Ch.8

At a profit-maximizing level of output of 100 units, a perfectly competitive firm's marginal revenue is $4 and average total cost is $3. This firm's economic profit equals:

$100

What is marginal cost when output changes from 300 to 301 units and total costs rise from $400 to $500?

$100

______ profit is the total revenue minus explicit and implicit costs.

Economic

A firm will not stop producing if the loss is less than its ______ costs.

fixed

A perfectly competitive firm is a price _____.

taker

True or false: Implicit costs are the value of resources used for which no direct payment is made.

true

Is the change in total cost and the change in total variable cost associated with each additional unit of output the same because the only difference between total costs and total variable costs is the total fixed cost in perfect competition?

yes

At a profit-maximizing level of output of 500 units, a perfectly competitive firm's marginal revenue is $5 and average total cost is $3. This firm's economic profit equals:

$1000

The total cost curve is _____ and originates _____ the graph's origin (0,0).

S-shaped; above

What is the definition of economic profit?

Total revenue less economic costs (explicit and implicit)

Which of the following best describes why a firm continues to operate even though it incurs an economic loss?

Whenever price exceeds average variable costs but is less than average total costs, the firm can pay part, but not all, its fixed costs by producing.

From an existing firm's perspective, the______run is a time period during which it can adjust the quantities of all the inputs, including plant capacity.

long

Recall that ______ increases with ______.

total cost; output

A firm's price multiplied by the quantity of output or goods sold equals:

total revenue

Your company's total revenue for the month is $100,000; the costs to produce your products are $10,000 for rent, $2,000 for utilities, and $30,000 for employee wages. What is your accounting profit?

$58,000 Reason: = (total revenue) − (explicit costs)

If total costs rise from $300 to $700 when one additional unit of output is produced, what is marginal cost?

400

Which of the following statements define explicit costs? (Select all that apply.)

A firm's monetary payments to those who supply labor services, materials, fuel, and transportation services. A firm's monetary payments made for the use of resources owned by others.

____profit is the firm's total revenue less its explicit costs, whereas

Accounting

What is the difference between accounting profit and economic profit?

Accounting profit equals total revenue less explicit costs. Economic profit equals total revenue less economic costs (explicit and implicit).

Which of the following statements are true about perfectly competitive firms? (Select all that apply.)

At greater levels of output, the higher marginal costs equal the product price and marginal revenue and profit is maximized. Because marginal costs rise with increased output, a purely competitive firm must get higher prices to motivate it to produce more output. Quantity supplied increases in direct response to an increase in product price and desire to maximize profit.

_______ costs are the monetary payments a firm makes to those who provide the factors or inputs to production.

Explicit

True or false: Profit is the only thing that motivates producers.

False Reason: Profit isn't the only thing that motivates producers. Like the rest of us, producers also worry about social status and crave recognition.

Which of the following best explains why a firm would not stop producing if the loss is less than its fixed costs?

Fixed costs are paid regardless of whether something or nothing is produced, and the firm receives enough revenue per unit to cover AVC and some FC.

Which of the following best defines economic costs?

The value of all resources used to produce a good or service. Reason: While a firm needs to earn revenue to stay in business, the economic cost is the payment that must be made to the supplier of a resource to apply that resource to the use desired by the firm.

Generally speaking, there are two types of calculable profits. Of these, (accounting/economic) profit is what remains after a firm has paid its explicit costs.

accounting

Accounting profit _____ smaller than economic profit.

can never be

Marginal revenue is the _ in total revenue that results from selling one more unit (extra unit) of output.

change

Perfect ______ involves a very large number of firms.

competition

The inducement to take on the added responsibilities of owning and operating a business is the potential for _______ profit.

economic

_____ profit is equal to the difference between total revenue and all explicit and implicit costs; it is the opportunity cost of capital.

economic

_____profit is the firm's total revenue less economic costs (explicit and implicit costs).

economic

The ______ is the value of all resources used to produce a good or service.

economic cost

Entrepreneurs see economic profit as the extra income over and above the normal ______ payments.

factor

A change in a determinant of supply results in a movement along the supply curve.

false

A perfectly competitive firm can maximize its economic profit (or minimize its loss) only by adjusting its price.

false

True or false: The change in total cost and the change in total variable cost associated with each additional unit of output are never the same.

false

If property taxes decrease, then (select all that apply) ______.

fixed costs decrease average total costs decrease

If property taxes increase, then ______. (Select all that apply.)

fixed costs increase average total costs increase

The profit motive is viewed negatively by about one in _____ people.

four

Which of the following motivate firms to produce? Select all that apply.

gaining profits gaining social status feeling important

Whenever price is ______ than average variable costs but is ______ than average total costs, the firm can pay part of, but not all of, its costs by producing.

greater, less

Because a perfectly competitive firm cannot raise price (it will lose all of its customers if it does) and has no incentive to cut price (it can sell all it wants at the market price), the demand curve it faces is

horizontal.

