Chapter 6

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Unless shut down or exit is optimal every firm expands production until

Marginal revenue, marginal cost, and price are all equal

By producing to where marginal revenue equals marginal cost, the seller is

Minimizing an existing loss

The law of diminishing returns states that

successive increases in inputs eventually lead to less additional output when one of the inputs is fixed

The long run supply curve is the portion of the MC curve

Above the ATC curve

A firm produces 376 units with 10 workers. When and 11th worker was hired, The output increase to 398 units. The marginal product of the 11th worker is

22 units

All of the following could cause an increase in producer surplus except

An upward shift in the marginal cost curve

A firm is experiencing economies of scale when its... Declines as more output is produced

Average total cost

Variable cost

Changes as a level of output changes

A firm is producing goods in a market where the market price is less than the firms average total cost but greater than its average variable cost. At this point the firm should:

Continue to operate at a loss

Fixed cost

Does not change with the level of output

In a perfectly competitive market, the price in the long run will always

Equal the minimum average total cost of the industry

When the marginal product..., The marginal cost...

Increases; decreases

To construct a supply curve in a market with many firms with different cost structures, the...

Individual supply curves for each firm are added together

Production

Is the process of transforming inputs into outputs

Production function

Is the relationship between the quantity of inputs and the quantity of output

How would the introduction of legal or technical barriers to entry affect the long run equilibrium in a perfectly competitive market?

It would reduce any downward pressure on prices from entry and allow economic profits in the long run

The equilibrium price is the...

Long-run average total cost of the last entrant into the market

Which of the following describes the sequence of events in a competitive market if demand were to increase

Market price increases, economic profits increase, short run market supply increases, long run supply settles at minimum ATC

Suppose one firm accounts for 55% of a global market share for a product, well at 147 other firms account for the remaining 45% of the market. With such a large number of buyers and sellers, is this market likely to be competitive

No, even though there are many firms in the market, there is one firm large enough to influence the market price

Long run

Period of time when all the inputs can be changed

In terms of economic profits, early market entrants earn... Economic profits in the last entrant earns... Economic profits

Positive, zero

Producer surplus for a perfectly competitive firm is

The area under the market price in above the firms marginal cost curve

What is an example of a variable cost

The cost of the electricity used in an office

Explicit costs

The expenses that actually come out of firms pocket

if it costs a firm $3000 to produce 400 shirts in $6500 to purchase 900 shirts then,

The firm is experiencing economies of scale

In a perfectly competitive market, all of the following are true except

The market supply cannot affect the retail price

In a competitive market, if economic profits exist, then:

The market supply curve will shift right word in the price will decrease

Implicit cost

The opportunity cost, what was given up to invest in the current business

Short run

The period of time during which at least one input is fixed

What is the best description for the long run for a firm

The period of time over which all factors of production are variable

Which of the following statements is true of a perfectly competitive market

There is free entry and free exit in the market

In a perfectly competitive market, an increase in market price shifts the marginal revenue curve...,... The quantity supplied

Up, increasing

A firm is said to be a price taker if it

sells as much of any good as it wants at the prevailing market price


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