Economics quiz; Chapter 11, 12-1, & 12-2.

True or False: In long-run equilibrium, all firms will have the same marginal cost. This is _____. . A. True B. False

A. True

True or False: The total cost of production of the industry's output is minimized when a competitive industry is in a long-run equilibrium. This is _____. A. True B. False

A. True

Price-Taker

A buyer or seller who cannot affect the market price

Market Share

A company's product sales as a percentage of total sales for that industry.

Standardized Good

A good or service for which any two units of it have the same features and are interchangeable

Total Product Curve

A graphical representation of the production function, showing how the quantity of output depends on the quantity of the variable input for a given quantity of the fixed input.

Total Cost Curve

A graphical representation of the total cost, showing how total cost depends on the quantity of output.

Specialization

A method of production whereby an entity focuses on the production of a limited scope of goods to gain a greater degree of efficiency. Many countries, for example, specialize in producing the goods and services that are native to their part of the world, and they trade for other goods and services. Causes Marginal Costs to fall.

Quota

A restriction placed on the amount of a product allowed to enter or leave a country.

Competitive advantage

A set of unique features of a company and its products that are perceived by the target market as significant and superior to those of the competition.

Short run equilibrium

A situation in which, given the firms in the market, the price is such that that total amount the firms wish to supply is equal to the total amount the consumers wish to demand.

When a new firm enters a perfectly competitive industry, the selling price: A. declines and each individual firm produces less. B. rises and each individual firm produces less. C. declines and each individual firm produces more. D. rises and each individual firm produces more.

A. declines and each individual firm produces less.

A cost that depends on the quantity produced is a fixed cost. This is _____. A. false B. true

A. false

A good that is always regarded as the same even if it comes from different producers is: A. standardized. B. copyright protected. C. inferior. D. differentiated.

A. standardized.

Perfectly Competitive Industry

An industry where there are many buyers and sellers in the market; each company makes a similar product; buyers and sellers have access to perfect information about price; there are no transaction costs; there are no barriers to entry into or exit from the market. Examples are agriculture markets, foreign exchange markets, and internet-related industries.

Variable input

An input whose quantity the firm can vary at any time

Spreading Effect

As output increases, fixed costs are spread over more units (AFC drops).

True or False: Perfect competition is more efficient in the short run than in the long run because positive economic profits are possible in the short run. This is _____. A. True B. False

B. False

True or False: The total cost curve has a negative slope because of diminishing returns. This is _____. A. true B. false

B. false

The fraction of total potato production accounted for by one potato farmer's output is that farm's: A. quota. B. market share. C. competitive advantage. D. marginal share.

B. market share.

True or False: In the long run, all inputs are variable. This is _____. A. false B. true

B. true

According to the spreading effect, as output _____, average fixed cost decreases. A. remains constant B. decreases substantially C. increases D. decreases slightly

C. increases

Marginal Product of labor formula

Change in quantity/Change in labor

With a small number of workers and low quantity of output, employing additional workers allows the workers to specialize and causes the marginal cost curve to slope: A. in a vertical line. B. in a horizontal line. C. upward. D. downward.

D. downward.

When an existing firm exits a perfectly competitive industry, the selling price: A. declines and each remaining firm produces less. B. rises and each remaining firm produces less. C. declines and each remaining firm produces more. D. rises and each remaining firm produces more.

D. rises and each remaining firm produces more.

In the long run, firms will exit an industry if: A. marginal cost is above average variable cost. B. marginal cost is above the average total cost. C. the market price is above marginal cost. D. the market price is consistently less than their break-even price.

D. the market price is consistently less than their break-even price.

Marginal Cost

Extra cost of producing one additional unit of production.

Capital

Fixed input

Average Variable Cost Curve

Initially falls because of increasing marginal returns but then rises because of diminishing marginal returns. It is generally U shaped. The production is relatively inefficient at low levels of production, become more efficient at greater levels of production, but then become inefficient again due to crowding.

What happens when a marginal cost is equal to the average total cost?

It follows that, when average total cost is at its minimum, marginal cost is equal to average total cost. Also, when average variable cost is at its minimum, marginal cost equals average variable cost.

Optimal Output Rule

Profit is maximized by producing the quantity of output at which the marginal revenue of the last unit produced is equal to its marginal cost.

Marginal Product Curve

Shows how many extra outputs are created with each additional input.

Average Total Cost Curve

Shows the relationships between Average Total Cost and quantity produced. At small production quantities, the Average Total Costs are high, but with more production, the costs decrease and eventually rise. The vertical sum of Average Variable Costs and Average Fixed Costs. For a U-shaped average total cost curve, the average total cost is at its minimum level at the bottom of the U.

Diminishing Returns

Stage of production where output increases at a decreasing rate as more units of variable input are added.

Fixed Cost Curve

Straight horizontal line

Marginal Product

The extra output or change in the total product caused by the addition of one more unit of the variable input.

Short run

The period of time during which at least one of a firm's inputs is fixed.

long run equilibrium

The process of entry or exit is complete - remaining firms earn zero economic profit.

Minimum Cost Output

The quantity of output at which the average total cost is lowest—the bottom of the U-shaped average total cost curve. At the minimum-cost output, the average total cost is equal to marginal cost. At output less than the minimum-cost output, the marginal cost is less than the average total cost and the average total cost is falling. At output greater than the minimum-cost output, the marginal cost is greater than the average total cost and the average total cost is rising.

Production Function

The relationship between the quantity of inputs a firm uses and the quantity of output it produces

What happens when marginal cost is higher than average total cost?

When Marginal Cost is above Average Variable Cost, it is pushing the average up so Average Variable Cost must be rising.

What happens when the average total cost is higher than the marginal cost?

When Marginal Cost is lower than Average Variable Cost, it is pushing the average down so Average Variable Cost must be declining.

Increasing returns to scale

When long-run average total cost declines as output increases.

Decreasing returns to scale

When long-run average total cost increases as output increases.