ECO231 Chap 11, ECO231 Chapter 10, Chapter 9, ECon
What is the focus of positive economics?
Cause-and-effect relationships and Facts
Which of the following is a method of calculating economic profit in pure competition?
Price minus average total cost multiplied by quantity
The portion of a firm's marginal cost curve that lies above its average variable cost is the firm's short-run curve.
Supply
How are marginal costs and average fixed costs related?
They are not related.
In microeconomics, the long run is also known as which of the following?
Variable-plant period
Match each market structure with the description that best describes the conditions for exit and entry into that industry.
Very easy, no obstacles = purely competitive Relatively easy = monopolistically competitive Significant obstacles = oligopoly Blocked = monopoly
The willingness and ability of a consumer to buy a normal product falls because of ______.
a fall in income
Pure ___ involves a very large number of firms.
competition
A ______ good is one that is used together with another good.
complementary
Blu-ray players and Blu-ray discs are:
complementary goods
True or false: Positive economics encourages value judgments.
false
What do combinations of output that fall inside the production possibilities curve represent?
goods that are attainable and less total outcome than points on the curve
In time, the growth of a firm's plant size and output may lead to ________ and ________.
higher average total costs; diseconomies of scale
Productive efficiency requires that goods be produced ___.
in the least costly way
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
Greater resource prices _______ the costs of production, thereby, ______ the incentive for firms to produce the good at each price.
increases; reducing
In pure competition, marginal revenue and are equal. (Remember to type only one word per blank.)
price
The determinants of the supply of a good are any factors other than the product's ______ that cause the supply curve of the good to shift.
price
When drawing a supply curve, _____ is labeled on the vertical axis.
price
The ability of the competitive forces of supply and demand to establish a price at which selling and buying decisions are consistent is called ______.
the rationing function of prices
What best describes the combination of goods that lie on the production possibilities curve?
they are attainable; they utilize the economy's available resources
________ cost is the sum of fixed cost and variable cost at each level of output.
total
The average variable cost curve is
u-shaped
Increased fixed costs shift the average fixed cost and the average total cost curves _________.
upward
Economists group industries into distinct market structures.
4
What does every point on a budget line graph represent?
All combinations of goods that can be purchased with a given income
Economists use the term "demand" to refer to:
a schedule of various combinations of market prices and amounts/quantities demanded.
What is the definition of explicit costs?
a) A firm's monetary payments made for the use of resources owned by others. c) A firm's monetary payments for those who supply labor services, materials, fuel, and transportation services.
A(n) ______ profit is equal to total revenue less explicit costs.
accounting
In a purely competitive market, price per unit to a buyer equals:
average revenue to a seller
A change in the number of buyers is a determinant of market
demand
This graph illustrates that a firm can minimize its losses by producing where ______.
price exceeds minimum average variable cost but is less than average total cost
All the following are the determinants of demand except ______.
price of substitutes in production
In a world of scarcity, ______.
the decision to obtain the marginal benefit (MB) of a specific option always includes the marginal cost (MC) of forgoing something else
Your next-door neighbors want to go on a European vacation but cannot afford it, so they decide to visit a local amusement park instead. This is an example of ______.
the economizing problem
The shape of a long-run average-total-cost curve will determine ______.
the number and size of firms in the industry
Allocative efficiency refers to:
the production of the product mix most wanted by society.
Marginal product is the slope of the ______ curve.
total product
If price is below a firm's minimum average cost, the firm will not operate. (Insert only one word in the blank.)
variable
The long run exists when all inputs costs are _________.
variable
A trade-off occurs when some quantity of production of a good is given up in order to produce another good.
True
The lowest level of output at which a firm can minimize long-run average costs is called ______.
Mimimum effect scale
A ______ is a relatively rare market situation in which average total cost is minimized when only one firm produces the good.
natural monopoly
The shape of a long-run average total cost curve will determine:
c) the number and size of firms in the industry
High-volume production and being a large-scale producer are economic justifications for:
c) the purchase of efficient capital
According to the law of demand, which of the following statements are true, all other things being equal?
-As price decreases, quantity demanded increases. -As price increases, quantity demanded decreases.
Economic principles are generalizations that are ______.
expressed as the tendencies of average consumers, workers or firms
Which of the following in the rental market for housing benefits renters, but makes it unprofitable for suppliers or landowners?
A price ceiling
Because there are so many of them selling a standardized product
A purely competitive firm offers only a negligible fraction of total market supply and therefore must accept the price determined by the market
If a firm estimates that its level of output will be 40 units, it will most likely select the plant size depicted by which short-run cost curve in the accompanying figure?
ATC -3
What is the difference between accounting profit and economic profit?
Accounting profit equals total revenue less explicit costs. Economic profit equals total revenue less economic costs (explicit and implicit).
Normative economics is ______.
Based on value judgments
Which of the following are likely to cause cost curves to shift?
Changes in resource prices Changes in technology
Specializing and participating in international trade allows an economy to do which of the following?
Circumvent the output limits imposed by its own production possibilities curve Increase the quantities of capital and consumer goods available to society
True or false: A pure monopoly involves a very large number of firms producing a single unique product.
False
What type of opportunity cost does a firm incur when it uses resources that it already possesses instead of selling them for cash?
Implicit
Why does the law of diminishing returns not account for the U-shape of the long-run average-total-cost curve?
In the long run all resources and inputs are variable.
Which of the following is a determinant of demand?
Income
Which best describes economic costs?
Payments that must be made to obtain a resource
What determines the shape of the long-run average-total-cost curve?
Technology
Which of the following are types of resources that require more time for a firm to adjust, given a change in demand?
a) Amount of machinery c) Size of the factory
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 law of
a) diminishing marginal returns
A firm's decision about what output level to produce at is based on ________ decisions.
a) marginal
If a firm's total revenue is equal to its implicit and explicit costs, then the firm is said to earn a(n)
a) normal profit b) accounting profit d) zero economic profit
When a firm's total revenue exceeds all its economic costs
a) the residual goes to the entrepreneur d) the residual is called economic or pure profit
Economic costs are defined as
a) the value or worth a resource would have in its best alternative use.
Generally speaking, there are two types of calculable profits. Of these, profit is what remains after a firm has paid itsexplicit costs.
accounting
When people get satisfaction from charitable giving, they are ______.
acting out of rational self-interest
When economists consider the output of all U.S. businesses as a single entity, they are treating them as a(n) ______.
aggregate
The law of diminishing returns assumes that ______.
all units of labor input are of equal quality
_ (one word) 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
The supply curve is ______ sloping curve.
an upward
Average total cost goes up when marginal cost is greater than ______.
average total cost
A firm can most easily increase its output in the short run by
c) adding units of labor to its fixed plant.
