Review for Micro Exam 2

Refer to the diagram, which pertains to a purely competitive firm. Curve C represents

average revenue and marginal revenue.

Refer to the diagram for a purely competitive producer. The lowest price at which the firm should produce (as opposed to shutting down) is

P2.

Which of the following is characteristic of a purely competitive seller's demand curve?

Price and marginal revenue are equal at all levels of output.

which of the following is most likely to be an implicit cost for Company X?

forgone rent from the building owned and used by Company X

A purely competitive seller is

a "price taker."

An explicit cost is

a money payment made for resources not owned by the firm itself.

Refer to the data for a nondiscriminating monopolist. At its profit-maximizing output, this firm's total profit will be

$82

Creamy Crisp's economic profit is

$94,000.

what are the characteristics of perfect competition?

1. there are many sellers and buyers 2. Identical products 3. the sellers and buyers are price takers 4. no entry barriers

Refer to the data for a non discriminating monopolist. This firm will maximize its profit by producing

4 units

Which of the diagrams correctly portrays a nondiscriminating pure monopolist's demand (D) and marginal revenue (MR) curves?

B

Which of the following distinguishes the short run from the long run in pure competition?

Firms can enter and exit the market in the long run but not in the short run.

Explain how the long run differs from the short run in pure competition.

Long run and short run differ in pure competition because fixed costs are associated with the short run only and you can only exit the market in the long run because of the fixed costs. You can expand your factory size in the long run but not in the short run. Also, in the short run, a business has both fixed and variable costs. In the long run, the business only has variable costs.

In the figure, curves 1, 2, 3, and 4 represent the

MC, ATC, AVC, and AFC curves, respectively.

how do you calculate marginal cost?

MC= change in total cost/ change in quantity

how do you calculate marginal revenue?

MR= change in total revenue/ change in quantity MR= price

Which of the following is correct as it relates to cost curves?

Marginal cost intersects average total cost at the latter's minimum point.

Which of the following statements is correct?

Marginal cost is the price or cost of an extra variable input (for example, an additional worker or machine) divided by its marginal product.

Which of the following industries most closely approximates pure competition?

agriculture

According to the accompanying diagram, at the profit-maximizing output, the firm will realize

an economic profit of ABGH.

The MR = MC rule

applies both to pure monopoly and pure competition.

In the short run, the Sure-Screen T-Shirt Company is producing 500 units of output. Its average variable costs are $2.00 and its average fixed costs are $.50. The firm's total costs

are $1,250.

The law of diminishing returns indicates that

as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.

The basic difference between the short run and the long run is that

at least one resource is fixed in the short run, while all resources are variable in the long run.

The supply curve of a pure monopolist

does not exist because prices are not "given" to a monopolist.

The demand curve in a purely competitive industry is ______, while the demand curve to a single firm in that industry is ______.

downsloping; perfectly elastic

The MR = MC rule can be restated for a purely competitive seller as P = MC because

each additional unit of output adds exactly its price to total revenue.

Price is constant to the individual firm selling in a purely competitive market because

each seller supplies a negligible fraction of total supply.

The primary force encouraging the entry of new firms into a purely competitive industry is

economic profits earned by firms already in the industry.

As the firm in the diagram expands from plant size #1 to plant size #3, it experiences

economies of scale.

Long-run adjustments in purely competitive markets primarily take the form of

entry or exit of firms in the market.

Economic profits are calculated by subtracting

explicit and implicit costs from total revenue.

To the economist, total cost includes

explicit and implicit costs.

A purely monopolistic firm

faces a downsloping demand curve.

Refer to the diagrams, which pertain to a purely competitive firm producing output q and the industry in which it operates. In the long run we should expect

firms to leave the industry, market supply to fall, and product price to rise.

Creamy Crisp

is earning an economic profit.

The marginal revenue curve of a purely competitive firm

is horizontal at the market price.

In the provided diagram, the profit-maximizing output

is n.

If a purely competitive firm shuts down in the short run,

it will realize a loss equal to its total fixed costs.

If a firm decides to produce no output in the short run, its costs will be

its fixed costs.

A natural monopoly occurs when

long-run average costs decline continuously through the range of demand.

In the short run, the individual competitive firm's supply curve is that segment of the

marginal cost curve lying above the average variable cost curve.

Refer to the diagram for a purely competitive producer. The firm will produce at a loss at all prices

between P2 and P3.

Refer to the diagram for a pure monopolist. Monopoly price will be

c

When a firm is maximizing profit, it will necessarily be

maximizing the difference between total revenue and total cost.

Suppose that MUx/Px exceeds MUy/Py. To maximize utility the consumer who is spending all her money income should buy:

more of X and/or less of Y

The demand schedule or curve confronted by the individual, purely competitive firm is

perfectly elastic.

Suppose that Betty's Beads is a typical firm operating in a perfectly competitive market. Currently Betty's MR = $15, MC = $12, ATC = $10, and AVC = $8. Based on this information, we can conclude that

potential new firms will be encouraged by Betty's success to enter the market.

If a firm is confronted with economic losses in the short run, it will decide whether or not to produce by comparing

price and average variable cost.

In the short run, a purely competitive seller will shut down if

price is less than average variable cost at all outputs.

Which of the following is not a characteristic of pure competition?

pricing strategies by firms

Suppose that Ms. Thomson is currently exhausting her money income by purchasing 10 units of A and 8 units of B at prices of $2 and $4 respectively. The marginal utility of the last units of A and B are 16 and 24 respectively. These data suggest that Ms. Thomson:

should buy less B and more A

Suppose a firm in a purely competitive market discovers that the price of its product is above its minimum AVC point but everywhere below ATC. Given this, the firm

should continue producing in the short run but leave the industry in the long run if the situation persists.

In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. For a purely competitive firm, marginal revenue graphs as a

straight line, parallel to the horizontal axis.

In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. For a purely competitive firm, total revenue graphs as a

straight, upsloping line.

Refer to the diagram for a purely competitive producer. The firm's short-run supply curve is

the bcd segment and above on the MC curve.

In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. For a purely competitive firm,

the demand and marginal revenue curves will coincide.

If a pure monopolist can price discriminate by separating buyers into two or more groups,

the firm will face multiple marginal revenue curves.

When diseconomies of scale occur,

the long-run average total cost curve rises.

the lowest point on a purely competitive firm's short-run supply curve corresponds to

the minimum point on its AVC curve

Price discrimination refers to

the selling of a given product to different customers at different prices that do not reflect cost differences.

Fixed costs are associated with

the short run only.

Firms seek to maximize

total profit

Refer to the diagram, which pertains to a purely competitive firm. Curve A represents

total revenue only.

how do you calculate revenue?

total revenue= P*Q

A purely competitive firm should produce in the short run if its total revenue is sufficient to cover its

total variable costs.

A purely competitive firm is a "price taker," while a monopolist is a "price maker."

true

A purely competitive firm's short-run supply curve is

up-sloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve.

Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?

use of savings to pay operating expenses instead of generating interest income

In the short run, a purely competitive firm that seeks to maximize profit will produce

where total revenue exceeds total cost by the maximum amount.

If a monopolist engages in price discrimination, it will

charge a higher price where individual demand is inelastic and a lower price where individual demand is elastic.

Implicit and explicit costs are different in that

the former refer to nonexpenditure costs and the latter to monetary payments.

In a purely competitive industry,

there may be economic profits in the short run but not in the long run.

Accounting profits equal total revenue minus

total explicit costs.

If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue

will also be $5.

The following is cost information for the Creamy Crisp Donut Company.Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Creamy Crisp's implicit costs, including a normal profit, are

$136,000.

The following is cost information for the Creamy Crisp Donut Company.Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Creamy Crisp's explicit costs are

$150,000.

Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were

$200,000 and its economic profits were $0.

Creamy Crisp's accounting profit is

$230,000.

