ECON 102 Ch 14,15,16

If new firms enter a perfectly competitive industry, the market supply

increases.

If a firm shuts down, it

incurs an economic loss equal to its total fixed cost

In the long run, a perfectly competitive firm will

make zero economic profit.

If a perfectly competitive firm's average total cost is less than the price, then the firm

makes an economic profit

The perfectly competitive firm's supply curve is its

marginal cost curve above the average variable cost curve

For a perfectly competitive firm, profit maximization occurs when output is such that

marginal revenue (MR) = marginal cost (MC).

Each firm in a perfectly competitive industry

produces a good that is identical to that of the other firms.

A perfectly competitive firm

sells a product that has perfect substitutes.

When new firms enter the perfectly competitive Miami bagel market, the market

supply curve shifts rightward

Which of the following is the best example of a natural monopoly?

the cable television company in your hometown

Marginal cost equals

the change in total cost that results from a one-unit increase in output.

The marginal product of labor is

the change in total product divided by the increase in labor

Total cost includes

the cost of both variable and fixed resources.

A perfectly competitive market arises when

the market demand is very large relative to the output of one seller.

The law of decreasing returns states that as a firm uses more of a

variable input, with a given quantity of fixed inputs, the marginal product of the variable input eventually decreases

Natural barriers to entry arise when, over the relevant range of output, there

are economies of scale

One requirement for an industry to be perfectly competitive is that in the industry there

are many firms for whom the efficient scale of production is small.

Which of the following always decreases when output increases?

average fixed cost

A perfectly competitive firm will shut down when the price is just below the minimum point on the

average variable cost curve.

In the short run, a perfectly competitive firm

can possibly make an economic profit or possibly incur an economic loss

Arnie's Airlines is a monopoly airline that is able to price discriminate. If Arnie's decides to price discriminate, then

consumer surplus decreases.

When a firm adopts new technology, generally its

cost curves shift downward.

A permanent decrease in demand definitely

decreases the number of firms in the industry.

Diseconomies of scale is a result of

difficulties of coordinating and controlling a large enterprise

The market demand curve in a perfectly competitive market is ________ and the demand curve for a perfectly competitive firm's output is ________.

downward sloping; horizontal

The short run is the time frame

during which the quantities of some resources are fixed

The long-run average cost curve is U-shaped because of which of the following?

economies and diseconomies of scale

For a perfectly competitive firm, marginal revenue is

equal to the price

Suppose a firm's total revenue is $1,000,000. The firm has incurred explicit costs of $750,000. There is also $50,000 of forgone wages by the owner, $10,000 of forgone interest by the owner, $3,000 worth of economic depreciation, and $20,000 worth of normal profit. What is the firm's economic profit?

$190,000

John fishes for a living. Last year, he sold $100,000 of fish. Bait, nets and other fishing supplies cost John $10,000 and he paid $40,000 in salaries to his helpers. Depreciation on his boat and other equipment, as calculated using IRS rules, was $15,000. What was John's profit as would be calculated by an accountant?

$35,000

Which of the following is a characteristic of monopoly?

There are barriers to enter the market

A price-discriminating monopoly charges

a different price to different types of buyers for the same product, even though there are no differences in costs.

For a perfectly competitive firm, the market price of a good is

a given which the firm cannot change. equal to the firm's marginal revenue

Compared to a perfectly competitive market, a single-price monopoly sets

a higher price

The main source of economies of scale is

greater specialization of both labor and capital

A perfectly competitive firm definitely makes an economic profit in the short run if price is

greater than average total cost.

The marginal revenue curve for a perfectly competitive firm is

horizontal.

When the average product is at its maximum,

it is equal to the marginal product

We know that a perfectly competitive firm is a price taker because

its demand curve is horizontal

In States where the government runs liquor stores, the monopoly results from

legal restrictions.

The demand curve facing a single-price monopoly

lies above the marginal revenue curve.

The firm's over-riding objective is to

maximize economic profit.

With perfect price discrimination, a monopoly can extract the ________ price each customer is willing to pay and thereby obtain the entire ________ surplus.

maximum; consumer

The above figure shows a perfectly competitive firm. If the market price is $5, the firm

might shut down but more information is needed about the AVC.

If perfectly competitive lawn care firms are making an economic profit, then

new firms will enter the industry.

A monopoly is a market with

one supplier

A market in which many firms sell identical products is

only perfectly competition

Because perfectly competitive firms are price takers, each firm faces a demand that is

perfectly elastic

A perfectly competitive firm will continue to operate in the short run when the market price is below its average total cost if the

price is at least equal to the minimum average variable cost.

The long run is defined as

the period of time when all resources are variable

In a perfectly competitive market, the type of decision a firm has to make is different in the short run than in the long run. Which of the following is an example of a perfectly competitive firm's short-run decision?

the profit-maximizing level of output

The total product curve shows the relationship between total product and

the quantity of labor.

Normal profit is

the return to entrepreneurship.

Price discrimination is possible, in part, because

the willingness to pay can vary among groups of buyers

A firm's fundamental goal is

to maximize profit

The cost that does not change as output changes is

total fixed cost

Average variable cost equals

total variable cost divided by output.