Econ Chapters 4 & 5

The hours of work supplied by various types of workers are referred to by economists as

Labor

The price of labor per unit times the amount of labor used is called

Labor cost

The total cost of production is determined by adding the costs of which of the following?

Labor, capital, land, intermediate inputs, and business know-how

An example of a barrier to entry is

Lack of a key resource

A good example of monopolistic competition is

Neighbourhood restaurants

The short-term cost function assumes that

Fixed costs can't be changed

Refer to Table 5.1, which gives Farmer McColl's marginal cost function for barley. If Farmer McColl is currently producing 20 bushels of barley, which of the following is the market price for a bushel of barley?

$0.60

Refer to Table 5.1, which gives Farmer McColl's marginal cost function for barley. If Farmer McColl is currently producing 25 bushels of barley, which of the following could be the market price for a bushel of barley?

$0.75

If a local car dealership can sell 8 cars per day at a price of $25,000 each, but must reduce the price to $24,000 to sell one more car, what is the marginal revenue of the 9th car?

$16000

If a local diner can sell 50 burgers per day at a price of $5 each, but must reduce the menu price to $4.95 to sell one more burger, what is the marginal revenue of the 51st burger?

$2.45

If Sara can produce 25 muffins for a total cost of $15, but her production process is subject to increasing marginal costs, which of the following could be the total cost of producing 100 muffins?

$80

If June can earn $1,500 in revenue from painting two houses, how much can she earn in revenue from painting three houses? (Assume she is just one housepainter in a large market of housepainters, and that she can easily find a third customer.)

Exactly $2250

One strategy for long-term profit maximization is

Innovation

In a simple grass-mowing business, the lawn mower and the labor would be

Inputs

What word describes the goods and services that are used to produce outputs for a business?

Inputs

The goods or services purchased by a business for immediate use in the production process are known as

Intermediate inputs

AT&T is an example of a business that used market power to

Invest in important research benefiting society

Theodore can make 6 pizzas in one hour. If Theodore's labor has a diminishing marginal product, what must be true about the number of pizzas that Theodore can make in three hours?

It must be less than 18

Inputs used by a business in the production process include

Labor

Fixed costs are also known as __________ costs because they are much harder for a business to change.

Long-term

Which of the following is NOT an example of a barrier to entry?

Lower costs

Marginal revenue is generally __________ for businesses that do not operate under conditions of perfect competition.

Lower than the price

Compared to businesses with market power, businesses in perfect competition will charge __________ prices and sell __________ output.

Lower; more

In perfect competition, a profit-maximizing business will expand production until its _________ equals the market price.

Marginal cost

The added expense of producing one more unit of output is called the

Marginal cost

_________ is the added cost to produce one more unit of output.

Marginal cost

The extra amount of output a business can generate by adding one more hour of labor is called

Marginal product

The additional money a business gets from producing and selling one more unit of output is

Marginal revenue

A profit-maximizing business will increase production as long as

Marginal revenue exceeds marginal cost

As the market price of a good rises, businesses will respond by producing more of that good because

Marginal revenue exceeds marginal cost after the price increase

From World War II to the early 1970s, GM, Ford, and Chrysler enjoyed

Market power

________ is the ability to raise prices above the level that perfect competition would produce by restricting the quantity supplied.

Market power

In perfect competition, all businesses in a market produce at the point where ________ equals ________.

Market price; marginal cost

Economists generally assume that the main goal of most businesses in the economy is to

Maximize profits

What happens to the marginal product of labor if more capital is added to a production process?

More capital generally causes the marginal product of labor to rise

A profit-maximizing monopolist will always charge _______ a perfect competitor would.

More than

A _______ monopoly is an industry in which it makes economic sense to have only one provider.

Natural

A profitable business will attract

New competitors

In a simple lawn-mowing business where you have a push mower and labor as input, what would be the impact on output of adding an additional input in the form of a gas self-propelled mower (capital)?

Output would increase

Businesses can raise their average product by investing in new equipment, by reorganizing work to be more efficient, or by

Outsourcing labor

In the long run, monopolistic competition starts to look like

Perfect competition

The four main types of market structure are

Perfect competition, monopolistic competition, oligopoly, and monopoly

If the music industry was perfectly competitive, then all performers would

Play the same music and charge the same price for concerts

In perfect competition, P = MC means

Price equals marginal cost

What name is given to the economic process of turning inputs into outputs that a business will sell to customers?

Production

Economists think of a business as a machine, where you put inputs in one end and get outputs from the other end. This metaphor is called the

Production function

The __________ summarizes the output of the business, given the level of inputs.