A consumer's ____ line or constraint shows various combinations of two products that can be purchased with a specific amount of income.
budget
The rationing function of prices refers to the ability of the competitive forces of supply and demand to establish a price at which ______.
buying and selling decisions are consistent
The rationing function of prices refers to the:
capacity of a competitive market to equate the quantity demanded and the quantity supplied.
Factories, storage, transportation, and machinery are all examples of ______ goods.
capital
Average total costs are pulled upward when _________ rises above average total costs.
d) marginal cost
Average total cost ________ when economies of scale exist and a firm is expanding production.
declines
The marginal cost curve's shape is a consequence of the law of returns.
diminishing
A firm's _________ costs are the explicit and implicit costs of the resources it has used.
economic
A firm's costs are the explicit and implicit costs of the resources it has used.
economic
All natural resources, human resources, and manufactured goods that go into the production of goods and services are considered as society's scarce __________ resources.
economic
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
Total costs equal explicit costs plus implicit costs.
economic
Economists maintain that new firms are attracted into an industry due to:
economic profits
Start-up firms achieve of scale from learning by doing and through increased specialization of labor, management, and equipment.
economies
Learning by doing contributes to a firm's ______.
economies of scale
The ____ problem refers to the need to make choices because economic wants exceed economic means.
economizing
When efficiency is disrupted in pure competition, producers will reallocate resources until product supply is such that price will again _____ marginal cost.
equal
An oligopoly has ___ sellers and must consider the decisions of its rivals in determining its own ___ and output.
few; price
Average ________ cost always declines as output increases.
fixed
Which of the following best describes the situation of a price-taking firm? A price-taking firm is one of a ______ number of firms producing a product that is identical to that of every other firm in the industry and providing ______ of total market supply.
large; only a fraction
If costs of production rise, the producer has an incentive to produce ______ output.
less
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
True or false: A decrease in income will shift the budget line to the left.
True
Refer to the diagram. A shortage of 160 units would be encountered if price was:
$0.50
Refer to the diagram. A surplus of 160 units would be encountered if the price was
$1.60
What is average total cost if total cost is $100, variable costs are $75, fixed costs are $25, and output is 25?
4
If total product is 50 and the units of labor used is 10, then the average product is .
5
Which of the following market structures produces only a standardized product?
A purely competitive market
Average fixed cost equals total fixed cost divided by the ______
Amount if output
Less coordinated decision making by executives and supervisors leads to of scale.
Diseconomies
By using economies of scale, successful start-up firms are able to shift their short-run cost curves in which directions?
Downward and to the right
What are two goods called when a change in the price of one good has little or no effect on the demand for the other?
Independent goods
Which is another term for average product?
Labor productivity
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
What type of costs do firms incur when producing products?
a) Implicit d) Explicit
What type of costs in total do not vary with changes in output?
b)Fixed
Higher resource prices will result in ______ total costs.
higher average
Average product declines when ______.
marginal product is less than average product
The optimal allocation of resources occurs when ______.
the marginal benefit of the good equals the marginal cost
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
For better or worse, people have ______.
virtually unlimited wants
Because consumers behave in a rationally self-interested manner, the consumer will purchase a good or service ______.
when the marginal benefit is greater than the marginal cost
When total product is at its maximum, marginal product is ______.
zero
The demand for a normal good would likely increase in which of the following cases?
-A decrease in the price of complementary goods -An increase in the number of buyers
Which of the following types of goods affect the demand for another product due to a change in their price?
-Complementary goods -Substitute goods
Which of the following are determinants of demand?
-Consumer income -Consumer expectations -Consumer tastes -Number of buyers -Prices of related goods
In which of the following situations do governments intervene to prevent prices from rising above or falling below their equilibrium levels?
-Prices are too high for consumers. -Prices are too low for firms.
Which of the following are determinants of supply?
-Resource prices -Taxes and subsidies -Technology
Which of the following are the characteristics of a competitive market?
-Standardized products -A large number of buyers and sellers
Choose all of the following that will cause a change in supply, not quantity supplied.
-Technology -Producer expectations -Number of sellers
All competitive markets involve which of the following?
-demand -quantity -supply -price
In this table, at a price of $71, the profit-maximizing or loss-minimizing level of output is ______.
0 units
If the change in total product is 10 units and the change in labor input is 1, what is marginal product?
10
What is average variable cost if total variable cost is $500, total fixed cost is $100, and output is 50?
10
What is the average product If total product is 30 and there are 3 units of labor?
10
What is the marginal cost when output changes from 300 to 301 units and total cost rises from $400 to $500?
100
In the table, total economic profits at the profit-maximizing level of output are calculated as a total revenue of $______ minus approximate total costs of $______.
1179; 880
When output is 10, what is the total cost if total fixed cost is $50 and total variable cost is $75?
125
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
What is the average fixed cost if the average total cost is $100 and the average variable cost is $75?
25
If at 10 units of output, total fixed cost is $10 and total variable cost is $16, what is total cost?
26
Which of the following reasons explains why the purely competitive firm's demand curve is perfectly elastic?
Because the individual firm is a price taker, the marginal revenue curve coincides with the firm's equilibrium price.
A firm should not produce a unit of output when the marginal cost is (greater/lesser) than its marginal revenue.
Blank 1: greater, bigger, larger, more, or higher
Variable costs change with the level of .
Blank 1: output or production
In the short run, a purely competitive firm can maximize its economic profit (or minimize its loss) by adjusting its .
Blank 1: output, production, supply, or quantity
The size of the factory, the amount of machinery and equipment, and other capital resources define
Blank 1: plant, operational, or operation Blank 2: capacity or size
A firm's insurance premiums are generally considered costs.
Fixed
Which costs do not vary with changes in output?
Fixed
costs are part of the simple existence of a firm's plant and must be paid even when output is zero.
Fixed
In the short run, a business manager is unable to alter which of the following?
Fixed Costs
What is the term for the extra cost of producing one more unit of output?
Marginal cost
Which of the following costs can a firm control directly and immediately?
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
What happens to marginal product when total product is increasing but at a decreasing rate?
Marginal product is positive but falling.
What happens to marginal product when total product is increasing at an increasing rate?
Marginal product is rising.
Given an output of Q4, at which price will the firm break even or earn a normal profit?
P4
Which of the following best describes the relationship between a firm's size and its ability to use managerial specialization to its best advantage?
Small firms cannot use management specialists to their best advantage.
Based on the chart, what happens at a price P3 and an output of Q3?
The firm incurs a loss but covers part of its fixed cost.
Which of the following statements is true of the firm represented by this graph?
The firm incurs a loss but should continue to operate because price exceeds the lowest average variable cost.
Which of the following sections of a long-run average total cost curve depicts constant returns to scale?
The flat section
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 describes the individual competitive firm's supply curve?
The individual firm's supply curve represents a negligible fraction of total supply and therefore cannot affect price.
Which of the following resources would be considered to be land by an economist?
Water Oil and mineral deposits Forests Arable land
After a company has determined that it should produce a product and the amount of the product to produce, what basic question should it ask?
