because the former do not take implicit costs into account.

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.

Assume the XYZ Corporation is producing 20 units of output. It is selling this output in a purely competitive market at $10 per unit. Its total fixed costs are $100 and its average variable cost is $3 at 20 units of output. This corporation

is realizing an economic profit of $40.

If a purely competitive firm shuts down in the short run,

it will realize a loss equal to its total fixed costs.

A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating

marginal revenue and marginal cost

Marginal product

may initially increase, then diminish, and ultimately become negative.

The fast-food restaurant industry in a large city would be an example of which market model?

monopolistic competition

In which two market models would advertising be used most often?

monopolistic competition and oligopoly

Mutual interdependence would tend to limit control over price in which market model?

oligopoly

A purely competitive seller is

price taker

Which idea is inconsistent with pure competition?

product differentiation

Local electric or gas utility companies mostly operate in which market structure?

pure monopoly

Which market model assumes the least number of firms in an industry?

pure monopoly

Marginal product is

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

The basic characteristic of the short run is that

the firm does not have sufficient time to change the size of its plant.

Implicit and explicit costs are different in that

the former refer to nonexpenditure costs and the latter to monetary payments.

Normal profit is

the return to the entrepreneur when economic profits are zero.

The MR = MC rule applies

to firms in all types of industries

Suppose that, when producing 10 units of output, a firm's AVC is $22, its AFC is $5, and its MC is $30. This firm's

total cost is $270

Accounting profits equal total revenue minus

total explicit costs.

A purely competitive firm's short-run supply curve is

upsloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve.