Kung Micro TEST 3

Economic depreciation is the

opportunity cost of owning and using the firm's capital, measured as the change in market value.

Increasing marginal returns occur when...

productivity of an additional worker exceeds the product of the previous worker.

The marginal revenue curve for a perfectly competitive firm is

horizontal

For a perfectly competitive firm, profit is maximized at the output level where i. total revenue exceeds total cost by the largest amount. ii. marginal revenue equals marginal cost. iii. price equals marginal cost.

i, ii, and iii

If a perfectly competitive firm is maximizing its profit and earning an economic profit, then i. price equals marginal revenue ii. marginal revenue equals marginal cost iii. price is greater than average total cost

i, ii, and iii

a perfectly competitive firm's demand curve is horizontal because.... i. the firm is so small, relative to the market, that it cannot affect the market price ii. there are many perfect substitutes for its product iii. the firm cannot sell any output at a price higher than the market price

i, ii, iii

for a perfectly competitive firm, profit is maximized at the output level where i. total revenue exceeds total cost by the largest amount ii. marginal revenue equals marginal cost iii. price equals marginal cost

i, ii, iii

Which of the following is an implicit cost? i. wages paid to workers ii. the normal profit iii. the electric bill

ii only

If a firm shuts down, it

incurs an economic loss equal to its total fixed cost.

explicit cost

is a cost paid in money

A price taker

is a firm that cannot influence the price of the good or service that it produces.

The long run

is a time frame in which the quantities of all resources can be changed.

The short run

is a time frame in which the quantities of some resources are fixed. In the short run, a firm can usually change the quantity of labor it uses but not the quantity of capital (fixed plant size).

economic depreciation

is an opportunity cost of a firm using capital that it owns — measured as the change in the market value of capital over a given period.

In perfect competition, marginal revenue

is equal to the market price.

marginal revenue

is the change in total revenue that results from a one-unit increase in the quantity sold (MR = Price!)

Total Fixed Cost (TFC)

is the cost of a firm's fixed factors of production used by a firm—the cost of land, capital, and entrepreneurship. We describe the relationship between output and cost using three cost concepts: -Total fixed cost doesn't change as output changes.

Total variable cost (TVC)

is the cost of the variable factor (labor) of production. To change its output in the short run, a firm must change the quantity of labor it employs. -Total variable cost changes as output changes

The long run is a time period that is

long enough to change the size of the firm's plant and all other inputs.

If the wheat industry is perfectly competitive with a market price of $4 per bushel and Farmer Brown charged $5 per bushel, how many bushels would Farmer Brown sell?

none

the return to entrepreneurship, which is what the firms owner could earn running another business, is known as

normal profit

Jennifer's Bakery Shop produces baked goods in a perfectly competitive market. If Jennifer decides to produce her 100th batch of cookies, the marginal cost is $120. She can sell this batch of cookies at a market price of $110. To maximize her profit, Jennifer should

not produce this additional batch.

As a typical firm increases its output, its marginal cost

decreases at first and then increases.

A perfectly competitive firm is producing 50 units of output and selling at the market price of $23. The firm's average total cost is $20. What is the firm's economic profit?

$150

a perfectly competitive firm is producing 50 units of output and selling at the market price of $23. the firms average total cost is $20. what is the firm's economic profit

$150

Juan's Software Service Company is in a perfectly competitive market. Juan's total fixed cost is $25,000, his average variable cost at 1,000 service calls is $45, and marginal revenue is $75. Juan's makes 1,000 service calls a month. What is his economic profit?

$5,000

Total variable cost

Includes the cost of labor

Perfect competition means

Many firms sell an identical product to many buyers. • There are no restrictions on entry into (or exit from) the market. • Established firms have no advantage over new firms. • Sellers and buyers are well informed about prices.

The Firm's (Economic) Goal?

To maximize profit (= revenue - cost)

TFC/TVC/TC on graph?