What economic profit (or loss) will we realize?
Confronted with the market price of its product, a purely competitive producer will ask which three questions?
What economic profit or loss will we realize if we produce this product? Should we produce this product? If we produce this product, in what amount?
When is marginal cost at its minimum?
When marginal product product is at its maximum
When will a firm earn an economic profit?
When price is greater than average total cost.
An _________ profit is equal to total revenue less explicit costs.
accounting
Heavy industries, such as aluminum and steel, exhibit the pattern of _______ long-run average total costs.
declining
An unfavorable change in consumer tastes and preferences for a product will ______ demand, which is illustrated as a shift of the demand curve to the ______.
decrease; left
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
A change in the number of buyers is a determinant of market ________.
demand
Consumer expectations are a determinant of _______.
demand
If products A and B are complements and the price of B decreases, the:
demand for A will increase and the quantity of B demanded will increase
When minimum efficient scale occurs at a low level of output, consumer ______ may support a large number of relatively ______ producers.
demand; small
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
Strategies attempted by firms for increasing their profits include:
developing a new product that is popular with consumers. lowering production costs through improved business organization. lowering production costs through better technology.
The profit-maximizing rule of MR=MC states that in the short run, the firm will maximize profit or minimize loss by producing the output for which marginal revenue ______ marginal cost.
equals
The interaction between buyers and sellers determines the equilibrium price and the ________ quantity.
equilibrium
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
costs are the monetary payments a firm makes to purchase resources from others..
explicit
A firm's monetary payments to those who supply transportation services is an example of ______.
explicit costs
There is no incentive for firms to enter or exit the industry in the long run when ______.
firms earn a normal profit price equals minimum average total cost MR = MC
__________ costs are part of the simple existence of a firm's plant and must be paid even when output is zero.
fixed
A price _____ (one word) is a minimum price fixed by the government, generally imposed above the equilibrium price.
floor
A price _____ is a minimum price fixed by the government, generally imposed above the equilibrium price.
floor
The shape of the long-run supply curve for a constant-cost industry can best be described as:
horizontal
The vast majority of goods that are not related to one another are called ______ goods.
independent
An industry and the firms in that industry can adjust all resource ________ in the long run.
inputs
What is the simplified term economists use to refer to "factors of production"?
inputs
Points lying ______ the production possibilities curve are attainable but reflect less total output than can be produced.
inside
A demand curve shows the ______.
inverse relationship between price and quantity demanded for a product
A manufacturing firm builds a new warehouse to expand its inventory capacity. Economists refer to this activity as ______.
investment
In economics, the term ______ describes spending that pays for the production and accumulation of capital goods.
investment
A purely competitive firm can maximize its economic profit (or minimize its loss) by adjusting only its output because it ______.
is a price taker
When total product declines, marginal product ______.
is negative
The work-related activities of a teacher and doctor fall under the resource category of _______.
labor
From an economic standpoint, ______ includes all natural resources used in the production process.
land
The supply curve illustrates the relationship between ______.
price and quantity supplied
The supply curve shows the relationship between:
price and quantity supplied.
Total revenue equals ______ times ______.
price; quantity
This ______ table lists the different combinations of pizza and robots that can be produced with a specific set of resources.
production possibilities
A ______ lists the different combinations of two products that can be produced with a specific set of resources, assuming full employment.
production possibilities table
The location of the product supply curve depends on the:
production technology.
The production of a good or service in the least costly way is known as ______ efficiency.
productive
Competition among corn producers forces them to use the best technology and right mix of productive resources; otherwise their costs will be too high relative to the market price and they will be unprofitable. This is best described as ______.
productive efficiency
Competitive market economies generate ______.
productive efficiency allocative efficiency
Average product of labor is also referred to as labor _________.
productivity
Changes in (Enter one word) and changes in prices of variable inputs alter costs and shift the marginal cost or short run supply curve.
technology
The two ways to determine the level of output at which a firm will realize maximum profit or minimum loss are to compare total revenue to ______ and to compare marginal revenue to ______.
total cost; marginal cost
The disagreement among economists typically revolves around
normative economics
______ economic resources means limited goods and services.
scarce
Land and mineral resources, transportation and communication facilities, factories and farm buildings, equipment, tools and machinery are all examples of _______.
scarce economic resources
A ______ the demand curve represents a change in demand while a ______ the demand curve represents a change in the quantity demanded.
shift of; movement along
A change in demand is represented by a ______ the demand curve while a change in quantity demanded is represented by a _______ the demand curve.
shift of; movement along
An increase in income will ______.
shift the budget line to the right
A firm cannot avoid paying fixed costs in the _______ run.
short
A firm cannot avoid paying fixed costs in the run.
short
The ratio of the price of two goods on a graphed budget line is measured by its _______.
slope
A purely competitive market leads to the efficient use of:
society's scarce resources
A leftward shift of a product supply curve might be caused by:
some firms leaving an industry.
Increased labor ______ becomes more achievable as a plant increases in size.
specialization
Labor _______ allows workers to become even more proficient in their tasks as they work at fewer tasks.
specialization
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
The supply curve measures quantity ______ on the horizontal axis and ______ on the vertical axis.
supplied; price
Market ______ is a schedule or curve showing the various amounts of a product that producers are willing and able to make available for sale at each possible price during a specific period.
supply
Market _______ is a schedule or curve showing the various amounts of a product that producers are willing and able to make available for sale at each possible price during a specific period.
supply
A purely competitive firm is a price (Enter one word).
taker
True or false: Everyone except for the super wealthy has a finite, or limited, amount of income.
False
True or false: Higher resource prices create lower ATC and cause an upward shift of the long-run ATC curve.
False
True or false: Important determinants of an industry's structure are economies of scale and revenue.
False
_________ product is the change in total product divided by the change in labor input.
Marginal
True or false: Quantity supplied increases as price decreases, and economic profit is usually higher at lower product prices and output.
False
product is the change in total product divided by the change in labor input.
Marginal
Which of the following result from managerial specialization?
Greater efficiency Lower unit costs
If economic cost is $96,000 and total revenue is $120,000, what is the economic profit?
$24,000 Reason: Economic profit equals total revenue minus economic cost.
If total variable cost is $100, total fixed cost is $100, and output is 10, what is average variable cost?
$10
Suppose the total fixed cost of a firm is $500, the total variable cost is $200, and the output produced is 5 units. The average fixed cost of the firm is ______.
$100
What is the total revenue if economic profit is $24,000 and economic costs are $96,000?
$120,000
What is the total revenue if the economic profit is $24,000 and the economic costs are $96,000?
$120,000 Reason: Rearrange the profit formula to solve for total revenue: economic profit equals total revenue minus total economic cost.
What is average fixed cost if average total cost is $100 and average variable cost is $75?
