Micro Fall Final
Which best describes economic costs?
Payments that must be made to obtain a resource
What is the term used to refer to a product's ability to satisfy a large number of consumers at the same time?
Simultaneous consumption
Which of the following have helped firms achieve economies of scale?
Specialized inputs, Learning by doing & Simultaneous consumption
Which are types of barriers to entry?
Technological, economic, and legal
X-inefficiency occurs when a firm operates at a cost that is ______ than the lowest cost for a particular level of output.
higher
What type of opportunity cost does a firm incur when it uses resources that it already possesses instead of selling them for cash?
implicit
The entry of new firms entering an increasing-cost industry increase resource prices particularly:
in industries using specialized resources whose long-run supplies do not readily increase in response to increases in resource demand
Productive efficiency requires that goods be produced ___.
in the least costly way
New firms entering an increasing-cost industry will usually _______ resource prices.
increase
An industry whose average total cost curve shifts upward as the industry expands and shifts downward as the industry contracts is known as a(n) ______ industry.
increasing-cost
A purely competitive firm can maximize its economic profit (or minimize its loss) by adjusting only its output because it ______.
is a price taker
A purely competitive firm's total revenue (TR) is a straight line that slopes ________ and to the ______.
upwards, right
When total revenue earned by an entrepreneur is equal to the sum of explicit and implicit costs, then the entrepreneur earns a(n) ______.
zero economic profit
In this graph, the equilibrium price is $50 and is equal to a firm's average total cost. Therefore, the firm is earning ______ economic profits, or a(n) ______ profit.
zero; normal
What is the total revenue if the economic profit is $24,000 and the economic costs are $96,000?
$120,000
If economic cost is $96,000 and total revenue is $120,000, what is the economic profit?
$24,000
Economies of scale explain the downward-sloping part of the ______ curve.
long-run average-total-cost
With a fixed downward sloping demand curve, the pure monopolist can only increase sales by charging a ______ price.
lower
The portion of a firm's marginal cost curve that lies above its average variable cost is the firm's short-run _______ curve.
supply
A purely competitive firm is a price _______.
taker
At which stage of production is marginal revenue most likely to exceed marginal cost?
the initial stage
Over what period of time can an industry and firms in that industry adjust all resource inputs used?
the long run
A purely competitive firm will maximize its profits by producing up to the point where
the vertical distance between the total revenue and total cost curves is the greatest.
________ cost is the sum of fixed cost and variable cost at each level of output.
total
In the long run, a purely competitive firm will only earn a ______ profit.
normal
What is the definition of marginal product?
Marginal product is the change in total product divided by the change in input.
What is the definition of total product (TP)?
The total quantity, or total output, of a particular good or service produced
Which of the following indicates the profit-maximizing level of output?
The vertical distance between the total revenue and total cost curves
The smoothness of a long-run average-total-cost curve results from which of the following?
The virtually unlimited number of available plant sizes
As firms exit the industry in the long run, market price rises and the losses for the remaining firms begin to subside. Firms will continue to exit until which of the following happens?
There are no economic losses.
Which of the following explains why a pure monopolist is able to maintain an economic profit in the long run?
There are no new entrants to increase supply, drive down price, and eliminate profit.
What happens to variable costs during the onset of production when marginal product is increasing?
They decrease with successive units of output.
What methods can be used to calculate average total cost?
Total cost divided by output (Q) & Average fixed cost plus average variable cost
The shape of the marginal cost curve reflects which of the following?
Total variable cost first increases by decreasing amounts then by increasing amounts.
Which of the following are the main characteristics of a pure monopoly?
Unavailability of close substitutes for its products, Presence of a single seller, Control over the price, & Blocked entry for other firms
How much will a profit-seeking monopolist produce if producing is preferable to shutting down?
Up to the output at which marginal revenue equals marginal cost
When will a firm earn an economic profit?
When price is greater than average total cost.
When a firm produces a specific output level at a higher cost than the necessary cost for that level of output, it is called ______.
