Economic exam 2 part 1

The profit per unit ?

(π/Q)= P-ATC

To calculate the profit

- ATC - Price - Quantity of output

These would be considered a decision that is made "at the margin" by a firm?

- a firm decides to produce an additional output. - a firm decides to hire an additional worker

the characteristics of a perfectly competitive market.

- a large number of buyers and sellers - producers who are price takers - easy entry and exit - a standardized product

The market produces the right goods in the correct amounts, using the fewest resources possible when

- allocative efficiency - productive efficiency

Private companies often find it difficult to earn a profit by providing a good that is nonexcludable due to:

- consumers who consume the good without paying for it - the free rider problem

At the optimal level of pollution to be cleaned up,

- marginal benefit of preventing pollution equals marginal cost of preventing pollution - welfare gains from pollution prevention are maximized

______ implies that monopolistically competitive firms should expand production up to the pop where the marginal revenue ____ the marginal cost.

Profit maximization, equals

The Herfindahl-Hirschman Index (HHI) refers to

a concentration index that measures the sum of the squared percentage of sales from all firms in a particular industry

A situation in which a particular strategy yields the highest payoff, regardless of the other player's strategy is :

a dominant strategy

if the wage rate is constant, the marginal resource cost associated with hiring one additional worker is

a horizontal line at the wage

The marginal product is the:

additional output produced as a result of utilizing one more unit of a variable resource

marginal product is the:

additional output produced as a result of utilizing one more unit of a variable resource.

The market interaction between buyers and sellers results in ______ and ______ efficiency.

allocative, productive

the external marginal benefit is the benefit of:

an additional unit of a good or service that is enjoyed by people other than the direct consumer of the good or service

When firms want to produce additional output, they make decisions ________.

at the margin

Impediments that prevent firms from entering a market or industry are known as:

barriers to entry

second degree price discrimination is aka

block pricing

Social demand is the demand for a good or service that reflects

both the private and external benefits of its consumption

nonexcludable

consumers cannot be prevented form consuming these goods

From an economic perspective, pollution involves _________ and _____

costs, benefits

The optimal level of resource utilization ____ when the marginal resources cost increases.

decreases

If consumers develop a taste for sushi, there will be a____ ___ for sushi chefs

derived demand

the demand for labor is:

derived from its marginal revenue product

a condition in which the long run average total cost of production decreases as production increases is called:

economies of scale

in the long run, _____

firms earn a normal profit

Excludable goods

firms use prices to determine who can consume this type of good

In the circular flow model, _____ and ______ interact in the resource market and the product market

firms, households

When economists evaluate the prevention of crime instead of crime, they are

flipping the analysis

When people consume a nonexcludable good without paying for it, it called

free rider problem

rival goods

if i consume this good, another person cannot consume it at the same time

capital

interest

The shape of the marginal cost curve is dependent on the ___

law of diminishing marginal returns

the change in total product associated with hiring an additional worker is called

marginal product

for a perfectly competitive firm, the market price is equal to:

marginal revenue, average revenue, demand

When the market does not produce an output level that maximize total surplus, it is called:

market failure

in a constant cost industry, the long run supply curve is a horizontal line originating at the ____ that generates normal profits for the firms in the industry.

market price

the demand for a perfectly competitive firm's product is a horizontal line originating at the ____

market price

one common feature of ________ is that firms invest heavily in product development and innovation, which benefits ________ greatly

monopolistically competitive markets, consumers

When a firm lacks the ability to prevent people from consuming a good or service, the good is called

nonexcludable good

nonrival goods

one person's consumption of this good does not affect another person's consumption of it

Resource Utilization and marginal resource costs move in ________ .

opposite directions

A _________ is the unpaid benefit of an activity that is enjoyed by a third party.

positive externally

When a_____ externally exists, the socially optimal level of output will be greater than that resulting from a ____ market.

positive, private

The demand for a perfectly competitive firm's product is a horizontal line originating at the market ________

price

The supply of a good or service that reflects only the private costs of its production is called

private supply

_____ is producing output at the lowest possible average total cost of produce.

productive efficiency

__________ is using the fewest resources possible to produce a good or a service

productive efficiency

in the long run, perfectly competitive firms achieve ______ and ____ efficiency.

productive, allocative

all firms maximize ____ by producing the quantity of output at which the marginal revenue is equal to the marginal cost.

profit

enterpreneurial ability

profits or losses

The clayton act of 1914

prohibits mergers that would substantially lessen competition or create a monopoly

______ involve the exclusive right to determine how a resource is used

property rights

Private markets fail to provide the optimal amount of public goods because

public goods are non rival and non excludable

land

rent

In monopolistically competitive markets, which of the following allow consumers to be more responsive to price changes?

the availability of close substitutes

An externality is:

the benefit enjoyed by or cost imposed on a third party not directly involved in the production or consumption of a good or service

A production decision at the margin includes

the decision to increase output

When externalities exist:

the outcome observed may not be the most efficient outcome.