$25
Which of the following characteristics leads to a upward-sloping supply curve? Select all that apply .- Increasing opportunity costs - Increasing marginal costs - Diminishing marginal utility - A decrease in resource prices - An increase in resource prices - Increasing labor productivity
- Increasing opportunity costs - Increasing marginal costs
If total cost rises from $300 to $700 when one additional unit of output is produced, what is the marginal cost?
400
What is the average fixed cost if total fixed cost is $100, total variable cost is $50, and output is 20?
5
In this table, at a price of $81.00, the loss-minimizing level of output is _____.
6 units
Suppose at an output level of 150 units a firm's average fixed cost is $25 and average variable cost is $50. Then the average total cost of the firm is ______.
75
In this table, at a price of $131, the profit-maximizing level of output is _____ units of output.
9
Which of the following describes a budget line?
A curve showing various combinations of two products a consumer can purchase with a specific amount of income.
With economies of scale, a 10% increase in all resources that causes a 20% increase in output results in which of the following?
A decline in average total cost (ATC)
______,while holding demand constant, results in an increase in the equilibrium price of the good, but a decrease in the equilibrium quantity of the good.
A decrease in the supply of a good
A point that lies inside the production possibilities curve reflects which of the following?
A failure to achieve full employment
Which of the following illustrates constant returns to scale?
A firm's 10% increase in given inputs, causing a proportionate 10% increase in output
Which of the following explains the concept of explicit costs?
A firm's monetary payments to those who supply labor services, materials, fuel, and transportation services. A firm's monetary payments made for the use of resources owned by others.
Which of the following are the characteristics of a competitive market?
A large number of buyers and sellers Standardized products
In the marketplace, what is a good that can be used in place of another good called?
A substitute good
What is the definition of accounting profit?
Accounting profit is what remains after a firm has paid its explicit costs.
Which of the following enables society to produce more goods with current resources?
Advances in technology
Which industry requires the most time for its firms to alter plant capacity?
Aircraft manufacturing
______ resource prices raise production costs and, assuming a fixed product price, ______ profits.
Higher; reduce
Marginal cost includes which of the following?
All the cost associated with producing the last unit of output The cost savings resulting from not producing the last unit of output
What are the components of plant capacity?
Amount of machinery and equipment Size of the factory building
Which of the following will cause the demand curve for product A to shift to the left?
An increase in money income if A is an inferior good.
A decrease in equilibrium price and indeterminate result on equilibrium quantity is a result of which of the following?
An increase in supply and a simultaneous decrease in demand
Which of the following is likely to cause an increase in the demand for a good or service?
An increase in the number of buyers
Which businesses would allow for the greatest use of management specialization?
An international airline An automobile manufacturer
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.
According to the law of demand, which of the following statements are true, all other things being equal?
As price decreases, quantity demanded increases. As price increases, quantity demanded decreases.
What is meant by the phrase "spreading the overhead"?
As production increases, average fixed cost declines.
Each purely competitive firm's demand curve is perfectly at the equilibrium price.
Blank 1: elastic, flat, or horizontal
Which of the following is an example of labor specialization?
Assigning each worker one task instead of five or six Hiring more workers in order to subdivide tasks
Which of the following are ways of expressing the meaning of ceteris paribus?
Assuming other things remain constant and Assuming factors other than those being considered in a particular analysis do not change
Where does the marginal-cost curve intersect the average-total-cost curve?
At the minimum point of average total cost
Which of the following best explains why the price-marginal cost relationship improves as production increases?
At the very early stages of production, marginal product is low, making marginal cost unusually high.
Per-unit costs are also referred to as ______ costs.
Average
__________ product of labor is total product divided by units of labor.
Average
What does the vertical distance between the average total cost and average variable cost curves measure?
Average fixed cost at any level of output
Which of the following is true of average fixed cost when output increases?
Average fixed cost declines as output increases.
What happens to average product when marginal product exceeds it?
Average product continues to rise.
Which of the following is true where the marginal product curve intersects the average product curve?
Average product is at its maximum.
Total fixed cost divided by output plus total variable cost divided by the output yields which of the following?
Average total cost
Which curve first falls and then rises?
Average variable cost curve
Which of the following enables firms to make per-unit comparisons with product price?
Average-cost data
An increase in the price of labor has no effect on which cost curve?
Average-fixed-cost
Why does marginal product eventually diminish as units of labor are added?
Because the number of workers increases relative to the amount of capital equipment
profit is the firm's total revenue less its explicit costs, whereas profit is the firm's total revenue less economic costs (explicit and implicit).
Blank 1: Accounting Blank 2: economic
revenue is the additional revenue that an additional unit of would add to total revenue.
Blank 1: Marginal Blank 2: output or production
Total product goes through three phases: It initially at an increasing rate; then it increases but at a diminishing rate; finally, after reaching a maximum, it .
Blank 1: rises, increases, grows, or expands Blank 2: declines, decreases, falls, diminishes, or drops
A competitive firm may realize an economic profit or loss in the run but will earn only a normal profit in the run.
Blank 1: short Blank 2: long or longer
A purely competitive firm's total revenue (TR) is a straight line that slopes (upward/downward) and to the (left/right).
Blank 1: upward, up, or upwards Blank 2: right
Which of the following illustrate the concept of a short-run adjustment?
Boeing adds an entire shift of workers. Boeing hires 100 extra workers for one of its commercial airline plants.
Which of the following are long-run adjustments?
Boeing installs more robotic welding equipment. Boeing adds a new production facility.
How is total cost calculated?
By adding total fixed cost and total variable cost
How is the average total cost curve determined from graphical information?
By adding vertically the average fixed cost and average variable cost curves.
How can a business manager control variable costs in the short run?
By altering levels of production
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
How is marginal cost (MC) calculated?
By dividing the change in total cost by the change in output
Which of the following combinations are unattainable given a consumer's budget line?
Combinations that fall beyond the budget line
Which of the following industries highlight the pattern of declining long-run average total costs?
Computer microchip Automobile Aluminum
Which best characterizes variable costs?
Costs that change with the level of output
True or false: Economic costs equal explicit costs minus implicit costs.
False
Subtracting explicit and implicit costs from total revenue yields which of the following?
Economic profit
Subtracting implicit costs from accounting profit yields which of the following?
Economic profit
What is another term for economies of scale?
Economies of mass production
The U-shape of the long-run average-total-cost curve results from which of the following?
Economies of scale Diseconomies of scale
Which of the following shows the effects on equilibrium price and quantity due to an increase in supply and a simultaneous decrease in demand?
Equilibrium price falls and the change in equilibrium quantity is indeterminate.
Based on the information given in the table, which of the following statements are true?
Every unit of output up to and including the ninth unit represents greater marginal revenue than marginal cost. The ninth unit of output is the profit-maximizing level of output.
____________ costs are the monetary payments a firm makes to those who provide the factors or inputs to production.
Explicit
When a firm considers its economic costs, it considers which of the following?
