ECON110 TEST 3
Implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do
A difference between explicit and implicit costs is that
Is not likely to be concerned with entrants eroding its monopoly power, is taking advantage of economies of scale, would experience a higher average total cost if more firms entered the market
A firm that is a natural monopoly
Variable costs
A firm will shut down in the short run if total revenue that it would get from producing and selling its output is less than its
It's losses exceed its fixed costs, it's total revenue is less than its variable costs, the price of its product is less than its average variable cost
A firm will shut down in the short run if, for all positive levels of output,
$13,000
A monopoly firm maximizes its profit by producing Q=500 units of output. At that level of output, its marginal revenue is $30, it's price is $60, and its average total cost is $34. What is the monopoly's profit?
Price is grater than the minimum average variable cost
A perfectly competitive firm will continue to operate in the short run when the market price is below its average total cost if the
How a firm turns input into output
A production function describes
Quantity of output
A production function is a relationship between inputs and
Sell all he wants at the going price, so he has little reason to charge less.
A seller in a competitive market can
The cost of space in your home used for a home office or home business
An example of an implicit cost of production would be
Implicit costs
As a general rule, when accountants calculate profit they account for explicit costs but usually ignore
Fall
As output increases in the short run, average fixed costs
Average fixed costs are declining pulling ATC downward and average variable costs are rising pulling ATC upwards
Average total costs cost is generally U-shaped because
Operate his business as long as he rents at least 1 boat per month
Bill operates a boat rental business in a competitive industry. He owns 10 boats and pays $1000 per month on the loan that he took out to buy them. He rents each boat for $200 a month. The variable cost for each boat rental is $50. In the off season, Bill should
P=$300 and Q=800
Consider the market for ionic air purifiers. The demand equation is Qd=2000-4P and the supply equation is Qs=-1000+6P. What is the market equilibrium price and quantity?
Output per additional worker declines as more workers are hired
Diminishing marginal product of labor holds that
Average total costs rise as output increases
Diseconomies of scale occur in the long run when
Opportunity cost of producing goods and services
Economic profit is equal to total revenue minus the
Long-run average total costs are decreasing as output increases
Economies of scale occur when a firms
Profits
Economists assume that the goal of the firm is to maximize total
Maximize its profit
Economists normally assume that the goal of a firm is to
Average revenue equals marginal revenue
For a competitive firm,
The $30,000 salary paid to the company bookkeeper
For a construction company that builds houses, which of the following would be a fixed cost?
The cost of steel that is used in producing automobiles
For a large firm that produces and sells automobiles, which of the following costs would be a variable cost?
Price never equals marginal revenue, never exceeds average revenue, and no price-quantity combination will maximize profit.
For a monopoly firm,
To sell more units of output, the price must be lowered.
For a monopoly, why is marginal revenue less than price?
$100
If Kevin's children run a lemonade stand for a day and sell 200 glasses of lemonade at $.50 each, their total revenues is
Decreasing output will increase the firms profit
If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then
A one-unit increase in output will increase the firm's profit
If a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost, then
It's average total cost is less than $10
If a competitive firm is selling 900 units of its product at a price of $10 per unit and earning a positive profit, then
Marginal revenue must decrease
If a monopoly lowers its price, its
$630
If a perfectly competitive firm produces 70 units of a good and has marginal revenue $9, what is the firms total revenue?
The output it sells will decrease to zero
If a perfectly competitive firm raised the price of its product
Less than average total cost
If average total costs are declining, marginal cost must be
New firms will enter the market in the long run and the demand curve for existing firms will shift to the left, causing prices and profits to fall
If firms in a monopolistically competitive market are earning positive economic profits in the short run, then
Have a negligible impact on the market price
In a competitive market, the actions of any single buyer or seller will
The best strategy for a player to follow, regardless of the strategies followed by others.
In a game, a dominant strategy is, by definition,
Identical or the same as another farmers wheat
In a perfectly competitive market, one farmers wheat is
More elastic
In comparison to a monopoly, the demand curve for a monopolistically competitive firm is
Will earn zero economic profits but positive accounting profits
In the long run, assuming that the owner of a firm in a competitive industry has positive opportunity costs, she
Zero economic profits
In the long run, each firm in a competitive industry earns
Fixed costs
Some costs do not vary with the quantity of output produced. Those costs are called
Make fewer than 20 wedding cakes per month.
Laura is a gourmet chef who runs a small catering business in a competitive industry. Laura specializes in making wedding cakes. Laura sells 20 wedding cakes per month. Her monthly total revenue is $5,000. The marginal cost of making a wedding cake is $300. In order to maximize profits, Laura should
Change in total cost divided by change in quantity produced and change in the variable cost divided by change in the quantity produced
Marginal cost equals
The amount total cost changes when output changes by one unit
Marginal costs tell us
There are no barriers to entry, marginal revenue is less than price
Monopolistic competition is similar to perfect competition because __________ and also similar to a monopoly because ________
Continue to operate in both the short and long run
Mrs. Smith operates a business in a competitive market. The current market price is $8.50 At her profit-maximizing level of production, the average variable cost is $8, and the average total cost is $8.25. Mrs. Smith should
Horizontal demand curves and they can sell as much output as they want at the market price
Perfectly competitive firms have
Marginal revenue and price
Perfectly competitive firms maximize profits when marginal costs equals
Increase the firms profit by $1
Suppose a certain competitive firm is producing Q=500 units of output. The marginal cost of the 500th unit is $17, and the average total cost of producing 500 units is $12. The firm sells its output for $20. If the marginal cost of producing the 501st unit would be $19, producing and selling the 501st unit would
$32
Suppose a firm in a competitive market produces and sells 8 units of output and has a marginal revenue of $8. What would be the firms total revenue if it instead produced and sold 4 units of output?