Private supply is

the supply of a good or service that reflects only the private costs of its production

The social marginal benefit is the benefit:

to society of consuming an additional unit of a good or service

The amount of a good or service produced by all workers is called

total product

labor

wages

Reasons of breaking average total cost into two components?

- average variable cost is used to determine whether a firm should continue to operate or should shut down in the short run. - the constantly declining average fixed cost is apparent.

in the presence of economic profits, firms enter until the market reaches the point at which the firms are generating a _________, then entry stops, and the market settles into its _______.

- normal profit - long run equilibrium

The choices that firms have for dealing with higher resource costs?

- pay the additional costs, which has the effect of shifting the marginal resource cost curve upwards - deduct more from employees paychecks to pay the higher costs - lower employee wages to compensate for the additional expense

The main determinants of resource demand?

- the demand for the good or service a resource is used to produced - the price of other resources - the productivity of the resource

Economies of scale can result from a variety of factors, including:

-lower costs of inputs as firms purchase larger quantities. - productivity gains from more specialized labor.

In the circular flow model, the two markets are the _____ market and the ____ market.

resource, product

When marginal revenue product equals marginal revenue cost,

resources have been used optimally

accounting profit consists of _______

revenue minus explicit costs

Economic profit consists of _________

revenue minus implicit and explicit costs

Ideally, encouraging the production of goods that generate positive externalities will result in the ______ _____ output level.

socially optimal

The marginal resource cost curve for the firm will shift if

employers pay for part of or all higher resource costs.

Ceteris paribus, what do you expect to happen to the equilibrium quanity of pollution prevented if the marginal cost of pollution decreases?

equilibruim quanity increases

If some people can be prevented or excluded from consuming a good or service, then that good or service is called

excludable

total revenue minus the total ___ costs of production is accounting profit.

explicit

total revenue minus the _____ and _____ costs of production is economic profit.

explicit, implicit

When _____ exist, the outcome observed may not be the efficient outcome.

externalities

Markets characterized by ____ may results in inefficient outcomes.

externality

Pure monopolies do not achieve allocative efficiency, meaning that they do not produce the amount of output that mazimizes the sum of ____ and ________

producer, consumer surplus

marginal revenue is the :

additional revenue associated with the sale of an additional unit of output

by responding to changes in market price, competitive firms produce more of the products we value most and fewer of the products we value least, thereby achieving:

allocative efficiency

the perfectly competitive model is the most efficient type of market and is characterized by both ____ and ____ efficiency.

allocative, productive

average product is the ____

amount of output produced per unit of a resource employed.

The benefit enjoyed by or cost imposed on a third party that is not directly involved in the production or consumption of a good or service is called

an externally

If an industry's CR4 exceeds 40%, it is considered

an oligopoly

Laws designed to prevent firms engaging in behaviors that would lessen competition in a market are called _____

antitrust laws

Anti trust laws:

are designed to prevent firms from engaging in behaviors that would lessen competition

in addition to total cost, it is useful to calculate average cost because

average cost can be compare directly to the price and are more usable for managing.

average total cost equals _____

average fixed cost plus average variable cost.

one potential reason diseconomies of scale could exist is that a firm:

cannot perfectly replicate its production when it expands

A group of competing companies that aim to maximize joint profits by coordinating their policies to fix prices, manipulate output, or restrict competition is called

cartel

monopolistically competitive markets:

combine characteristics of competitive markets and pure monopolies

_____ maximize the availability of goods and services and the consumer's ability to buy them.

competitive markets

A condition in which the long-run average total cost of production remains constant as production increases is called:

constant returns to scale

a condition in which the long run average total cost of production remains constant as production increases is called:

constant returns to scale.

The difference between the economic surplus when the market is at its competitive equilibrium and the economic surplus when the market is not on equilibrium is the:

deadweight loss

Because the products of monoplistically competitive firms are _________ from other companies in their industry, these firms are able to have some control over the _____ of their products.

differentiated, price

If the magrinal revenue associated with selling one more unit of outputs is positive, the demand is:

elastic, because this would increase total revenue

The demand for a monopolistically competitive firm is more _____ than the demand faced by a _______ because of the avaliability of close substitues

elastic, pure monopoly

the marginal cost is the:

extra or additional cost associated with the production of an additional unit of output.