Explicit and implicit costs All opportunity costs of resources used
Taken together, the four general categories of economic resources (land, labor, capital, and entrepreneurial ability) are referred to as which of the following?
Factors of production
Determining normal profit involves estimating which of the following?
Forgone entrepreneurial income
Which of the following are examples of implicit costs?
Forgone wages Forgone rent
How is the long-run average-total-cost curve derived?
From all points of tangency of the short-run average-total-cost curves
When a country engages in international specialization, it focuses on producing which of the following?
Goods with the lowest opportunity costs
_______ comes in form of wages, interest, rent, profit, and even from government programs.
Income
What is the firm's most likely response if price is exactly equal to minimum average variable cost?
Indifference to producing or shutting down
How does labor specialization allow a worker to become more proficient?
It allows a worker to focus on fewer tasks and become more skilled in performing those tasks.
Which of the following is true of positive economics?
It avoids value judgments, tries to establish scientific statements about economic behavior, focuses on facts and cause-and-effect relationships.
Greater labor specialization has which of the following effects?
It eliminates the loss of time that occurs whenever a worker shifts from one task to another.
More efficient technology has what effect on the productivity of all inputs?
It increases the productivity of all inputs.
What happens to average product as additional units of labor are added to a fixed plant?
It increases, reaches a maximum, and then decreases.
Which of the following best describes the average variable cost curve?
It is U-shaped.
Which of the following is true regarding a firm's plant capacity?
It is fixed in the short run.
Which of the following can be stated as potentially true about any economy?
Its current choice of position on its production possibilities curve helps determine the curve's future location.
In the short run, if a firm wants to vary its output, what resources can it adjust?
Labor Materials
In general, what production characteristic and plant size scale are required for efficient capital usage to be effective?
Large-scale producers High production volume
A firm grows from one to three plants. As a result, the firm's sales increase, leading to greater marketing expertise. This is an example of which of the following?
Learning by doing
In the run, firms are able to adjust all resources.
Long
A time period during which a firm can adjust the quantities of all the resources that it employs, including plant capacity, is known as which of the following?
Long run
Economically speaking, what period of time is sufficient for new firms to enter or for existing firms to exit an industry?
Long run
A planning curve is another term for which of the following?
Long run average-total-cost curve
By expanding the size of its operations, a growing firm is able to experience economies of scale to do which of the following?
Lower its average total costs
Between P2 and P4, the firm will minimize its losses by producing and supplying the quantity at which:
MR=P=MC
_____is the discipline that examines the performance and behavior of an economy as a whole.
Macroeconomics
What type of cost can be saved by not producing the last unit?
Marginal
Which of the following are scenarios in which a firm should continue to produce?
Marginal revenue is $0.25 and marginal cost is $0.20. Marginal revenue is $5 and marginal cost is $4.75. Marginal revenue is $1.50 and marginal cost is $1.45.
The equilibrium price where the quantity demanded equals the quantity supplied is otherwise known as the ______-clearing price.
Market
Which of the following are examples of variable costs?
Materials costs Fuel costs Transportation services payments
Which of the following are issues most explored in microeconomics?
Measuring the price of specific goods, the expenditures of a government entity, measuring total revenues of a firm
Which discipline studies the decision-making process of customers, workers, households, and business firms on an individual basis rather than as aggregates?
Microeconomics
Which of the following occurs at a low level of output for small businesses such as those in retail trades and light manufacturing industries?
Minimum efficient scale
When the marginal cost of an additional unit of output exceeds the marginal revenue, what should the firm do?
Not produce that additional unit of output
Based on the information in this chart, at which price will a firm shut down?
P1
At any price above ______, the firm will obtain economic profit by producing to the point where MR=P=MC.
P4
Which group of costs is the most accurate example of variable cost?
Payments for materials, fuel, power, and transportation services
Which resource requires the most time for a firm to adjust, given a change in demand?
Plant capacity
The long-run average-total-cost curve is derived from the many short-run average-total-cost curves, each of which represents a different ______.
Plant size
At which point will a firm be indifferent whether to shut down or continue to produce?
Point b
A firm's total revenue is calculated as (Enter one word) times quantity produced.
Price
In pure competition, to calculate economic profit, we first calculate the difference between and average total cost and then multiply it by output. (Type only one word in blank.)
Price
Which of the following has the greatest effect on the quantity supplied?
Price
Which of the following improves as production increases?
Price-marginal cost relationship
Which of the following explains why a firm would not produce a unit of output where MC exceeds MR?
Producing it would add more to costs than to revenue, and profit would decline or loss would increase
_____ lists the different combinations of two products that can be produced with a specific set of resources, assuming full employment
Production Possibilities Table
Which of the following illustrates the attainable combination of two goods that can be produced given a specific set of resources?
Production possibilities curve
Which of the following resources can a firm easily and quickly adjust?
Raw materials Fuel Hourly labor
Which of the following would incur an explicit cost?
Raw materials Labor services Utility usage
Your company's total sales revenue for the month is $150,000; the costs to produce your products are $12,000 for rent, $6,000 for utilities, and $42,000 for employee wages. What is your accounting profit?
Reason: $150,000 - $60,000 (explicit costs) = $90,000.
What is the definition of economies of scale?
Reductions in the average total cost of producing a product as the firm expands the size of its plant (its output) in the long run.
Which of the following are examples of fixed costs?
Rental payments Interest on a firm's debts
What is the cause of a society's increasing opportunity costs with respect to the production of goods?
Resources that are not fully interchangeable
Which of the following factors will alter costs and shift the marginal cost or short-run supply curve to a new location?
Technology Prices of variable inputs
Choose all of the following that will cause a change in supply, not quantity supplied.
Technology Producer expectations Number of sellers
Which of the following occur when fixed costs increase?
The average total cost curve shifts upward. The average fixed cost curve shifts upward.
What is the effect of an increase in the price of labor on the ATC, AVC, and MC curves?
The average-variable-cost, average-total-cost, and marginal-cost curves shift upward. The average-fixed-cost curve remains the same.
Which of the following specifically refers to demand?
The buyer side of any market
What is the primary cause of diseconomies of scale?
The difficulty of efficiently controlling and coordinating a firm's operations as it becomes a large-scale producer
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.
What is the price where the intentions of buyers and sellers match?
The equilibrium price
How is marginal product (MP) defined?
The extra output or added product associated with adding a unit of a variable resource
What is the primary difference between the individual firm's supply curve and the industry supply curve?
The individual supply curve has no effect on price, whereas the industry supply curve has an important bearing on price.
What determines market price and equilibrium output in a market?
The interaction of buyers and sellers
A production possibilities curve with an increasing slope is the result of which of the following?
The law of increasing opportunity costs
Over what period of time can an industry and firms in that industry adjust all resource inputs used?
The long run
What does the long-run average-total-cost curve show?
The lowest average total cost at which any chosen output level can be produced after the firm has had time to make adjustments in plant size
Which best describes the graphical portrayal of marginal cost?
