Econ: Unit 3 Study Guide (10)

ATC =

TC/Q

when a perfectly competitive firm sells additional units of output, its total revenue will...

increase at a constant rate

as output increases, the MC curve slopes...

upward

TC =

FC + VC

MR =

MC

a firm should shut down if

P < min AVC

TR =

P x Q

a firm should stay in business if

P ≥ min AVC

avc =

VC/Q

productive efficiency occurs when a firm produces output at a level at which average total cost is...

at a minimum

In the short run, which of the following costs must continuously decrease as output produced increases?

average fixed cost

when the marginal cost curve lies below the average total cost curve, it is true that as output increases average total cost is....

decreasing

income is a (supply/demand) shifter

demand

a decreasing long-run average total cost curve as a firm produces more output

economies of scale

directly pay for (explicit/implicit) costs

explicit

to get the total cost add up the marginal costs and add that to the

fixed cost

An entrepreneur has earned enough total revenue to cover her accounting costs, but economic losses are being incurred. What must be true?

her accounting profits are less than her implicit costs

the ATC curve is the ________ curve

highest

As increasing quantities of a variable input is added to a fixed input, the additional output will eventually begin to fall

law of diminishing returns

MRDARP =

marginal revenue, demand, average revenue, price

a good that consumers demand more of when their incomes increase

normal good

MP and MC are

opposites

If labor is the only variable input in the production process, the short-run marginal cost curve is upward sloping because which of the following occurs as more and more labor is added?

output increases at a decreasing rate, and thus the cost of producing each additional unit of output increases

it faces a perfectly elastic demand curve

perfectly competitive industry

many small firms producing a homogeneous product and facing no significant barriers to entry

perfectly competitive market

a firm is producing the allocatively efficient level of output if

price is equal to marginal cost

the MC curve initially decreases because of

specialization

why does the short-run average total cost curve is U-shaped?

spreading total fixed costs over a larger output, and eventually diminishing returns

firms short run supply curve =

the part of MC curve above AVC

the reason that firms in perfect competition earn zero economic profit in the long run is that

there are no barriers to entry or exit