Microecon Module 6
Physical Capital
Machines and equipment that can be used for production.
The graph to the right shows the average total cost (ATC), average variable cost (AVC), marginal cost (MC), and marginal revenue (MR) curves for a firm in a perfectly competitive market. In order to maximize profits, this firm should produce approximately ___________ units of output
11
Using the same table, what is the marginal cost of the second unit produced?
11
Producer surplus is
40.50
Law of diminishing returns
Increases in inputs eventually lead to less additional output.
In a perfectly competitive market, all of the following statements are true except:
Marginal revenue is equal to price times quantity.
In the long run, which of the following factors of production is fixed for a firm?
None of the above
Long run
Period of time when all of a firm's inputs can be varied.
Short run
Period of time when at least one of a firm's inputs is fixed.
Marginal product
The change in total production associated with using one more unit of input.
In a perfectly competitive market, all of the following are true except:
The market supply cannot affect the retail price
All of the following could cause an increase in producer surplus except:
an upward shift in the marginal cost curve
If the firm were facing MR 2, then we know that this firm should __________.
keep producing, even though it is incurring a loss it is less than the fixed costs that must be paid if it shuts down.
If the firm were facing MR 1, then we know that this firm should __________.
keep producing, since it is making a profit at the profit-maximizing output.
The aggregate difference between the average total cost (ATC) and average variable cost (AVC) for all units of production is the:
the total fixed cost
This occurs because _________.
there are many producers all selling identical goods, meaning no one firm can impact the market price
If it costs a firm $3,000 to produce 400 shirts and $6,500 to produce 900 shirts, then:
the firm is experiencing economies of scale.
In a competitive market, if economic profits exist, then:
the market supply curve will shift rightward and the price will decrease.
Using your graph, the slope of the industry demand curve demonstrates __________.
the realistic assumption that the Law of Demand holds for the good under consideration.
The production function is:
the relationship between the quantity of inputs used and the quantity of outputs produced.
A company pays each of its workers on a per diem basis. If another worker is hired, ____________ costs will increase while ________ costs will remain the same.
1. variable 2. fixed
In a perfectly competitive market, an increase in market price shifts the marginal revenue (MR) curve ____, _________ the quantity supplied.
1. up 2. increasing
For 12,500 units of production, total variable cost is $237,500. For the 12,501st unit of production, total variable cost increases to 237,522.50. The average variable cost per unit is _____ and the marginal cost for the 12,501st unit is ______
1. 19 2. 22.5
For a firm, diseconomies of scale occur when the ________ for the firm __________ as the quantity produced increases.
1. ATC 2. rises
Pizza production is mostly standardized, so Pizza Hut ________ take advantage of specialization and the division of labor, while sandwich production is more customized so Subway __________ take advantage of specialization and the division of labor.
1. can 2. cannot
If firms in a perfectly competitive market are earning profits or incurring losses in the short run, then in the long run these profits or losses will either cause new firms to enter or existing firms to leave the market. This will result in a shift in the ________ until profits are __________.
1. industry supply curve 2. zero
The amount of money the firm brings in from the sale of its outputs is called _________, while the change in total revenue associated with producing one more unit of output is called _________.
1. revenue 2. marginal revenue
Which of the following is not one of the three conditions that characterizes a perfectly competitive market?
Firms have pricing power and can set their prices freely.
Given the shape of the curves, we know that curve A represents __________, curve B represents __________, and curve C represents _________.
MC; ATC; AVC
production
The process of transforming inputs into output.
Specialization
The result of workers developing a certain skill set in order to increase total productivity.
Which of the following equations calculates the profits of a firm?
Total revenues - Total costs
The long-run average total cost curve is __________ and is found by using the ___________.
U-shaped; minimum point across all possible ATC curves for a given quantity.
When comparing the accounting profit with economic profit, it must be true that the accounting profit is _______ economic profit
greater than or equal to
Given the long-run adjustment process that takes place after a supply or demand shock, we know that the industry supply curve must be __________.
horizontal, since the supply curve shifts until price is back to its original level and profits are back to zero.
The more inelastic a supply curve is the ________ responsive the quantity supplied is to changes in the price level.
less
All of the following are factors in a firm's elasticity of supply except:
market price
The more elastic a supply curve is the _________ responsive the quantity supplied is to changes in the price level.
more
Which of the following equations measures price elasticity of supply?
percent change in quantity supplied/percent change in price
Using your graph, demand for this perfectly competitive firm is
perfectly elastic
The goal of a business in a perfectly competitive market is to maximize:
profits
Based on the graph to the right, the long-run supply curve is __________.
segment BC, since at prices below B the firm would shut down in the long run.
If the firm were facing MR 3, then we know that this firm should __________.
shut down, since it is incurring a loss that is greater than the fixed costs that must be paid if it shuts down.
If the graph on the right represents the market supply and demand curves for pizza, what do we know about the demand curve for an individual pizza shop if the pizza market is in perfect competition?
the shop's demand curve is horizontal at exactly $8.