Total fixed cost (TFC) is constant - a horizontal line. Total variable cost (TVC) increases as output increases. Total cost (TC) also increases as output increases.

total fixed cost is the cost of

a firm's fixed factors of production

A subsidy is

a payment by the government to a producer to cover part of the cost of production.

implicit cost is

an "opportunity cost" incurred by a firm when it uses a factor of production which does not involve direct money payment. The two main implicit costs are • economic depreciation • cost of using the firm owner's resources

increasing marginal returns to labor

are the results of specialization and division of labor in the production process

what always decreases when output increases?

average fixed cost

average total cost equals

average fixed cost + average variable cost

Average total cost equals

average fixed cost plus average variable cost.

An effective price support ________ producers and ________ a deadweight loss.

benefits; creates

Under perfect competition,

buyers and sellers have a lot of information about prices.

a price-taking firm

cannot influence the price of the product it sells

A perfectly competitive firm is earning an economic profit when total fixed costs increase. Assuming the firm does not shut down, in the short run the firm will

continue producing the same quantity as before but will earn less economic profit.

Jay set up his hotdog stand near the business district. His total variable cost includes the

cost of hot dogs and condiments

Jerry's Jellybean Factory produces 2,000 pounds of jellybeans per month and sells them in a perfectly competitive market. The marginal cost is $3 per pound, the average variable cost is $2 per pound, and the beans sell for $4 per pound. Jerry

could increase his profit by producing more beans

A firm pays $50,000 for a machine that is used in production for one year, after which it is sold for $40,000 to another firm. The $10,000 difference is

economic depreciation, an implicit cost of production.

When a firm's long-run average total cost decreases as its output increases, the firm is experiencing

economies of scale

when a firm's long-run average total cost decreases as its output increases, the firm is experiencing

economies of scale

When the long-run average cost curve is downward sloping...

economies of scale are present

when the long-run average cost curve is downward sloping

economies of scale are present

economic profit

equals total revenue

Economies of scale

exist if when a firm increases its plant size and labor employed by and average total cost decreases. The main source of economies of scale is greater specialization of both labor and capital.

Diseconomies of scale

exist if when a firm increases its plant size and labor employed by and average total cost increases. Diseconomies of scale arise from the difficulty of coordinating and controlling a large enterprise.

Henry, a perfectly competitive lime grower in southern california, notices that the market price of limes is greater than his marginal cost. What should henry do?

expand his output to increase profits

The main source of economies of scale is

greater specialization of both labor and capital.

A perfectly competitive firm definitely earns an economic profit in the short run if price is

greater than average total cost.

If total fixed cost increases, which of the following will NOT change?

marginal cost

The firm's supply curve is its

marginal cost curve above the average variable cost curve.

the firm's supply curve is its

marginal cost curve above the average variable cost curve.

If a business owner decided to expand her business but rather than borrowing money from a bank used her own funds, then

she would forego the opportunity to earn interest on the money.

Suppose that marginal revenue for a perfectly competitive firm is $20 . When the firm produces 10 units, its marginal cost is $20, its average total cost is $22, and its average variable cost is $17. Then to maximize its profit in the short run, the firm

should stay open and incur an economic loss of $20.

What is a fixed cost for ACME manufacturing

the annual fire and theft insurance premiums

A firm's marginal cost is

the change in total cost that results from a one-unit increase in total product.

For a business, opportunity cost measures

the cost of all the factors of production the firm employs.

A large number of sellers all selling an identical product implies?

the inability of any seller to change the price of the product

what does the long-run average cost curve show?

the lowest average cost to produce each output level in the long run

normal profit

the return to entrepreneurship

Total cost is equal to the sum of

total variable cost and total fixed cost.

To maximize its profit, in the short run a perfectly competitive firm decides

what quantity of output to produce.

under which of the following conditions will a profit-maximizing perfectly competitive firm shut down in the short run?

when the price is less than its minimum average variable cost