X-inefficiency
The ______ cost of any resource used to produce a good is the value or worth the resource would have in its best alternative use.
economic
Total _________ costs equal explicit costs plus implicit costs.
economic
Subtracting implicit costs from accounting profit yields which of the following?
economic profit
Economists maintain that new firms are attracted into an industry due to:
economic profits
A firm's long-run average total costs may decline over a wide range of output due to ______ of scale.
economies
When productive efficiency and allocative efficiency are not achieved in a market, it is called a(n) ______.
efficiency loss
In a perfectly competitive market, the demand curve for an individual firm is perfectly ________ at the market price.
elastic
A constant-cost industry is one where ______ will not affect resource prices and production costs.
expansion or contraction
Accounting profit is what remains after a firm has paid its _______ costs.
explicit
There is no incentive for firms to enter or exit the industry in the long run when ______.
firms earn a normal profit, MR = MC, & price equals minimum average total cost
A firm's insurance premiums are generally considered _______ costs
fixed
_____costs are part of the simple existence of a firm's plant and must be paid even when output is zero.
fixed
Whenever price is ______ average variable costs but is ______ average total costs, the firm can pay part, but not all, its fixed costs by producing.
greater than; less than
A purely competitive firm's total revenue curve will
have a constant slope because each extra unit of sales increases total revenue by a constant amount
In general, what production characteristic and plant size scale are required for efficient capital usage to be effective?
high production volume and large-scale producers
Slashing prices is an example of an entry barrier created by a(n)
monopoly
A ______ is a relatively rare market situation in which average total cost is minimized when only one firm produces the good.
natural monopoly
_______ effects exist if the value of a product to each user increases as the total number of users increase.
network
From an economic standpoint, the break-even point is the level of output at which a firm makes a(n) ______ profit.
normal
In the short run, a purely competitive firm can maximize its economic profit (or minimize its loss) by adjusting its
output
The strongest barriers to entry effectively block all ______.
potential competition
A firm's total revenue is calculated as _____ times quantity produced.
price
In a purely competitive market, marginal revenue is a constant that is equal to which of the following?
price
In pure competition, marginal revenue and ______ are equal.
price
In pure competition, to calculate economic profit, we first calculate the difference between _____ and average total cost and then multiply it by output.
price
Baseball ticket sellers charge a different price for adults and children. Ballpark concession stands charge the same prices for products sold to any customer. The baseball ticket sellers are providing a successful example of
price discrimination.
A regulated monopoly is likely to suffer losses when ______.
price is set to marginal cost (P = MC) & price is set to achieve the most efficient allocation of resources
At a price of $10 and a profit-maximizing (or loss-minimizing) level of output of 20 units, a perfectly competitive firm's average total cost is $15. This firm's economic profit or loss equals
-$100
If the change in total product is 10 units and the change in labor input is 1, what is marginal product?
10
What is the marginal cost when output changes from 300 to 301 units and total cost rises from $400 to $500?
100
A company has three workers. It adds an additional laborer and its total product increases by 21. What is the company's marginal product?
21
If a firm's loss-minimizing output is 10 units and its average total cost at that level of output is $25, it will suffer a loss of $______ given a price of $20.
50
Which of the following explain the concept of explicit costs?
A firm's monetary payments made for the use of resources owned by others. & A firm's monetary payments to those who supply labor services, materials, fuel, and transportation services.
Which of the following explains why a purely competitive firm is a price taker?
A purely competitive firm offers only a negligible fraction of total market supply and therefore must accept the price determined by the market
Which of the following statements explain why the average variable cost curve is U-shaped?
As output rises from the initial very low levels, greater specialization occurs, and average variable cost declines. & At low levels of output, production is relatively inefficient and costly.
What is meant by the phrase "spreading the overhead"?
As production increases, average fixed cost declines.
Which of the following is true of average fixed cost when output increases?
Average fixed cost declines as output increases.
Which of the following describes why marginal revenue is less than price for monopolists?
Because the lower price of the extra unit of output also applies to all prior units of output
Which of the following illustrate the concept of a short-run adjustment?
Boeing hires 100 extra workers for one of its commercial airline plants. & Boeing adds an entire shift of workers.
How is total cost calculated?
By adding total fixed cost and total variable cost
How does a monopolist change the price of its product?
By changing the quantity of the product it produces.
What are two ways that a purely competitive firm can determine the level of output at which it will realize maximum profit or minimum losses?
By comparing marginal revenue to marginal costs & By comparing total revenue to total costs
Which best characterizes variable costs?
Costs that change with the level of output
What is the shape of the product demand curve for a pure monopolist?
Downward sloping
What is another term for economies of scale?
Economies of mass production
If there are losses in the long run, what adjustments will take place?