$50
Suppose a monopolist charges a price of $27 for its product and sells 10 units at that price. At 10 units of production the firm has average fixed cost equal to $10 and average variable cost equal to $12. How much total profit is the firm earning at this price?
Less market power than it would otherwise
Suppose most people regard emeralds, rubies, and sapphires as close substitutes for diamonds. The DeBeers, a large diamond company, has
(i) and (iii) only
Suppose that a firm operating in perfectly competitive market sells 400 units of output at a price of $4 each. Which of the following statements is correct? (i) Marginal revenue equals $4. (ii) Average revenue equals $100. (iii) Total revenue equals $1,600.
New firms will enter the market, shifting the market supply curve to the right
Suppose that a perfectly competitive market is in the short-run with firms earning positive economic profit. What change is most likely to occur in this market in the long run?
$60
Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that when the firm hires 2 workers, the total cost of production is $100. When the firm hires 3 workers, the total cost of production is $120. In addition, assume that the variable cost per unit of labor is the same regardless of the number of units of labor that are hired. What is the firm's fixed cost?
Exactly $2.50
Suppose that in a competitive market the equilibrium price is $2.50. What is the marginal revenue for the last unit sold by the typical firm in this market?
Cause the market supply to decline and the price of organic produce to rise
Suppose that the organic-produce industry is composed of a large number of small firms. In recent years, these firms have suffered economic losses, and many sellers have left the industry. Economic theory suggests that these conditions will
$32,500
The Carolina Christmas Tree Corporation grows and sells 500 Christmas trees. The average cost of production per tree is $50. Each tree sells for a price of $65. The Carolina Christmas Tree Corporation's total revenues are
$20
The Wacky Widget company has total fixed costs of $100,000 per year. The firm's average variable cost is $10 for 10,000 widgets. At that level of output, the firm's average total costs equal
Total Revenue
The amount of money that a firm receives from the sale of its output is called
The natural monopoly has falling ATC over the relevant range of output
The defining characteristic of a natural monopoly is
Decrease market supply and increase market price
The exit of firms from a perfectly competitive market will
Marginal revenue equals marginal cost
The firm will make the most profits if it produces that quantity of outputs for which
Increases by $7.95
The information below applies to a competitive firm that sells its output for $40 per unit. • When the firm produces and sells 150 units of output, its average total cost is $24.50. • When the firm produces and sells 151 units of output, its average total cost is $24.55. When the firm increases its output from 150 units to 151 units, its profit
When all of the firms inputs are variable
The long run in a time period is that is
Is the portion of it's marginal cost curve that lies above its average total cost
The long-run supply curve for a firm in a perfectly competitive market
The portion of its marginal cost curve that lies about its average variable cost
The short-run supply curve for a firm in a perfectly competitive market is
Average total cost
To determine whether a monopoly is earning an economic profit at a particular level of output, we compare price with
$110
Tom's Tent Company has total fixed costs of $300,000 per year. The firms average variable cost is $80 for 10,000 tents. At that level of output, the firms average total costs equal
Accounting profits
Total revenue minus explicit costs is called
Produces a lower output and charges a higher price
Unlike a perfectly competitive market, a monopoly creates a deadweight loss because it
Produce fewer skateboards
When Zumies produces 10 skateboards a week, the marginal cost of the 10th skateboard is $84 and the marginal revenue of that skateboard is $70. What would you advise Zumies to do?
Willingness to pay for a movie ticket
When a movie theater price discriminates by offering a student discount, the movie theater is discriminating based on the students
Fixed costs are sunk in the short run and if revenue exceeds variable cost, the restaurant owner is making a smart decision to remain open for lunch
When a restaurant stays open for lunch service even though few customers patronize the restaurant for lunch, which of the following principles are best demonstrated?
Raise the profits of the firms that remain in the market
When firms have an incentive to exit a competitive market, their exit will
Average total cost is falling
When marginal cost is less than average total costs,
Shut down
When total revenue is less that variable costs , a firm in a competitive market will
As the quantity of output increases, marginal cost eventually rises.
Which of the following about costs is correct?
Accounting profit=total revenue-explicit costs
Which of the following expressions is correct?
A technological advance resulting in increased productivity
Which of the following factors is most likely to shift IBM's total cost and marginal cost curves downward?
profit = (price - average total cost) × quantity
Which of the following formulas would correctly calculate a monopolist's profit?
Pepsi
Which of the following goods would be considered to be in a monopolistically competitive market?
Cooperation among cartel members is difficult to maintain because members have an incentive to cheat on other members of the group
Which of the following is a characteristic of a cartel?
Buyers and sellers are price takers
Which of the following is a characteristic of a competitive market?
Forgone rent on office space owned and used by the firm
Which of the following is an example of an implicit cost?
Monthly wage payments for hired labor
Which of the following is the best example of a variable cost?
Economic profit is zero because marginal revenue equals the minimum ATC
Which of the following is true in the long-run equilibrium under perfect competition?
A monopoly firm has no supply curve and its marginal revenue is never greater than the price
Which of the following statements is true?
More firms will enter the market
Willie's Wading Adventures sells hip waders for fishing and duck hunting in a perfectly competitive market. If hip waders sell for $100 each and average total cost per unit is $95 at the profit maximizing output level, then in the long run