econ test 2
Under what conditions would a perfectly competitive cotton farmer who is incurring an economic loss temporarily stay in business?
if the total revenue exceeds the total variable cost
A cost incurred in the production of a good or service and for which the firm does not need to make a direct monetary payment, is referred to as ________ cost.
implicit
Normal profit is a(n) ________ cost because ________.
implicit; it represents the cost of not running another firm
Mark owns a cattle ranch near Hugo, Oklahoma. Mark is currently producing beef at an output level where marginal revenue exceeds marginal cost. In order to maximize his profit, Mark should
increase his output
The marginal cost curve is U-shaped. Over the range of output for which the marginal cost is falling as output increases, the marginal product is
increasing
The firm's supply curve is its
marginal cost curve above the average variable cost curve.
If average variable costs increase as output increases, then
marginal cost must be greater than average variable cost
If marginal cost increases when output increases, then
marginal product must decrease when output increases.
A firm maximizes its profit by producing the amount of output such that
marginal revenue equals marginal cost
The above figure illustrates a perfectly competitive firm. If the market price is $40 a unit, to maximize its profit (or minimize its loss) the firm should
produce 40 units
Bill owns a lawn-care company in Windermere, Florida, Florida, whose cost curves are illustrated in the above figure. The market equilibrium price in this perfectly competitive market equals $32 per lawn mowed. If Bill's average total cost curve is ATC, his total economic ________ equals
profit; $480 per week
The above table shows the total product schedule for Hair Today, a hair styling salon. Based on the table, the marginal product for Hair Today
reaches a maximum with the 3rd worker.
When new firms enter a perfectly competitive market, the market supply curve shifts ________ and the price ________.
rightward; falls
A perfectly competitive firm can
sell all of its output at the prevailing market price
The above figure illustrates a perfectly competitive firm. If the market price is $10 a unit, to maximize its profit (or minimize its loss) the firm should
shut down
Marginal cost equals
the change in total cost that results from a one-unit increase in output.
Marginal revenue is
the change in total revenue from a one-unit increase in the quantity sold.
Total cost includes
the cost of both variable and fixed resources
Which of the following is an example of an implicit cost?
the economic depreciation of capital equipment the business owns
Suppose Pat's Paints is a perfectly competitive firm. If Pat's Paints' marginal revenue equals $5 per can, and Pat decides to sell 100 cans of paint, Pat's total revenue equals
$500
Paulette owns a pizza parlor. Her total cost schedule is in the above table. Her marginal cost of producing the fifth pizza is
$8
Jill runs a factory that makes lie detectors in Little Rock, Arkansas. This month, Jill's 34 workers produced 690 machines. Suppose Jill adds one more worker and, as a result, her factory's output increases to 700. Jill's marginal product of labor from the last worker hired equals ________.
10
The cost that a firm pays in money to hire a resource is referred to as ________ cost.
an explicit
In the long run, perfectly competitive firms produce at the output level that has the minimum
average total cost
A perfectly competitive firm will shut down when the price is just below the minimum point on the
average variable cost curve
The U-shape of the average variable, average total, and marginal cost curves reflects
both increasing and decreasing marginal returns
In the short run, a perfectly competitive firm
can possibly make an economic profit or possibly incur an economic loss.
When a firm adopts new technology, generally its
cost curves shift downward.
A perfectly competitive firm is producing at the quantity where marginal cost is $6 and average total cost is $4. The price of the good is $5. To maximize its profit, this firm should
decrease its output
The corn market is perfectly competitive, with thousands of corn farmers. In the 2000s, the price of corn soared so that new farmers entered the corn market. Initially, entry ________ the economic profit of the initial corn farmers and in the long run the initial corn farmers ________.
decreased; made zero economic profit
As a typical firm increases its output, its marginal cost
decreases at first and then increases.
The short run is the time frame
during which the quantities of some resources are fixed.
A firm's total revenue minus its total opportunity cost is called its
economic profit
Decreasing marginal returns
affect all firms, but at different production levels.
A perfectly competitive firm is producing 50 units of output and selling at the market price of $23. The firm's average total cost is $20. What is the firm's total cost?
$1,000
Anna owns a dog grooming salon in Brunswick, Georgia. The above table has Anna's total product schedule. Anna pays each worker $300 per week and she pays rent of $600 a week for her salon. These are her only costs. When Anna has a staff of 2 workers, her average total cost equals
$12:00
A perfectly competitive firm is producing 50 units of output and selling at the market price of $23. The firm's average total cost is $20. What is the firm's economic profit?
$150
The Jerry-Berry Ice Cream Shoppe's total cost schedule is in the above table. Based on the table, the marginal cost of producing the fourth gallon of ice cream is
$3
The table above shows the total product schedule for The X Firm. Decreasing marginal returns occur with the ________ worker because ________.
5th; the marginal product of labor for the 5th worker is less than the marginal product of the 4th worker
Average total cost is equal to
Answers A and B are correct.
What is the difference between perfect competition and monopolistic competition?
In perfect competition, firms produce identical goods, while in monopolistic competition, firms produce slightly different goods
A market is classified as an oligopoly when
a few firms compete
Keith is a perfectly competitive carnation grower. The market price is $2 per dozen carnations. Keith's average total cost to grow carnations is $2.50 per dozen. In the long run, Keith will
exit the industry if the price and his costs do not change
In the short run, a firm cannot change the amount of capital it uses. Therefore the cost of capital is a
fixed cost
In perfect competition, marginal revenue
is equal to the market price.
If a perfectly competitive firm finds that the price exceeds its ATC, then the firm
is making an economic profit
The long run is a time period that is
long enough to change the size of the firm's plant and all other inputs.
Technological change allows perfectly competitive firms to ________ and leads to ________.
lower their costs; lower prices for consumers
The firm's over-riding objective is to
maximize economic profit
the primary goal of a business is to...
maximize profit
Which of the following market types has the fewest number of firms?
monopoly
When firms in a perfectly competitive market are earning an economic profit, in the long run
new firms will enter the market
In the long run, existing firms exit a perfectly competitive market
only if they incur an economic loss.
In which market structure do firms exist in very large numbers, each firm produces an identical product, and there is freedom of entry and exit?
only perfect competition
When an economist uses the term "cost" referring to a firm, the economist refers to the
opportunity cost of producing a good or service, which includes both implicit and explicit cost.
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.
To increase its profit, a perfectly competitive firm will produce more output when
price is greater than marginal cost
The total product curve shows the relationship between total product and
the quantity of labor
The Jerry-Berry Ice Cream Shoppe's total cost schedule is in the above table. Based on the table, which of the following is correct?
the total fixed cost is $1
The marginal product of labor is the change in
total output from employing one more worker.
If a perfectly competitive wheat farmer is maximizing its profit and then increases its output, the farmer's
total revenue increases, but total cost rises by more so that the farmer's total profit decreases.
Chuck owns a factory that produces leather footballs. His total fixed cost equaled $86,000 last year. His total cost equaled $286,000 last year. Hence Chuck's
total variable cost equaled $200,000
If a firm does not produce any output, its
total variable cost must be zero.
If a firm in a perfectly competitive market faces an equilibrium price of $5, its marginal revenue
will also be $5
The above figure shows a perfectly competitive firm. If the market price is $5 per unit, the firm
will definitely shut down to minimize its losses
The above figure shows a perfectly competitive firm. If the market price is more than $20 per unit, the firm
will stay open to produce and will make an economic profit
The above figure shows a perfectly competitive firm. If the market price is $20 per unit, the firm
will stay open to produce and will make zero economic profit.
In the long run, a perfectly competitive firm makes
zero economic profit