The marginal cost curve declines sharply at first, reaches a minimum, and then rises abruptly.
In this graph, which curve represents the firm's short-run supply curve?
The marginal-cost curve
Which best describes average product (AP)?
The output per unit of labor input
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.
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 are examples of a long-run adjustment period?Which of the following are examples of a long-run adjustment period?
The two days it takes a t-shirt maker to add sewing machines and silk-screen printers The three years it takes an oil refining company to build a new plant
The smoothness of a long-run average-total-cost curve results from which of the following?
The virtually unlimited number of available plant sizes
What is the relationship between productivity (MP & AP) and cost (MC & AVC) curves?
They are mirror reflections of each other. As productivity curves are rising, cost curves are falling. As productivity curves are falling, cost curves are rising.
Which statement best describes combinations of goods that are beyond the production possibilities curve?
They are unattainable
What happens to variable costs during the onset of production when marginal product is increasing?
They decrease with successive units of output.
What happens to fixed costs when the level of production output reaches zero?
They remain unchanged.
cost is the sum of fixed cost and variable cost at each level of output.
Total
Which of the following sets of values are necessary to compute average total cost (ATC)?
Total cost and output Average fixed cost and average variable cost Total variable cost, total fixed cost, and output
What methods can be used to calculate average total cost?
Total cost divided by output (Q) Average fixed cost plus average variable cost
How is average fixed cost determined?
Total fixed cost divided by output
What is the term for the total quantity of a specific good produced?
Total product
Multiplying product price by output reveals which of the following?
Total revenue
What is the definition of economic profit?
Total revenue minus economic costs (explicit and implicit)
What is the definition of average variable cost?
Total variable cost divided by output (Q)
The shape of the marginal cost curve reflects which of the following?
Total variable cost first increases by decreasing amounts then by increasing amounts.
True or false: Heavy industries, such as aluminum and steel, exhibit the pattern of declining long-run average total costs.
True
True or false: Hourly labor, raw materials, and fuel are examples of resources a firm can easily adjust.
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
True or false: Resource costs or changes in these costs to production are responsible for shifts in the supply curve.
True
True or false: The short run and the long run are conceptual periods rather than calendar time periods.
True
Which of the following worker productivity factors often lead to diseconomies of scale?
Worker alienation from the employer Increased opportunities to shirk and avoid work
A decrease in demand while holding supply constant results in ______ in both equilibrium price and quantity.
a decline
A decrease in demand while holding supply constant results in _______.
a decrease in both equilibrium price and quantity
The effects on equilibrium price and quantity due to an increase in supply and a simultaneous decrease in demand are shown by ______.
a decrease in equilibrium price and an indeterminate change in equilibrium quantity
The inverse relationship between price and quantity demanded can be graphically illustrated by ______.
a downward sloping curve
Which of the following are ways that industries and firms can change the amounts of inputs used in the long-run?
a) An industry can change its overall capacity. c) A firm can build a larger plant. d) An industry can make major complex technological production advances.
_________ costs are payments made by firms to attract the resources they need away from alternate production opportunities.
a) Economic e) Opportunity
Which of the following are types of costs that do not vary with changes in output (i.e., fixed costs)?
a) Interest on a firm's debts b) Rental payments c) Insurance premiums
What is the effect of an increase in the price of labor on the ATC, AVC, AFC, and MC curves?
a) The average variable cost, average total cost, and marginal cost curves shift upward. c) The average fixed cost curve remains the same.
A firm's costs of producing a specific output depend on which of the following?
a) The prices of the needed resources required to produce a given output. d) The quantities of resources required to produce a given output.
What methods can be used to calculate average total cost?
a) Total fixed cost divided by output (Q) plus total variable cost divided by output (Q) b) Total cost divided by output (Q) c) Average fixed cost plus average variable cost
When a firm considers its economic costs, it considers
a) all opportunity costs of resources used d) explicit and implicit costs
If you quit your job to start your own business, your forgone wages are:
a) an opportunity cost c) an implicit cost
When marginal product at its maximum, marginal costs:
a) begin rising with additional output produced. c) are at a minimum at the same output level
Marginal cost designates the cost that:
a) can be incurred by producing an additional unit c) can be saved by not producing the last unit
The marginal-cost curve intersects with the average-variable-cost curve at the ______.
average-variable-cost curve's minimum
Positive economics ______ value judgments, tries to establish ______ statements about economic behavior, and deals with ______ economic events.
avoids; scientific; actual
If total variable cost is $100, total fixed cost is $100, and output is 10, what is average variable cost?
b) $10
Which is the definition of explicit costs?
b) A firm's monetary payments made for the use of resources owned by others. d) A firm's monetary payments to those who supply labor services, materials, fuel, and transportation services.
Which of the following is an example of labor specialization?
b) Each worker may now have just one task instead of five or six. d) Workers can work full-time on the tasks for which they have unique skills. e) Hiring more workers means jobs can be divided and subdivided.
Which of the following are examples of implicit costs?
b) Foregone wages c) Foregone rent
Which group of costs is the most accurate example of variable cost?
b) Payments for materials, fuel, power, and transportation services
Which of the following is not covered when an entrepreneur's economic profit is zero?
b) Pure profit
When cost curves shift, it is die to changes in which of the following?
b) Technology c) Resource prices
Economically speaking, what period of time is sufficient for new firms to enter or for existing firms to exit an industry?
b) The long run
Which of the following are examples of an opportunity cost?
b) The opportunity cost of the paper used in printing textbooks is the value it would have in printing encyclopedias or romance novels. c) The opportunity cost of steel used in constructing office buildings is the value it would have in manufacturing automobiles or refrigerators.
When a firm chooses to produce the appropriate level of output, it has made:
b) a decision in the margin
A natural monopoly is a relatively rare market situation where average total cost is
b) minimized when only one firm produces the particular good.
Greater ________ specialization eliminates the loss of time that occurs whenever a worker shifts from one task to another.
b) resource
The formula for marginal costs is
b) the change or difference in total variable cost divided by the change or difference in output c) the change or difference in total cost divided by the change or difference in output
If at 10 units of output, total fixed cost is $10 and total variable cost is $16, what is total cost?
c) $26
What is one reason for economies of scale?
c) Labor specialization
Which of the following resources can a firm easily and quickly adjust?
c) Raw materials d) Fuel e) Hourly labor
What is the definition of efficient capital?
c) The purchase and effective use of efficient capital equipment to achieve large scale production economies of scale
What is the definition of economic profit?
c) Total revenue less economic costs (explicit and implicit)
Price controls or ______ mandated in the apartment rental market benefit the consumer by establishing a price ______ the free market equilibrium price.
ceilings; below
If economists examine the relationship between the price of a good and sales of that good while ignoring other related factors, or assuming those other factors are equal, they are using which of the following?
ceteris paribus
The figure illustrates that in an industry with an extended range of returns to scale, firms of varying sizes can coexist and be equally profitable.
constant
The straight-line budget constraint indicates ______ opportunity cost.
constant
The concept of demand can be summarized by a schedule or curve showing the quantity of a product that would be ______.
consumed at various possible prices
One of the determinants of demand is ______ expectations.
consumer
Consumers must make choices about what to buy and what to forgo to fulfill wants because ______.
consumers' incomes are limited
What is the best definition of constant returns to scale?
d) The unchanging average total cost of producing a product as the firm expands the size of its plant (its output) in the long run.
