Chapter 6
Unless shut down or exit is optimal every firm expands production until
Marginal revenue, marginal cost, and price are all equal
By producing to where marginal revenue equals marginal cost, the seller is
Minimizing an existing loss
The law of diminishing returns states that
successive increases in inputs eventually lead to less additional output when one of the inputs is fixed
The long run supply curve is the portion of the MC curve
Above the ATC curve
A firm produces 376 units with 10 workers. When and 11th worker was hired, The output increase to 398 units. The marginal product of the 11th worker is
22 units
All of the following could cause an increase in producer surplus except
An upward shift in the marginal cost curve
A firm is experiencing economies of scale when its... Declines as more output is produced
Average total cost
Variable cost
Changes as a level of output changes
A firm is producing goods in a market where the market price is less than the firms average total cost but greater than its average variable cost. At this point the firm should:
Continue to operate at a loss
Fixed cost
Does not change with the level of output
In a perfectly competitive market, the price in the long run will always
Equal the minimum average total cost of the industry
When the marginal product..., The marginal cost...
Increases; decreases
To construct a supply curve in a market with many firms with different cost structures, the...
Individual supply curves for each firm are added together
Production
Is the process of transforming inputs into outputs
Production function
Is the relationship between the quantity of inputs and the quantity of output
How would the introduction of legal or technical barriers to entry affect the long run equilibrium in a perfectly competitive market?
It would reduce any downward pressure on prices from entry and allow economic profits in the long run
The equilibrium price is the...
Long-run average total cost of the last entrant into the market
Which of the following describes the sequence of events in a competitive market if demand were to increase
Market price increases, economic profits increase, short run market supply increases, long run supply settles at minimum ATC
Suppose one firm accounts for 55% of a global market share for a product, well at 147 other firms account for the remaining 45% of the market. With such a large number of buyers and sellers, is this market likely to be competitive
No, even though there are many firms in the market, there is one firm large enough to influence the market price
Long run
Period of time when all the inputs can be changed
In terms of economic profits, early market entrants earn... Economic profits in the last entrant earns... Economic profits
Positive, zero
Producer surplus for a perfectly competitive firm is
The area under the market price in above the firms marginal cost curve
What is an example of a variable cost
The cost of the electricity used in an office
Explicit costs
The expenses that actually come out of firms pocket
if it costs a firm $3000 to produce 400 shirts in $6500 to purchase 900 shirts then,
The firm is experiencing economies of scale
In a perfectly competitive market, all of the following are true except
The market supply cannot affect the retail price
In a competitive market, if economic profits exist, then:
The market supply curve will shift right word in the price will decrease
Implicit cost
The opportunity cost, what was given up to invest in the current business
Short run
The period of time during which at least one input is fixed
What is the best description for the long run for a firm
The period of time over which all factors of production are variable
Which of the following statements is true of a perfectly competitive market
There is free entry and free exit in the market
In a perfectly competitive market, an increase in market price shifts the marginal revenue curve...,... The quantity supplied
Up, increasing
A firm is said to be a price taker if it
sells as much of any good as it wants at the prevailing market price