Answer the question on the basis of the accompanying demand schedule. The marginal revenue obtained from selling the third unit of output is

$3

The accompanying table gives cost data for a firm that is selling in a purely competitive market. If the market price for the firm's product is $32, the competitive firm will produce

8 units at an economic profit of $16.

What is a production function? What is the shape of the production function? Explain the shape of the production function.

A production function is the relationship between the quantity of inputs a firm uses and the quantity of outputs it produces. The shape is upward slopping because a business is able to produce more with more workers. The amount of increase/ worker added decreases eventually because there is a limited supply of production resources (example would be having 5 ovens).

Refer to the short-run data in the accompanying graph. Which of the following is correct?

Any level of output between 100 and 440 units will yield an economic profit.

Refer to the diagram. To maximize profits or minimize losses, this firm should produce

E units and charge price A.

According to the accompanying diagram, to maximize profit or minimize losses, this firm will produce

E units at price A.

Which of the following definitions is correct?

Economic profit = accounting profit − implicit costs.

Consider a firm that has no fixed costs and that is currently losing money. Are there any situations in which it would want to stay open for business in the short run? If a firm has no fixed costs, is it sensible to speak of the firm distinguishing between the short run and the long run?

No, the firm will want to shut down. This follows because the firm is losing money and there are no fixed costs. Since there are no fixed costs, only variable costs, revenue must be less than total variable cost or price is less than average variable cost (the shutdown rule). In other words, the firm can shut down and lose nothing because there are no fixed costs or it can keep producing and earn a negative profit.

In the short run, a purely competitive firm will always make an economic profit if

P > ATC.

If the industry depicted in the graph comprises only one seller, the profit-maximizing price and quantity will be

P3 and Q3.

A perfectly elastic demand curve implies that the firm

can sell as much output as it chooses at the existing price.

Other things equal, a price-discriminating monopolist will

produce a larger output than a nondiscriminating monopolist.

The fact that a purely competitive firm's total revenue curve is linear and upsloping to the right implies that

product price is constant at all levels of output.

Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting

profits were $0 and its economic losses were $500,000.

An industry comprising a very large number of sellers producing a standardized product is known as

pure competition.

How do you calculate profit

Profit= (P-ATC)*Q Profit= total revenue- total cost

Refer to the diagrams, which pertain to a purely competitive firm producing output q and the industry in which it operates. Which of the following is correct?

The diagrams portray short-run equilibrium but not long-run equilibrium.

Price of bread is $2 and profit maximizing quantity is 100 bread. How much will the firm produce?

The firm will produce 100 bread. Profit maximizing condition is MR=MC

Refer to the diagram. At the profit-maximizing level of output, the firm will realize

an economic profit of ABHJ.

For most producing firms,

average total costs decline as output is carried to a certain level, and then begin to rise.

Marginal revenue is the

change in total revenue associated with the sale of one more unit of output.

Suppose you find that the price of your product is less than minimum AVC. You should

close down because, by producing, your losses will exceed your total fixed costs.

Average fixed cost

declines continually as output increases.

Accounting profits are typically

greater than economic profits because the former do not take implicit costs into account.

Assume the XYZ Corporation is producing 20 units of output. It is selling this output in a purely competitive market at $10 per unit. Its total fixed costs are $100 and its average variable cost is $3 at 20 units of output. This corporation

is realizing an economic profit of $40.

A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating

marginal revenue and marginal cost.

Pure monopoly refers to

a single firm producing a product for which there are no close substitutes.

Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and has average variable costs of $150. The firm's total fixed costs are

$5,000.

The graphs represent the demand for use of a local golf course for which there is no significant competition. (It has a local monopoly.) P denotes the price of a round of golf, and Q is the quantity of rounds "sold" each day. If the left graph represents the demand during weekdays and the right graph the weekend demand, this profit-maximizing golf course should

charge $7 for each round on weekdays and $10 during the weekend.

Answer the question on the basis of the following output data for a firm. Assume that the amounts of all non-labor resources are fixed. units of output 0 40 90 126 150 165 180 Diminishing marginal returns become evident with the addition of the

third worker.