The pure monopoly extracts all surplus form consumers, yielding higher profits than any other pricing method when it employs?

first- degree price discrimination

when profit exceed zero, the firm is

generating an economic profit

the opportunity costs of using owned resources are _____ costs.

implicit

Total revenue minus the ___ costs and ____ costs of production is economic profit

implicit, explicit

natural monopolies are rare and tend to be regulated by the government is

true

Productive efficiency is:

using the fewest resources possible to produce a good or service.

costs that change with the amount of output produced are _____ costs

variable

In a pure monopoly, the firm is willing to sell to anyone willing and able to pay at least the marginal cost of production. the result is that output is produced where D=MC

which is allocatively efficient

in addition to total cost, it is useful to calculate average cost because:

- average cost can be compared directly to the price and more usable for managing.

The characteristic of a perfectly competitive market

- easy entry and exit - standardized product - large number of buyers and sellers - producers who are price takers

in making a decision about how much output it should produce to maximize its profits, which two pieces of information does a firm need?

- extra cost associated with producing an additional unit of output. - extra benefit of producing that unit or - marginal cost, marginal revenue

Indicate the two most common numerical indicators of market concentrations:

- four firm concentration ratio (CR4) - HHI

Through advertising and branding, monopolistically competitive firms ______ the demand for their products and make those demands relatively more ______, allowing them to charge _____ and generate large economic profits

- increase - inelastic - higher prices

identify the conditions that guarantee consumers will enjoy the lowest prices possible.

- individual firms are price takers, - every firm produces the exact same product

characteristics of a perfectly competitive market?

- large number of sellers - no control over price

characteristics of a contestable firm

- no real barriers to entry - single firm

A number of entry barriers are present in oligopolistic markets, including:

- patents - control of the resources needed to produce output - pricing strategles - economies of scale that may allow only a small number of firms to operate in a market - significant costs of capital

The practice of charging each and every consumer the price that she is willing and able to pay for a good or service describes

- perfect price discrimination - first degree price discrimination - personal pricing

Characteristics of an oligopoly competitive market are:

- producers who are price makers - either standardized or differentiated products - operation in industries with extensive entry barriers - a few large producers

Measure a firm's profit-

- profit per unit x output - TR=TC - (P-ATC) x Q

a person who has been managing a dry cleaning store for $30,000 per year decides to open his own dry cleaning store. The expenses are $35,000 for salaries(excluding the owner's), $10,000 for supplies, $8,000 for rent, $2,000 for utilities and $5,000 for interest on a bank loan. The explicit costs include:

- rent, salaries, utilites, interests on the bank loan.

By charging consumers the highest price they are willing and able to pay, the pure monopoly,

- yields higher profits than any other pricing method available to the firm - extracts all surplus from consumers

total revenue minus the explicit cost of production is ____ profit.

accounting

A table showing the potential outcome arising from the choices made by decision makers is

a payoff matrix

one reason for diseconomies of scale is:

increasing opportunity costs.

Mutual __________ is a situtation in which the strategy followed by one producer will likely affect the profits and behavior of another producer

interdependence

As the market price decreases, all esle held constant, a profit maximinzing firm will ___ its production

lower

minimum- efficiency scale refers to the _____

lowest level of output at which the long run average total cost is minimized

The extra or additional cost associated with the production of an addition unit of output is the ____

marginal cost

the extra or additional cost associated with the production of an additional unit of output is the ______

marginal cost.

the additional output produced as a result of utilitzing one more unit of a variable resource is called:

marginal product

monopolistic competition and a monopoly are:

not the same market structure

The practice of selling the same good or service to different consumers at different prices is called

price discrimination

to calculate profit, we need to identify three pieces of information:

price, average total cost, quantity of output

Private markets fail to provide the optimal amount of some goods, such as public firework displays, because

private companies will have difficulty getting anybody to pay for them

allocative efficiency is:

producing the goods and services that are most wanted by consumers in such a way to their marginal benefit equals their marginal cost.

The strategy of distinguishing one firm's product from the competing products of other firms is called

product differentiation

monopolistic competition and perfect competition have one main characteristic in common:

relatively easy market entry and exit

The practice of charging different prices per unit for different quantites, or blocks, of a good or service called

second- degree price discrimination

when it shuts down temporarily in the short run, a perfectly competitive firm, _______

still incurs its total fixed costs

given that oligopolistic firms face other competitions in their markets, their behavior must definitely be ___

strategic

The percentage of total market sales accruing to one specific firm is called

the market share

For a monopoly, the marginal revenue is below the demand curve because:

the monopoly has to lower the price on all units to sell more

Price discrimination is best described as:

the practice of selling the same good or service to different consumers at different prices

total product is ____

the total amount of output produced with a given amount of resources

total product is _____

the total amount of output produced with a given amount of resources.

economic profit equals ____

total revenue minus explicit and implicit costs of production, and minues economic costs.