Firms will exit the industry until losses are eliminated.
How is the long-run average-total-cost curve derived?
From all points of tangency of the short-run average-total-cost curves
Which of the following resources can a firm easily and quickly adjust?
Fuel, raw materials, hourly labor
Which of the following lead to declines in long-run average total costs?
Greater use of specialized inputs, Spreading of product development costs, & Network effects
Confronted with the market price of its product, a purely competitive producer will ask which three questions?
If we produce this product, in what amount? & What economic profit or loss will we realize if we produce this product? & Should we produce this product?
Whether a purely competitive industry is a constant-cost industry or an increasing-cost industry, the final long-run equilibrium position of all competitive firms share which of the following characteristics?
In the long run, a multiple equality occurs where price equals marginal cost which equals the minimum average total cost, Price or marginal revenue will settle where it is equal to minimum average total cost, & In the long run, an equality occurs where price equals marginal revenue, which equals minimum average total cost.
What is the firm's most likely response if price is exactly equal to minimum average variable cost?
Indifference to producing or shutting down
Which of the following describes consumer surplus?
It is the difference between the maximum price that consumers are willing to pay for a product and the market price for that product.
How do economies of scale affect long-run average total costs for a firm?
Long-run average total costs decline over a wide range of output.
Which of the following are conditions necessary for price discrimination?
Market segregation, no resale, and monopoly power
What are the effects of the "invisible hand" in a purely competitive economy?
Maximum profits for individual producers & Resource allocation that maximizes consumer satisfaction
Which of the following are characteristics of public utilities?
Monopolies or near monopolies and Government owned or regulated
Which of the following are assumptions made in the model of pure monopoly?
No unit of government regulates the firm, Patents, economies of scale, and resource ownership secure the firm's monopoly, & The firm is a single-price monopolist and charges the same price for all units of output.
Which of the following is considered a barrier to entry into an industry?
Ownership of essential property
What is the term used to refer to charging different prices to different buyers of a specific product?
Price discrimination
In which scenario can a firm pay part, but not all, of its fixed costs and should therefore continue producing even though it is experiencing a loss?
Price exceeds average variable cost but is less than average total cost.
Which of the following is a method of calculating economic profit in pure competition?
Price minus average total cost multiplied by quantity
Which of the following are entry barriers created by monopolists?
Price reductions and increased advertising
Which of the following factors will alter costs and shift the marginal cost or short-run supply curve to a new location?
Prices of variable inputs & Technology
The supply schedule for a purely competitive firm confirms that there is a direct relationship between which two factors?
Product price and quantity supplied
What does it mean to the entrepreneur when economic profit is zero?
The entrepreneur is covering all explicit and implicit costs, including a normal profit.
Which of the following occur only in the long-run?
The entry and exit of firms & The expansion or contraction of plant capacity
If a firm is found guilty of achieving a monopoly through anticompetitive actions, then which of the following may occur?
The firm may be broken into two or more competing firms & The firm may be expressly prohibited from engaging in certain business activities.
What are reasons that it difficult for small firms to make use of efficient capital?
The high price of production equipment is often prohibitive. & The efficient use of large-scale production equipment requires a high production volume.
Which of the following best illustrates diseconomies of scale?
The increase in average total costs as a firm expands the size of its plant in the long run
Which of the following statements are true about allocative efficiency?
The marginal cost and marginal benefit of producing each unit of output is equal, It is impossible to produce net gains for society by altering the mix of goods and services produced, & The goods and services produced are those that society most wants to consume.
Which of the following are reasons that a monopolist is considered a price maker?
The monopolist exerts control over the price & The monopolist controls the total quantity supplied.
Which of the following best describes the economic break-even point?
The point where total revenue covers all costs, but there is no economic profit.
Which of the following best describes marginal revenue?
The revenue that an additional unit of output contributes to total revenue.
________ efficiency means that resources are distributed among firms and industries to yield a mix of goods and services that is most wanted by society.
allocative
A competitive market generates ______ efficiency and _______ efficiency
allocative; productive
Average fixed cost equals total fixed cost divided by the ______.
amount of output
The government broke up Standard Oil in 1911 due to its breach of _______ laws.
antitrust
A monopolist does not achieve productive efficiency because it produces a level of output that does not correspond to the minimum point of the ________ ________ cost curve.
average total
The monopolist's level of output is not at the minimum point of ______, meaning it will not be productively efficient.
average total cost
__________ of essential property is a barrier to entry into an industry.
control
Marginal revenue is less than price at every unit of output because the monopolist
could have sold these prior units at a higher price if it had not produced and sold the extra output.