The long run average total cost curve is made up of:
d) all points of tangency of the short run average total cost curves
In a manufacturing plant with no labor, adding labor increases output and marginal product. However, at some point increasing labor will no longer increase output at the same rate. Adding even more labor eventually causes marginal product to decline, because there will simply not be enough space for so many workers to work. This is an example of the law of returns.
diminishing
The law of ______ returns states that as successive units of a variable resource are added to a fixed resource, beyond some point, the marginal product will decline.
diminishing
A farmer cultivates a cornfield by fertilizing and increases the farm's yield to 50 bushels per acre. Additional cultivation increases the yield but at a decreasing rate. At some point, additional cultivation will not lead to any additional output per acre. This is an example of the law of ______.
diminishing returns
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
Total variable cost reflects the law of _________ _________ as more and more variable resources are added.
diminishing returns
According to the law of supply, price and quantity supplied have a(n) ______ relationship.
direct/positive
Average total cost equals total cost _______ by output.
divided
The _________ of any resource used to produce a good is the value or worth the resource would have in its best alternative use.
economic cost
A statement about economic behavior or the economy that enables prediction of the probable effects of certain actions is known as a(n) ______.
economic principle
Government may place legal limits on prices when it is determined that prices are unfairly ______ for buyers or unfairly ______ for sellers.
high, low
________ costs are the firm's opportunity costs of using its self-owned, self-employed resources.
implicit
Forgone entrepreneurial income is an example of a(n) ______.
implicit cost
In general, a firm will _______ the output of a good or service if the price of the good is rising.
increase
The quantity of a product supplied by a firm in pure competition should _____ as long as price rises.
increase
Later in a production cycle, as diminishing returns are encountered, variable costs ______ for each additional unit of output.
increase by increasing amounts
A favorable change in consumer tastes and preferences for a product will _______ demand, shifting the demand curve to the
increase, right
A decrease in supply while holding demand constant results in a(n) ______ in equilibrium price, and a(n) ______ in equilibrium quantity.
increase; decrease
A price ceiling is the maximum legal price a seller may charge for a product or service where a price at or below the ceiling is ______ and a price above the price ceiling is ______.
legal; illegal
If costs of production rise, the producer has an incentive to produce (one word) output.
less, lower, fewer, decreased, reduced, lesser, or low
In this graph, a firm incurs a loss but continues to operate because price is ______ than the lowest average total cost but above the lowest average ______ cost.
less; variable
As a result of our ______ incomes and ______ wants, it is in our self-interest to economize or pick and choose goods and services that maximize our satisfaction.
limited; insatiable
From the industry's viewpoint, the run includes enough time for existing firms to dissolve and leave the industry or for new firms to be created and enter the industry.
long
From an existing firm's perspective, the ________ ________ is a time period during which it can adjust the quantities of all the inputs that it employs, including plant capacity.
long run
Economies of scale explain the downward-sloping part of the ______ curve.
long-run average-total-cost
Economic principles are generalized statements that ______ consumer behavior.
look at typical
A marketing supervisor works in a small plant where she performs a range of duties. As the company grows and hires additional supervisors, she is able to spend the bulk of her time in her area of expertise. In this example, the company has increased its ______.
managerial specialization
A firm's decision about what output level to produce is typically a ______ decision.
marginal
________ costs equals the change or difference in total cost divided by the change or difference in output.
marginal
________ product is zero when total product is at a maximum.
marginal
A firm would not produce a unit of output where ______.
marginal cost exceeds marginal revenue
If all workers are hired at the same price, the marginal cost of producing each extra unit of output falls provided the ______ of each additional worker is rising.
marginal product
A firm should produce any unit of output whose ______.
marginal revenue is greater than marginal cost
The marginal-product curve is a mirror image of the ______ curve.
marginal-cost
The equilibrium price where the quantity demanded equals the quantity supplied is otherwise known as the __________ price
market-clearing
In heavy industries, small firms are unlikely to realize ______ and will be unable to compete with large-scale producers.
minimum efficient scale
Economists do not include money as an economic resource because ______.
money produces nothing
Improvements in the methods of production allows for the creation of ______.
more goods with available resources
On a simple supply model, a change in quantity supplied is illustrated by a ______ and a change in supply is illustrated by a ______.
movement along the supply curve; shift of the supply curve
The relationship between the price of a good or service and the quantity demanded of that good or service described by the law of demand is
negative
From an economic standpoint, the break-even point is the level of output at which a firm makes a(n) ______ profit.
normal
A production possibilities curve (PPC) illustrates the attainable combination ______,
of two goods that can be produced given a specific set of resources
An ___________ cost is the value or worth the resource would have in its best alternative use.
opportunity
Trade-offs arising from limited resources give rise to ______.
opportunity costs
Points lying ______ the production possibilities curve represent greater, but unachievable levels of output with current inputs, than that at any point on the curve.
outside
The assumption behind purposeful behavior is that ______.
people act in such a way as to rationally pursue their own interests
The size of the factory, the amount of machinery and equipment, and other capital resources make up __________ __________.
plant capacity
Unemployment in the economy is graphically represented by ______ the production possibilities curve.
points inside
As a firm grows, decision making may slow, impairing efficiency and _______ average total cost.
raising
The price of ______ goods is a determinant of demand.
related
When an economy produces a good such that the marginal benefit equals the marginal cost, this indicates that ______.
resources are being allocated efficiently
In a purely competitive industry, at the profit-maximizing or loss-minimizing level of output, marginal ______ is equal to ______.
revenue; marginal cost revenue; price cost; price
Total variable costs _______ with increases in output
rise
At the point on a graph where total product (Q) is zero, total cost is equal to ______.
total fixed cost
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
The equation for determining economic profit or loss is ______ minus ______.
total revenue; total cost
People desire goods and services that provide maximum utility. In fact, our desires or wants are ______.
unlimited
The pleasure, satisfaction, or happiness obtained from consuming a good or service is known as ________
utility
A firm can directly and immediately control its marginal costs by its controlling its ________ costs.
variable
Total costs, including _______ (one word) and marginal costs change with the level of output.
variable
Under the definition of long run, all resources and inputs are ______.
variable
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 Reason: An economic profit is earned if revenues exceed the sum of all explicit and implicit costs.
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.