Most businesses understate their costs because they fail to take into account their _____ costs.

implicit

______ costs are the value of resources used, for which no direct payment is made.

implicit

The profit-maximizing rule of p = MC states that ______.

in the short run, the firm will maximize profit or minimize loss by producing the output at which marginal revenue (price) equals marginal cost

Within perfect competition, a firm will ______ output as price rises, as long as marginal cost is less than marginal revenue.

increase

Surveys indicate that the general public _____ the profit motive.

is suspicious of

The demand curve for a perfectly competitive firm is perfectly horizontal because:

it cannot obtain a higher price by restricting its output, nor does it need to lower its price to increase its sales volume

A firm within perfect competition will produce up to the point where price equals marginal cost because (select all that apply) ______.

it will experience the highest possible profits at this point it will experience the lowest possible losses at this poin

If price is _____ than a firm's minimum average variable cost, the firm will not operate in the short run.

less

Firms in perfectly competitive markets will have sufficient time to alter their production capacities in the:

long run

Firms within perfect competition are considered to be price _____

makers

The _______ cost curve above the shutdown point is the firm's short-run supply curve.

marginal

The increase in total costs associated with a one-unit increase in production is called _____ cost.

marginal

____ cost equals the change in total cost divided by the change in output.

marginal

______ revenue is the additional revenue that an additional unit of output would add to total revenue.

marginal

A firm would not produce a unit of output where ______.

marginal cost exceeds price

A firm that produces the entire market supply of a particular good or service is a(n)

monopolist

Total cost increases with output because:

more production requires more resources

In general, a producer will want to build, buy, or lease a plant that's the _______ for the anticipated rate of output.

most efficient

Each firm in a perfectly competitive industry has _____ influence over price.

no

Zero economic profit, which includes implicit costs such as entrepreneurial talent, is also known as a(n)__________ profit.

normal

For perfectly competitive firms, profit maximization (or loss minimization) is assured if production proceeds up to the point where (Select all that apply) ______.

p = MC MR = MC

An identical product will be produced by which of the following market structures?

perfect competition

A firm's total revenue is calculated as _______multiplied by quantity sold.

price

In perfect competition, a firm's total profit is equal to its product_____ minus average total cost, all multiplied by output.

price

A firm should produce if ______.

price is equal to or greater than minimum average variable cost, meaning that the firm is profitable or that losses are less than fixed costs

A firm should produce any unit of output whose _____.

price is greater than marginal cost

In perfect competition, a firm's total profit is equal to ______.

price minus average total cost, all multiplied by quantity

The difference between total revenue and total cost is

profit

Suppose a firm finds that at its current output level, MC > p. In this case it should _____ production.

reduce

Suppose the last unit your firm produced had MC = $5 and MR = $4. In this case, producing that good_______ your total revenue by $________

reduced;1

In part, profit represents compensation for the great someone undertakes in owning or operating a business.

risk

A period of time too brief for a firm to alter its plant capacity yet long enough to permit a change in the degree to which the plant is used is called the

short run

The _____ run is a period where some inputs cannot be changed, whereas the _______ run is a period where all inputs can be varied. (Enter one word in each blank)

short;long

The risks attached to starting and operating a business are

substantial

The marginal cost curve above the shutdown point is the firm's short-run ______ curve.

supply

The determinants of a firm's supply do not include (select all that apply):

tastes and preferences. demand.

Which of the following factors will alter costs and shift the marginal cost or short-run supply curve to a new location? (Select all that apply.)

technology expectations factor prices

For any firm, the marginal cost equals:

the added variable cost of producing one more unit of a good. the added cost of producing one more unit of a good.

The determinants of a firm's supply include (select all that apply) ______.

the price of factor inputs taxes and subsidies expectations technology

The quantity that a perfectly competitive firm should produce can be determined at p = MC or where ______.

total revenue exceeds total cost by the maximum amount

True or false: In general, a producer will want to build, buy, or lease a plant that's the most efficient for the anticipated rate of output.

true

A firm should stop producing if its average ______ cost is ______ price.

variable; greater than