22-25
For a monopolist that does not price discriminate, economic profit is maximized in the short run at a price of $140. Marginal revenue at that output level is equal to $140. greater than $140. less than $140. less than marginal cost. greater than average revenue.
less than $140.
Which of the following will reduce the likelihood of effective collusion among oligopolistic producers? low entry barriers into the market a production of a homogenous product a stable market demand for the product a highly inelastic market demand for the product
low entry barriers into the market
If zinc suppliers are successful in forming an international zinc cartel, they will lower output and raise prices, which discourages the entry of new firms into the industry. lower output, raise prices, and have a need to prevent the entry of new firms into the industry. raise output and raise prices, which discourages the entry of new firms into the industry. raise output, raise prices, and have a need to prevent the entry of new firms into the industry.
lower output, raise prices, and have a need to prevent the entry of new firms into the industry.
Which of the following conditions would increase the likelihood of successful collusion among American automobile producers? vigorous enforcement of antitrust laws strong quality competition that makes it difficult to monitor price cuts by rival firms imposition of tariffs or quotas on imported automobiles The market demand for automobiles fluctuates substantially.
imposition of tariffs or quotas on imported automobiles
A contestable market is a market that is highly contested by two, and only two, rival firms. in which the costs of entry and exit are low. characterized by high profitability and government regulation. characterized by a large number of firms; in essence, the term means the same thing as pure competition.
in which the costs of entry and exit are low.
If a firm competing in a price-taker market seeks to maximize profit, the firm should increase output whenever marginal cost is less than average total cost. increase output whenever marginal revenue is less than marginal cost. choose the output where per-unit profit is greatest. increase output whenever price exceeds marginal cost.
increase output whenever price exceeds marginal cost.
If a firm competing in a price-taker market seeks to maximize profit, the firm should increase output whenever marginal cost is less than average total cost. increase output whenever marginal revenue is less than marginal cost. choose the output where per-unit profit is greatest. increase output whenever price exceeds marginal cost.
increase output whenever price exceeds marginal cost.
If a price searcher is producing at a level of output such that its marginal cost is $16 and its marginal revenue is $9, the firm should increase output in order to reduce per-unit costs. decrease the price of its product and expand output. increase price and reduce its rate of output. reduce both price and output.
increase price and reduce its rate of output.
Other things constant, if wheat production is a price-taker industry, a decrease in the price of fertilizer used to grow wheat will increase the supply of wheat. increase the demand for wheat. decrease the supply of wheat. do both a and b.
increase the supply of wheat.
When a firm in a competitive market is earning profits, this indicates that the firm is exploiting consumers. increasing the value of resources. blocking the entry of competing firms. reducing overall wealth in the market.
increasing the value of resources.
Economists refer to expenditures on training, education, and skill development designed to increase the productivity of an individual as overhead expenditures. investments in human capital. non-exhaustive expenditures. social capital.
investments in human capital.
A profit-maximizing entrepreneur will produce and sell an additional unit of output as long as it lowers the firm's unit costs. it lowers the firm's marginal cost. it adds more to revenue than it adds to cost. there is additional plant capacity to produce.
it adds more to revenue than it adds to cost.
A firm in a price-taker market must take the price that is determined in the market. must reduce its price if it wants to sell a larger quantity. must be large relative to the total market. can exert a major influence on the market price.
must take the price that is determined in the market.
Licensing is a process in which a firm wanting to enter a market must require all potential customers to obtain government permission to purchase the product. notify the government within a certain period after it has entered the market. pay all overdue taxes before entering the market. obtain permission from the government to enter the market.
obtain permission from the government to enter the market.
The supply curve of a price-taker firm in the short run is the firm's average variable cost curve. portion of the firm's average total cost curve that lies above average variable cost curve. portion of the firm's marginal cost curve that lies above average variable cost curve. firm's marginal revenue curve.
portion of the firm's marginal cost curve that lies above average variable cost curve.
