exam 3

Explicit costs

require an outlay of money by the firm.

When product price is below average variable cost, a firm in a competitive market will

shut down and incur fixed costs.

Suppose that a business incurred implicit costs of $800,000 and explicit costs of $2.7 million in a specific year. If the firm sold 10,000 units of its output at $300 per unit, its accounting profits were:

$300,000 and its economic loss was $500,000.

The firm in Exhibit 0136, a profit-maximizing monopolist that does not price discriminate, is making a profit of:

$5500.

Comparison of marginal revenue to marginal cost (i) reveals the contribution of the last unit of production to total profit. (ii) is helpful in making profit-maximizing production decisions. (iii) tells a firm whether its fixed costs are too high

(i) and (ii) only

Output and price for the firm in Exhibit 0136, a profit-maximizing monopolist that does not price discriminate, are:

1100 and $14.

For a profit-maximizing monopolist, the firm selects the output where

P > MR = MC.

Which of the following best expresses the law of diminishing returns

Population growth automatically adjusts to that level at which the average product per worker will be at a maximum. C. As successive amounts of one resource (such as labor) are added to fixed amounts of other resources (such as property), beyond some point the resulting extra output will decline

Which is true of price discrimination?

Successful price discrimination will provide the firm with more profit than if it did not discriminate.

For a large firm that produces and sells automobiles, which of the following costs would be a variable cost?

The cost of the steel that is used in producing automobiles

Which of the following statements is correct?

The demand curve for a purely competitive firm is perfectly elastic, but the demand curve for a purely competitive industry is downsloping.

Which of the following expressions is correct?

accounting profit = economic profit + implicit costs

Marginal cost tells us the

amount by which total cost rises when the output is increased by one unit.

The basic difference between the short run and the long run is that:

at least one resource is fixed in the short run, while all resources are variable in the long run.

In long-run equilibrium under conditions of pure competition and productive (technical) efficiency, all firms produce at minimum:

average total cost.

Successful price discrimination requires that:

buyers with inelastic demand be charged higher prices than buyers with elastic demand

Monopolies use their market power to

charge a price that is higher than marginal cost.

In pure competition, price is determined where the industry (market):

demand and supply curves intersect.

In a competitive market, the actions of any single buyer or seller will

have no impact on the market price.

A purely competitive firm is producing at the point where its marginal cost equals the price of its product. If the firm increases its output, then total revenue will:

increase and profits will decrease.

Technological advance improves productivity in all firms in a purely competitive industry. This change will result in a(n):

increase in the short-run supply curve for a firm in the industry.

Suppose the firm is a pure monopolist in the production of good X. Suppose further that the price of the variable input labor rises. As a result the profit maximizing monopolist will have an incentive to

increase the price of X and decrease the quantity of X produced.

A firm should always continue to operate at a loss in the short run if: A. the firm will show a profit.

it can cover its variable costs and some of its fixed costs.

If a firm decides to produce no output in the short run, its costs will be:

its fixed costs.I

A monopolist produces

less than the socially efficient quantity of output, but at a higher price than in a competitive market.

In order to sell more of its product, a monopolist must

lower its price.

Average total cost is increasing whenever

marginal cost is greater than average total cost.

A monopoly chooses to supply the market with a quantity of goods that is determined by the intersection of the

marginal revenue and marginal cost curves.

When buyers in a competitive market take the selling price as given, they are said to be

price takers

A competitive firm's marginal cost curve is regarded as its supply curve because

the marginal cost curve determines the quantity of output the firm is willing to supply at any price.

A natural monopoly occurs when

there are economies of scale over the relevant range of output.

Average total cost is equal to

total cost/output.

The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which

total profit is maximized.