Production function

What is the difference between revenue and cost?

Profit

The main objective of a business in a market economy is

Profit maximization

Companies will often spend considerable amounts of money to create a ________with respect to their brand name.

Reputation effect

Marginal ________ is the added revenue from producing and selling one more unit of output.

Revenue

What word describes the money that customers pay for the output of a business?

Revenue

________ is the amount of money a company receives for selling its product or service.

Revenue

When a business expands production and increases sales, what generally happens to revenue?

Revenue rises because the business is selling more output

In a market where businesses are earning high profits, new entrants will cause the supply curve to shift to the _________ and thus cause the market price to _________.

Right; fall

Marginal cost generally ________ quantity produced.

Rises with

In short-run profit maximization, businesses focus on the ______, holding fixed costs constant.

Short-term cost function

Variable costs are also known as

Short-term costs

Variable costs are relevant for

Short-term everyday decision making

If all of the restaurants in a small town colluded and agreed to raise dinner prices, this would lead to a loss to society because

Some dinners that could be served would not be served

A business with market power may

Sometimes use high profits to research new technologies

Natural monopolies have been slowly eroded by

Technological change

In perfect competition, higher-cost businesses

Tend to go out of business if unable to adjust

In the process of long-term profit maximization, the business makes decisions under the assumption that it can

Vary all the inputs

What word describes the money that a business pays for its inputs?

Cost

Refer to Table 5.1, which gives Farmer McColl's marginal cost function for barley. Suppose Farmer McColl is one of 20 farmers in the barley market, and all of the farmers have identical marginal cost functions. If the market price of barley is $1.00 per bushel, which of the following could be the total amount of barley produced in the market?

700

Monopolistic competition is characterized by

A large number of sellers with similar products

A market where there is only one seller, and buyers have no good alternative, is called

A monopoly

The local department store might have been considered ________ before technological change.

A monopoly

It could be argued that Microsoft's two main products, Windows and Office, are examples of

A natural monopoly

__________ is paid communication with potential customers in a public medium, such as newspapers and television.

Advertising

An example of an oligopoly is the

Airline industry

Which of the following is an example of a profit-maximizing business?

An accountant who makes her living preparing tax returns for other people

An oligopoly occurs when there

Are only a few sellers in a market

Monopolies generally ________ technology and globalization.

Are reduced in number by

Inputs to production do NOT include

Average product

Output divided by the number of hours worked or by the number of workers is called

Average product

In a simple lawn-mowing business where you have a push mower and labor as input, what would be the impact of adding an additional input in the form of a gas self-propelled mower (capital)?

Average product would rise, and marginal product would rise

A __________ is anything that might make it more difficult for a competitor to enter a market.

Barrier to entry

A ___________ makes it more difficult for a competitor to enter a market.

Barrier to entry

Government regulations, such as zoning laws, can act as

Barriers to entry

Refer to Table 5.1, which gives Farmer McColl's marginal cost function for barley. If the current market price for barley is $1.00 per bushel, how much barley should Farmer McColl produce?

Between 30 and 40 bushels

The technology or knowledge necessary for a production process is called

Business know-how

The difference between long-term and short-term profit maximization is that, in the short term,

Businesses focus on achieving as much profit as they can, given that fixed costs cannot be changed

The long-lived physical equipment and structures that a business uses in its production process are called

Capital

If two bodegas in a market agree verbally that they will both sell Fritos at a higher price, and neither will undercut the other, this is called

Collusion

If two or more oligopolistic companies work together to keep their prices high and split the market between them, this is called

Collusion

Profit is the difference between revenue and

Cost

If you add too many inputs, your business may experience

Diminishing marginal product

Many times, technology is ________the equipment a company buys.

Embodied in

When businesses have market power, they are able to charge a price higher than the price charged by a business in perfect competition. Thus,the market power equilibrium on a diagram will be

Higher and to the left of the perfect competition equilibrium

An example of variable costs is

Hourly labor

_________ collusion can occur even when oligopolistic businesses do not directly communicate with each other.

Implicit

Market power is

The ability to raise prices above perfectly competitive prices

______ shows the potential cost for each level of output.

The cost function

Natural monopolies include

The local water company

The easiest way to have a monopoly today is

To have the government protect you

Which of the following is most likely to be sold in a perfectly competitive market?

Wheat

The profit-maximizing rule says that any seller will expand output up to the point

Where marginal revenue equals marginal cost

Does the stock market resemble a perfectly competitive market?

Yes, the stock market does resemble a perfectly competitive market