Mircoecon Exam 2 - HW 5,6,7

_____________ is calculated by taking the quantity of everything that is sold and multiplying it by the sale price.

Total revenue

I'MABigCorp. produces and sells kitchen wares. Last year, it produced 7,000 can openers and sold each one for $6. To produce the 7,000 can openers, the company incurred variable costs of $28,000 and a total cost of $45,000. I'MABIGCorp.'s average fixed cost to produce the 7,000 can openers was

$2.43

Given the data provided in the table below, the total revenue (TR) for production at quantity (Q) level 4 equals

$20.00

If accounting profits for a firm are 20% of output, and the opportunity cost of financial capital is 8% of output, then what do the firm's economic profits equal?

12% of output

The table below sets out cost information for the production of volley balls. Some values are missing. Which of the following statements is correct?

A = 42, E = 12

____________________________ occur when the marginal gain in output diminishes as each additional unit of input is added.

Diminishing marginal returns

____________ refers to the additional revenue gained from selling one more unit.

Marginal revenue

________________________ arises where many firms are competing in a market to sell similar but differentiated products.

Monopolistic competition

___________ include all spending on labor, machinery, tools, and supplies purchased from other firms.

Total costs

______________ include all of the costs of production that increase with the quantity produced.

Variable costs

In economics, a firm that faces no competitors is referred to as

a monopoly

An _________________ is calculated by subtracting the firm's costs from its total revenues, _______________________.

accounting profit; excluding opportunity cost

The graph above illustrates the total cost function for GoodieCookie Co. How are the company's fixed costs represented in this graph?

as the point where the total cost curve touches the vertical axis

If the price that a firm charges is higher than its _______________ cost of production for that quantity produced, then the firm will earn profits.

average

In order to determine ____________, the firm's total costs must be divided by the quantity of its output.

average cost

The _____________________ curve will always lie below the curve for average cost because average cost includes _____________ in the numerator of the calculation.

average variable cost; fixed costs

It is said that in a perfectly competitive market, raising the price of a firm's product from the prevailing market price of $179.00 to $199.00,

could likely result in a notable loss of sales to competitors

The term __________________ describes a situation where the quantity of output rises, but the average cost of production falls.

economies of scale

When __________________ exist, doubling of all inputs will result in more than doubling output, which means _______________________

economies of scale; a larger factory can produce at a lower average cost than a smaller company.

In order to calculate marginal cost, the change in ______________ is divided by the amount of change in quantity.

either total cost or variable cost

The term "constant returns to scale" describes a situation where

expanding all inputs does not change the average cost of production

If a competitive firm experiences a shift in costs of production that decreases marginal costs at all levels of output,

expanding output levels at any given price will be profitable.

A firm's ___________ consist of expenditures that must be made before production starts that typically, over the short run, _______________ regardless of the level of production.

fixed costs; do not change

Why are some producers forced to sell their products at the prevailing market price?

high degree of similarity to competitor's products and small part of market

Economic profit can be derived from calculating total revenues minus all of the firm's costs,

including its opportunity costs.

If the firm sells 5 units at a price of $30 each, then the marginal unit produced

is subtracting from profits.

The economies-of-scale curve is a long-run average cost curve, because

it allows all factors of production to change.

Kate's 24-Hour Breakfast Diner menu offers one item, a $5.00 breakfast special. Kate's costs for servers, cooks, electricity, food, etc. average out to $3.95 per meal. Her costs for rent, insurance cleaning supplies and business license average out to $1.25 per meal. Since the market is highly competitive, Kate should

keep the business open in the short-run, but plan to go out of business in the long-run.

In the ______________, the perfectly competitive firm will react to losses by ______________________.

long run; exit market

If the firm produces 5 units that it sells at a price of $30.00 each, what will its profits or losses equal?

losses equal $5

The term _____________ is used to describe the additional cost of producing one more unit.

marginal cost

Firms operating in a market situation that creates ______________________, sell their product in a market with other firms who produce identical or extremely similar products.

perfect competition

Marcella operates a small, but very successful art gallery. All but one of the following can be classified as a variable cost arising from the physical inputs Marcella requires to operate her business. Which is it?

physical space for the gallery

Under perfect competition, any profit-maximizing producer faces a marginal revenue equal to its

price

If the quality differences of similar products are mostly imperceptible to the average consumer's eyes, which of the following will most likely play a major role in influencing the decisions of purchasers?

price of competing products

The term _______________ refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product.

price taker

Why would labor be treated as a variable cost?

producing larger quantities of a good or service generally requires more workers

If a graph is used to compare total revenue and total cost of a perfectly competitive firm, then the horizontal axis of the graph will represent the __________ and the vertical axis will represent ________________________________.

quantity produced; both total revenue and total costs, measured in dollars.

If this information were used to create a total cost graph, the curve should

reflect all of the above

In this instance, the marginal revenue curve

reflects each of these

Fixed costs are important because, at least in the ___________, the firm _______________.

short run; cannot alter them

In the ________________, if profits are not possible, the perfectly competitive firm will seek out the quantity of output where __________________________.

short run; losses are smallest

If a firm's revenues do not cover its average variable costs, then that firm has reached its ________________.

shutdown point

Which of the following should typically be ignored because spending has already been made and cannot be changed?

sunk costs

Whatever the firm's quantity of production, _____________ must exceed total costs if it is to earn a profit.

total revenue

The marginal cost curve is generally ______________, because diminishing marginal returns implies that additional units are ________________________.

upward-sloping; more costly to produce

If a paper mill shuts down its operations for three months so that it produces nothing, its __________________ will be reduced to zero?

variable costs

A perfectly competitive industry is

very common

In a free market economy, firms operating in a perfectly competitive industry are said to have only one major choice to make. Which of the following correctly sets out that choice?

what quantity to produce