Ch 11 EC

Which of the following statements is TRUE? A) High profits in an industry give entrepreneurs an incentive to enter that industry. B) A firm should enter an industry if average costs are less than producer surplus. C) Fixed costs fall as firms produce more output, the so called "spreading of the costs." D) Entry and exit from an industry depend on the firm's market share.

A

a competitive industry is characterized by: A) Many firms with no control over the market price producing identical products. B) Many firms with control over the market price producing different products C) a single firm with no control over the market price producing a product with no close substitutes D) a single firm with control over the market price producing a product with many close substitutes.

A

A perfectly competitive industry exists under which of the following conditions? (Pick more than 1.) A) The product sold is similar across firms. B) There are many sellers, each small relative to the total market. C) There are many sellers, each with total assets less than $2 million. D) The threat of competition exists from potential sellers that have not yet entered the market.

A B D

Economic costs and accounting costs differ because accountants include: A) neither explicit or implicit costs B) only explicit costs C) only implicit costs D) both implicit and explicit costs

B

Economic profit is: A) always 0 B) typically lower than accounting profit C) typically higher than accounting profit

B

In a competitive equilibrium, firms earn ______ economic profits. A) abnormal B )zero C) negative D) positive

B

In competitive markets, the demand curve faced by the individual firm is: A) equal to the market demand curve. B) perfectly elastic. C) perfectly inelastic. D) downward sloping.

B

The marginal cost curve may decrease at low quantities, but soon it starts to increase. This increase can be explained by: A) economies of scale B) increasing difficulty and cost of production C) increasing average total cost

B

Total Revenue is best described as: A) what economist assume firms seek to maximize B) price per unit times the number of units sold C) the change in revenue when one additional worker is hired D) variable cost per unit time the number of units sold

B

What condition is necessary in a constant cost industry? A) Prices of the industry's inputs rise as the industry expands. B) Prices of the industry's inputs do not change as the industry expands. C) Prices of the industry's inputs decline as the industry expands. D) There are barriers that prevent new firms from entering such an industry.

B

To maximize profits, a firm in a highly competitive industry should set its price: A) lower than the market price. B) higher than the market price. C) at the market price. D) it depends: sometimes at the market price but sometimes higher or lower.

C

Economic costs and accounting costs differ because economist include: A) neither explicit or implicit costs B) only explicit costs C) only implicit costs D) both implicit and explicit costs

D

If Tom sells 500 sandwiches for $7 and has an average cost of $5, what is his profit? A) $2,500 B) $3,500 C) $500 D) $1,000

D

The oil industry is an increasing cost industry because: A) because oil is a necessity good. B) All of these statements are correct. C) people buy more oil at lower prices. D) expanding output requires firms to use more expensive production methods to find and extract oil from less desirable locations.

D

What is the primary difference between accounting profits and economic profits? A) economic profits focuses on money; accounting profits focuses on all types of capital B) economic profits require an exchange of money; accounting profits do not. C) accounting profits only occur when money is made, economic profits occur when money is lost. D) Accounting profits ignore implicit costs, economic profits considers them.

D

True or False: A firm's explicit costs are always larger than its implicit costs

F

True or False: The money the firm spends on rent is an example of implicit costs

F

total revenue

Price x Quantity

True or False: A firms economic profit can be different from its accounting profit

T

True or False: Implicit costs are related to a firms opportunity costs

T

True or False: economic profit and accounting profit both make use of explicit costs

T

implicit cost

a cost that does not require an outlay of money

sunk cost

a cost that has already been paid and cannot be recovered

explicit cost

a cost that requires an outlay of money

decreasing cost industry

an industry in which industry costs decrease with an increase in output; shown with a downward-sloped supply curve.

constant cost industry

an industry in which industry costs do no change with greater output; shown with a flat supply curve

Increasing cost industry

an industry in which industry costs increase with greater output; shown with an upward sloped supply curve

variable costs

costs that vary with the quantity of output produced

fixed cost

does not vary with the quantity produced

zero (normal) profits

occurs when P=AC. At this price the firm is covering all of its costs, including enough to pay labor and capital their ordinary opportunity costs.

Marginal Cost (MC)

the change in total cost from producing an additional unit

marginal revenue (MR)

the change in total revenue from selling one more unit of a product MR= change in TR/change in Q

average cost

the cost per unit, TC/Q

total costs

the costs of producing a given quantity of output

short run

the period before exit or entry can occur

long run

the time after all exit or entry has occurred

economic profit

total revenue minus total cost, including both explicit and implicit costs

accounting profit

total revenue minus total explicit cost