microeconomics 202 ch 14-16

Excess capacity

the amount by which its efficent scale exceeds the quantity it produces.

Total cost (TC)

the cost of all the factors of production used by the firm.

Economic deprivation

the opportunity cost of the firm using capital that it owns. -the change in market value

normal profit

the return to entrepreneurship

Economic profit

total rev - total cost

Product differentiation

making a product that is slightly different from the products of competing firms.

Monopolistic competition

A large number firms compete. Each firm produces a differentiated product. Firms compete on price, product quality, and marketing. Firms are free to enter and exit.

Explicit cost

A cost paid in money

Marginal returns start to decrease when more and more workers _______. A. have to share the same equipment and workspace B. produce less and less output C. require jobs to be too specialized D. produce less and less average product

Answer: A have to share the same equipment and workspace

Average variable cost is at a minimum when ______. A. marginal cost equals average variable cost B. average total cost is at a minimum C. marginal cost exceeds average fixed cost D. average total cost exceeds average variable cost

Answer: A marginal cost equals average variable cost

The average product of labor increases as output increases if _______. A. marginal product exceeds average product B. average product exceeds marginal product C. total product increases D. marginal product increases

Answer: A marginal product exceeds average product

An increase in the wage rate ______. A. shifts the average total cost curve and the marginal cost curve upward B. shifts the average fixed cost and average variable cost curve upward C. increases average variable cost but does not change marginal cost D. does not change average variable cost but increases average total cost

Answer: A shifts the average total cost curve and the marginal cost curve upward

Perfect competition is efficient because all the following conditions hold except ________. A. total product is maximized B. firms maximize profit and produce on their supply curves C. consumers get a real bargain and pay a price below the value of the good D. firms minimize their average total cost of producing the good

Answer: A total product is maximized

In perfect competition, all the following situations arise except ________. A. firms produce an identical good or service B. each firm chooses the price at which to sell the good it produces C. firms can sell any quantity they choose to produce at the market price D. buyers know each seller's price

Answer: B each firm chooses the price at which to sell the good it produces

A monopoly that price discriminates ______. A. benefits buyers because it offers the good at a variety of prices B. gains because it converts consumer surplus to economic profit C. uses resources more efficiently than would a competitive market D. enables buyers to maximize their consumer surplus

Answer: B gains because it converts consumer surplus to economic profit

A permanent increase in demand ______ economic profit in the short run and some firms will ____ in the long run. A. does not change; exit the market B. increases; enter the market C. increases; raise their price D. does not change; advertise their good

Answer: B increases; enter the market

A single-price monopoly is ______. A. inefficient because it converts consumer surplus to producer surplus B. inefficient because it produces too small an output and creates a deadweight loss C. efficient because buyers are paying a price equal to their willingness to pay D. efficient because it is the only producer of the good

Answer: B inefficient because it produces too small an output and creates a deadweight loss

Governments regulate natural monopoly by capping the price at _____. A. marginal revenue and allowing the monopoly to maximize profit B. marginal cost so that the monopoly is efficient and makes zero economic profit C. average total cost, which allows the monopoly to be inefficient but make zero economic profit D. the buyers' willingness to pay, which makes the monopoly operate efficiently

Answer: C average total cost, which allows the monopoly to be inefficient but make zero economic profit

A monopoly sets its price such that demand for the good produced is ______. A. unit elastic B. inelastic C. elastic D. either elastic or inelastic, but never unit elastic

Answer: C elastic

A firm's short-run supply curve is the same as _____ if it produces the good. A. its marginal revenue curve B. the upward-sloping part of its marginal cost curve C. its marginal cost curve above minimum average variable cost D. its marginal cost curve above minimum average total cost

Answer: C its marginal cost curve above minimum average variable cost

An increase in the rent that a firm pays for its factory does not increase ______. A. total cost B. fixed cost C. marginal cost D. average fixed cost

Answer: C marginal cost

A firm that is producing the quantity at which marginal cost exceeds both average total cost and the market price will increase its economic profit by _______. A. producing a larger quantity B. raising the price to equal marginal cost C. producing a smaller quantity D. producing the quantity that minimizes average total cost

Answer: C producing a smaller quantity

A monopoly ________. A. can choose its price and output and always has the option of price discriminating B. is a price taker and by offering a range of discounts can price discriminate C. that produces a good that cannot be resold might choose to price discriminate D. book store that offers a discount on Tuesdays is price discriminating

Answer: C that produces a good that cannot be resold might choose to price discriminate

In the long run, with an increase in the plant size, _____ . A. the short-run average total cost curve shifts downward B. the long-run average cost curve slopes downward C. the short-run average total cost curve shifts downward if economies of scale exist

Answer: C the short-run average total cost curve shifts downward if economies of scale exist

In the short run, the profit-maximizing firm will ______. A. break even if marginal revenue equals marginal cost B. make an economic profit if marginal cost is less than average total cost C. incur an economic loss if average fixed cost exceeds marginal revenue D. incur an economic loss if average total cost exceeds marginal revenue

Answer: D incur an economic loss if average total cost exceeds marginal revenue

When average variable cost is at its minimum level, marginal product _________. A. equals average product B. exceeds average product C. is less than average product D. is at its maximum level

Answer: D is at its maximum level

A firm is a natural monopoly if ________. A. it can produce the good at a price below its competitor's price B. it can produce a larger quantity of the good than other firms could C. the government grants it a public franchise or patent D. it can satisfy the market demand at a lower average total cost than other firms can

Answer: D it can satisfy the market demand at a lower average total cost than other firms can

A single-price monopoly maximizes profit by producing the quantity at which _____. A. its total revenue will be as large as possible B. marginal revenue equals marginal cost and setting the price equal to marginal revenue C. marginal revenue equals marginal cost and setting the price equal to marginal cost D. marginal revenue equals marginal cost and setting the price equal to the most people are willing to pay for that quantity

Answer: D marginal revenue equals marginal cost and setting the price equal to the most people are willing to pay for that quantity

A firm will shut down in the short run if at the profit-maximizing quantity, ___________. A. total revenue is less than total cost B. marginal revenue is less than average fixed cost C. average total cost exceeds the market price D. marginal revenue is less than average variable cost

Answer: D marginal revenue is less than average variable cost

A firm's cost of production equals ________. A. all the costs paid with money, called explicit costs B. the implicit costs of using all the firm's own resources C. all explicit costs and implicit costs, excluding normal profit D. the costs of all resources used by the firm whether bought in the marketplace or owned by the firm

Answer: D. the costs of all resources used by the firm whether bought in the marketplace or owned by the firm

Duopoly

a market with only two firms

Cartel

is a group of firms acting together-colluding-to limit output, raise price, and increase economic profit.

Markup

is the amount by which its price exceeds its marginal cost.

Efficient scale

is the quantity at which average total cost is a minimum-the quantity at bottom of the U-shaped ATC curve.

Total product (TP)

is the total quantity of good produced in a given period

implicit

using a factor of production for which it does not make a direct money payment

increasing marginal returns

when the marginal product of an additional worker exceeds the marginal product of the previous worker

decreasing marginal returns

when the marginal product of an additional worker is less than the marginal product of a previous worker