If demand for the good decreases creating economic losses, firms will exit the industry in the long run. As firms exit in the long run, industry supply will ______ and market price will ______.
decrease; rise
creative _________ captures the idea that the creation of new products and new production methods erodes the market positions of firms committed to existing products and old ways of doing business.
destruction
Assuming technology and production techniques are fixed and cannot change, if beyond some point of production a firm experiences declining units of additional output with each additional unit of labor input, then the firm is experiencing the effects of the law of ______.
diminishing returns
What is the shape of the long-run supply curve in a decreasing-cost industry?
downward-sloping
Price makers are firms with:
downward-sloping demand curves
Within pure competition, a supplier will ______ production as price rises, as long as marginal cost is less than marginal revenue.
increase
Later in a production cycle, as diminishing returns are encountered, variable costs ______ for each additional unit of output.
increase by increasing amounts
In an increasing-cost industry, increases in resource prices and the minimum average total cost (ATC) are a result of ______.
increases in product demand resulting in economic profits and industry expansion
A firm can be expressly prohibited from engaging in certain business activities or can be broken into two or more competing firms when it
is found guilty of monopoly abuse.
When total product declines, marginal product ______.
is negative
When a monopolist charges a higher price than a purely competitive firm would, the monopolist essentially ______.
levies a "private tax" on consumers
What are the two legal barriers to entry created by the government?
licenses and patents
The change in total revenue that results from selling one more unit of output is called _______ revenue.
marginal
What is the term for the extra cost of producing one more unit of output?
marginal cost
A firm's decision whether to produce a few more or a few less units of output is a decision based on which of the following?
marginal data
A purely competitive firm's demand schedule is equal to which of the following?
marginal revenue and average revenue
_______revenue is the additional revenue that an additional unit of _________would add to total revenue.
maringal; output
Patents, economies of scale, and resource ownership are all assumptions of the pure _______ model.
monopolist
A(n) ______ is able to maintain an economic profit in the long run because there are no new entrants to increase supply, drive down price, and eliminate economic profit.
monopoly
Network effects may drive a market toward ________ because consumers tend to choose standard products that everyone else is using.
monopoly
In pure competition, ______ efficiency is achieved because free entry and exit forces firms to operate where average total cost is at a minimum.
productive
Monopoly yields neither ______ efficiency nor allocative efficiency.
productive
The MR = MC rule is known as the:
profit-maximizing rule
_________ utilities are government owned or regulated.
public
In the long run, purely competitive firms will not survive if they do not use a least-cost production method because ______.
pure competition forces firms to produce at the minimum average total cost (ATC) and to charge a price that is consistent with that cost
Which of the following exists when a single firm is the sole producer of a product for which there are no close substitutes?
pure monopoly
A ________competitive firm's average-revenue schedule is also known as its demand schedule.
purely
All firms in a(n) ______ industry share the same basic efficiency characteristics.
purely competitive
In a purely competitive market, price per unit to the purchaser is synonymous with ______ per unit or ______ revenue to a seller.
revenue, average
A competitive firm may realize an economic profit or loss in the _______ run but will earn only a normal profit in the ______ run.
short; long
One explanation for the U-shaped average variable cost curve is that greater ______ yields more efficiency and variable cost per unit of output declines
specialization
After all long-run adjustments are completed in a perfectly competitive market, output will occur at each firm's minimum average ______.
total cost where product price is equal to marginal revenue
At the point on a graph where total product (Q) is zero, total cost is equal to ______.
total fixed cost
What is the equation for economic profit?
total revenue- total economic costs
A firm will break even where ______ will just cover ______ because the revenue per unit and the average total cost per unit are equal.
total revenue; total cost
True or false: Efficiency within pure competition can be temporarily disrupted by a change in consumer tastes.
true
True or false: Implicit costs are the firm's opportunity costs of using its self-owned, self-employed resources.
true
True or false: In an industry with an extended range of constant returns to scale, firms of varying sizes can coexist and be equally profitable.
true
A firm should always stop producing if its average ______ cost is ______ price.
variable; greater than
When viewed on a graph, total variable cost is measured ______ at each level of output from the X axis.
vertically
