8
Adam is the owner/operator of a flower shop. Last year he earned $250,000 in total revenue. His explicit costs were $175,000 paid to his employees and suppliers (assume that this amount represents the total opportunity cost of these resources). During the year he received three offers to work for other flower shops with the highest offer being $75,000 per year. Which of the following is true about Adam's accounting and economic profit? A) Accounting profit = $75,000; economic profit = $0. B) Accounting profit = $175,000; economic profit = $75,000. C) Accounting profit = $75,000; economic profit = negative $100,000. D) Accounting profit = $0; economic profit = negative $75,000.
A
Assuming an entrepreneur does not pay herself, the $1,000 she could earn as an employee elsewhere is considered A) An implicit cost. B) An explicit cost. C) A fixed cost. D) A variable cost.
A
1. The demand curve for each perfectly competitive firm is A) Downward-sloping. B) Horizontal. C) Vertical. D) Upward-sloping.
B
For perfectly competitive firms, price A) Is greater than marginal revenue. B) Is equal to marginal revenue. C) Is less than marginal revenue. D) And marginal revenue are not related.
B
1. The perfectly competitive market structure includes all of the following except A) Many firms. B) Identical products. C) Large advertising budgets. D) Low entry barriers.
C
Refer to Figure 22.2 for a perfectly competitive firm. The profit-maximizing quantity of output is A) B. B) C. C) D. D) E.
C
A perfectly competitive firm should expand output when A) P < ATC. B) P > ATC. C) P < MC. D) P > MC.
D
Short-run profits are maximized at the rate of output where A) Average total costs are minimized. B) Total revenue is maximized. C) Marginal revenue is zero. D) Marginal revenue is equal to marginal cost.
D
The value of all resources used to produce a good or service
Economic cost
A payment made for the use of a resource
Explicit cost
The value of resources used, for which no direct payment is made
Implicit cost
The decision to build, buy, or lease plant and equipment; to enter or exit an industry
Investment Decision
A period of time long enough for all inputs to be varied (no fixed costs)
Long-run
The ability to alter the market price of a good or service
Market Power
The number and relative size of firms in an industry
Market Structure
One firm produces the entire supply of a product
Monopoly
A market in which no buyer or seller has market power
Perfect Competition
That rate of output where price equals minimum AVC
Shutdown Point
A curve describing the quantities of a good a producer is willing and able to sell (produce) at alternative prices in a given time period, ceteris paribus
Supply Curve
The price of a product multiplied by the quantity sold in a given time period: p ´ q
Total Revenue
Marginal Revenue=
change in total revenue / change in output
price < MC
decrease output
Accounting cost =
explicit cost
price > MC
increase output
price = MC
maintain output (profits maximized)
The change in total revenue that results from a one-unit increase in the quantity sold
Marginal Revenue (MR)
The selection of the short-run rate of output (with existing plant and equipment)
Production Decision
The difference between total revenue and total cost.
Profit
Produce at that rate of output where marginal revenue equals marginal cost, P=MR=MC
Profit-Maximization Rule