ecom chapter 7

Suppose Mrs. Meadows is willing to sell her famous homemade chocolate chip cookies as long as she is paid at least $1.25 for each. If Mrs. Meadows currently sells her cookies for $3.25 each, then her economic rent is:

$2.00 per cookie

Chris was the business manager for a real estate firm earning an annual salary of $40,000. Then Chris decided to become a consultant. Chris hired an administrative assistant at $15,000 per year and rents office space (utilities included) for $3,000 per month. Chris earned $100,000 in total revenue the first year as a consultant.Chris's explicit annual cost is _____ and Chris's implicit cost is ____

$51,000; $40,000

uppose Emily is an exceptionally talented architect. Her opportunity cost of working as an architect is $60,000 per year, and her salary at the architectural firm where she works is $150,000 per year. Thus, Emily's economic rent from being an architect is:

90000

The economic theory of business behavior assumes that the goal of a firm is to:

D. maximize its profit.

Economic rent is the part of the payment for a factor of production that is _____ the owner's reservation price.

above

The statement, "price directs resources across different sectors of the economy" refers to the ______ function of price

allocative

Any force that prevents firms from entering a new market is called a to entry. (Use one word to answer.)

barrier

Any force that prevents firms from entering a new market is called

barrier to entry

he rationing function of price is to

distribute to those who value it most

If owners of a business are receiving total revenues just sufficient to cover all their explicit and implicit costs, they are:

earning a normal profit.

If a firm's economic loss is $10,000, then its _____ is -$10,000.

economic profit

he difference between a firm's total revenue and the sum of its explicit and implicit costs is the firm's

economic profit.

Normal profits occur when:

economic profits are zero

Economic profits are:

equal to total revenue minus both explicit and implicit costs.

f the firms in a market are earning an economic loss, then in the long run there will be _____ the market, leading the equilibrium price to _____.

exit from; rise

The actual payments a firm makes to its factors of production and other suppliers are it

explicit costs.

If a firm is earning a positive economic profit, then over time we would expect that firm's profit to

fall as new firms enter the market.

Barriers to entry are _____, and one effect of barriers to entry is to _____ the ability of the invisible hand to allocate resources efficiently.

forces that limit new firms from joining an industry; reduce

Normal profit is

he opportunity cost of the resources provided by the firm's owner

A firm that adopts a new cost-saving innovation will earn an economic profit in

he short run.

The opportunity costs of all the resources supplied by a firm's owners are the firm's

implicit costs

Implicit costs

measure the forgone opportunities of the owners of the business

Explicit costs:

measure the payments made to the firm's factors of production

If a firm earns an economic loss, then its economic profit is

negative.

The existence of positive economic profit in the long run creates an incentive for:

new firms to enter

The opportunity cost of the resources supplied by a firm's owners is the firm's

normal profit

Accounting profit =

otal revenue - explicit costs

he statement, "price distributes goods and services to those that value them the most" refers to the ______ function of price.

rationin

The role that prices play in distributing scarce goods to those consumers who value them the most highly is known as the

rationing function of price.

The part of the payment for a factor of production that is greater than the owner's reservation price is called economic .

rent

The part of the payment for an input that is above the owner's reservation price is economic ____.

rent

ne reason that firms have a strong incentive to develop cost-saving innovations is that these innovations enable the firm to earn an economic profit

short run

Last year Pat was a soybean farmer and Chris was a corn farmer. This year, high demand for ethanol, an automobile fuel made from corn, causes the price of corn to increase.Refer to the information above. You would predict that this year Pat may:

switch to growing corn

Economic rent is

the difference between the payment made to the supplier of an input and the supplier's reservation price.

Accounting profits are:

the difference between total revenues and explicit costs

A firm's implicit costs are

the opportunity costs of the resources supplied by the firm's owners.

An example of an implicit cost is

the value of a spare bedroom turned into a home office.

Economic profit =

total revenue - explicit costs - implicit costs

In the long run, all firms in an industry will tend to earn Multiple choice question.

zero economic profit.

In the long run, all firms in an industry will tend to earn

zero economic profit. Reason: In the long run, all firms in an industry will tend to earn zero economic profit.

Accounting profit is the difference between

a firm's total revenue and its explicit costs.

In the long run, new firms will enter a market if existing firms are earning a

positive economic profit.