Economic profit will fall to zero and firms will choose not to enter an industry when price is equal to which of the following factors?
Minimum average total cost Marginal cost
How does a purely competitive market restore allocative efficiency when an increase in demand disrupts efficiency?
New firms enter and increase industry output until price and marginal cost are equal.
The transformative effects of competition are often referred to as:
creative destruction
Firms that operate in a purely competitive industry:
do not differentiate their products
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
If the market price exceeds the firm's minimum average total cost (ATC), then it will ______.
incur an economic profit
In a purely competitive industry, buyers view the products of firms B, C, D and E as ______ for the product of firm A.
perfect substitutes
In a purely competitive market, marginal revenue is a constant that is equal to which of the following?
price
Which of the following best describes pure competition?
An industry involving a very large number of firms producing identical products and in which new firms can enter or exit the industry very easily.
If there are losses in the long run, what adjustments will take place?
Firms will exit the industry until losses are eliminated.
Which of the following best describes a pure monopoly?
One firm selling a single unique product, where entry of additional firms is blocked and there is considerable control over price
competition is considered to be rare in the real world.
Pure or perfect
A purely competitive firm's demand schedule is equal to which of the following?
marginal revenue average revenue
A(n) competitive firm's average-revenue schedule is also known as its demand schedule.
Blank 1: pure, perfectly, or purely
In a purely competitive market, price per unit to the purchaser is synonymous with per unit or revenue to a seller. (Enter one word per blank.)
Blank 1: revenue or cost Blank 2: average or marginal
profits in a competitive industry will attract new firms into the industry.
Economic
Which of the following does a decreasing-cost industry experience?
Lower costs as industry output expands.
Which type of market produces the most efficient use of society's resources?
Pure competition
Which of the following are considered to be the four basic market structures?
Pure competition Pure monopoly Oligopoly Monopolistic competition
In a purely competitive industry, an increase in the price of the product produced by firm A will cause buyers to ______.
substitute with products of firms B, C, or D
Firms within pure competition are considered to be price .
takers or taker
What are the effects of the "invisible hand" in a purely competitive economy?
Maximum profits for individual producers Resource allocation that maximizes consumer satisfaction
In a perfectly competitive market, the demand curve for an individual firm is perfectly at the market price.
Blank 1: elastic, horizontal, flat, constant, or fixed
A competitive market generates efficiency and efficiency. (Enter one word for each blank.)
Blank 1: productive Blank 2: allocative
In pure competition, if the first unit of output sold increases total revenue from $0 to $131, marginal revenue for that unit is $131. If the second unit sold increases total revenue from $131 to $262, marginal revenue is again $131. The third unit sold increases total revenue to $______ and marginal revenue is now $______.
393; 131
Which of the following does an increasing-cost industry experience?
A downward shifting average total cost (ATC) curve as the industry contracts. An upward shifting average total cost (ATC) curve as the industry expands.
Match the market models based on the number of firms present in each model.
Pure competition = Very large number Monopolistic competition = relatively large number oligopoly = few Monopoly = One
A basic feature of the purely competitive market is the presence of ______.
a large number of sellers
A firm operating in a purely competitive market is a price taker because it ______.
cannot change the market price, it can only adjust to it
An industry where expansion or contraction will not affect resource prices and production costs is known as a(n) ______.
constant-cost industry
The difference between the maximum price a consumer is willing to pay for a product and the actual price that they do pay is known as _____.
consumer surplus
In purely competitive markets, efficiency can be temporarily disrupted and then restored by changes in:
consumer tastes. technological changes. resource supplies.
An unfavorable shift or ______ in demand will upset the original industry equilibrium and produce ______.
decrease; losses
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
A decreasing-cost industry is one in which firms experience ______ costs as their industry ______.
higher; contracts lower; expands
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
A purely competitive industry has a very ______ number of sellers, whereas the other three market structures reflect a progressively ______ or ______ number of sellers.
large; smaller; decreasing
The entry and the exit of firms in an industry are considered to be -run adjustments.
long
Which market structure has the fewest obstacles to entry or exit?
Pure competition
In the long run, a purely competitive firm will only earn a ______ profit.
Normal
True or false: Firms within pure competition will produce standardized products.
True
Which of the following is a characteristic of a monopolistically competitive market?
A relatively large number of sellers producing differentiated products
Which of the following best summarizes why firms in purely competitive industries do not differentiate their products?
Because there are so many of them selling a standardized product
Why will firms choose not to enter an industry when marginal revenue, marginal cost, price, and average total cost are equal?
Existing firms are earning only normal profits.
What must be eliminated or avoided if the "invisible hand" is to produce socially optimal outcomes in purely competitive markets?
Externalities
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, an equality occurs where price equals marginal revenue, which equals minimum average total cost. Price or marginal revenue will settle where it is equal to minimum average total cost. In the long run, a multiple equality occurs where price equals marginal cost which equals the minimum average total cost.
New firms entering an increasing-cost industry will usually (increase/decrease) resource prices.
Increase
In an increasing-cost industry, which of the following occur when an increase in product demand results in economic profits and attracts new firms to the industry?
Increased resource demand drives up resource prices. Each firm's ATC curve shifts upward.
Which of the following best describes oligopoly?
Involves only a few sellers of a standardized or differentiated product, so each firm is affected by the decisions of its rivals.
Which of the following statements are true about allocative efficiency?
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. The marginal cost and marginal benefit of producing each unit of output is equal.
What will happen to a firm that finds a way to lower production costs through better technology or improved organization?
Its profits will increase.
(Allocative/Productive) efficiency means that goods are produced in the least costly way.
Productive
______ is relatively rare in the real world, although this market model is highly ______ to several industries.
Pure competition; relevant
Which of the following features occur in a purely competitive market?
Sales in both national and international markets. Many independently acting sellers
Which of the following best explains why the long-run supply curve of a constant-cost industry is perfectly elastic?
The entry and exit of firms changes industry output bringing the price back to its original level, where it is equal to the constant minimum ATC
Which of the following occur only in the long-run?
The expansion or contraction of plant capacity The entry and exit of firms
Which factors illustrate that the demand curve for a purely competitive firm is perfectly elastic?
The firm does not need to lower its price to increase its sales volume. The firm cannot obtain a higher price by restricting its output.
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.
True or false: Efficiency within pure competition can be temporarily disrupted by a change in consumer tastes.
True
The change in total revenue that results from selling one more unit of output is called revenue.
marginal
The long run, every purely competitive firm tends to operate at its ______.
minimum ATC
In which market model do firms rely on product differentiation to distinguish themselves from the competition?
monopolistic competition
Economic profit for a firm will result if:
price exceeds average total cost
All firms in a(n) ______ industry share the same basic efficiency characteristics.
purely competitive
The price, multiplied by the firm's output or goods produced, equals ______.
total revenue
Which of the following are conditions necessary to have pure competition?
very large number of firms or sellers free entry and exit standardized product
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