The supply curve of a price-taker firm in the short run is the firm's average variable cost curve. portion of the firm's average total cost curve that lies above average variable cost curve. portion of the firm's marginal cost curve that lies above average variable cost curve. firm's marginal revenue curve.
portion of the firm's marginal cost curve that lies above average variable cost curve.
A practice whereby a seller charges different prices to different consumers of the same product or service is called price discrimination. oligopolistic pricing. stay-out pricing. monopolistic pricing.
price discrimination.
If the government wants a natural monopoly to earn a "fair return" or zero economic profit, it will set price equal to marginal cost. price equal to average total cost. price equal to average revenue. marginal cost equal to marginal revenue. marginal cost equal to average total cost.
price equal to average total cost.
A decrease in resource prices will increase the incentive of users to purchase the resource. suppliers to provide more of the resource. firms to find and develop substitutes for the resource. consumers to look for alternatives that do not contain the resource.
users to purchase the resource.
If coal and oil are substitute inputs in the production of electricity, an increase in the price of oil will increase the demand for coal. will reduce the demand for coal. will increase the supply of coal. will reduce the supply of coal. will not affect the demand for coal.
will increase the demand for coal.
Use the table of expected cost and revenue data for the Tuckers Tomato Farm below to answer the following question(s). The Tuckers produce tomatoes in a greenhouse and sell them wholesale in a competitive price-taker market.Table 9-1 Output Total Cost Price per Ton (tons per month) (dollars) (dollars) 3 2,250 500 4 2,500 500 5 2,800 500 6 3,050 500 7 3,450 500 8 4,000 500 9 4,575 500 10 5,150 500 Refer to Table 9-1. If the market price is $500, what is the maximum economic profit per month the Tuckers can earn? −$50 zero $50 $100
$50
Suppose a certain firm is able to produce 165 units of output per day when 15 workers are hired. The firm is able to produce 176 units of output per day when 16 workers are hired (holding other inputs fixed). Then the marginal product of the 16th worker is 10 units of output. 11 units of output. 16 units of output. 176 units of output.
11 units of output.
Which of the following accurately describes a major difference between a monopolist and firms in competitive price-searcher markets? A monopolist will maximize profit, while firms in competitive price-searcher markets will maximize sales. A monopolist may be able to earn long-run economic profit, but firms in competitive price-searcher markets will not be able to do so. A monopolist will charge a price that is greater than its marginal cost, but competitive price searchers will charge prices that are just equal to their marginal cost. A monopolist will charge a price that is just equal to its marginal cost, but competitive price searchers will charge prices that are greater than their marginal cost.
A monopolist may be able to earn long-run economic profit, but firms in competitive price-searcher markets will not be able to do so.
Which of the following about price discrimination is true? A price-discriminating seller will charge consumers with an elastic demand a lower price than consumers with an inelastic demand. A firm must face a horizontal demand curve for its product in order to engage in effective price discrimination in a market. Price discrimination always harms consumers and helps sellers in the short run but in the long run, consumers benefit at the expense of sellers. A seller must have a monopoly in order to gain from price discrimination.
A price-discriminating seller will charge consumers with an elastic demand a lower price than consumers with an inelastic demand.
Why is it difficult for economists to predict the price and output policy that will emerge in oligopolistic markets? Economists cannot determine if barriers to entry exist in a market. Economists cannot predict the reactions that firms will have to the actions and decisions of other firms. The government prevents economists from acquiring the information that would lead to good predictions. Firms have a set price and output policy, but the policy is concealed to discourage competition.
Economists cannot predict the reactions that firms will have to the actions and decisions of other firms.
Which of the following is a necessary condition for price discrimination to be profitable? All consumers must have an identical demand for the product. Groups of consumers with different demand elasticities must be easily distinguishable. The market demand for the product must be highly elastic. It must be possible for buyers to resell the product at a low cost.
Groups of consumers with different demand elasticities must be easily distinguishable.
Which of the following best explains why a firm in a competitive price-taker market must take the price determined in the market? The short-run average total costs of firms that are price takers will be constant. If a price taker increased its price, consumers would buy from other suppliers. Firms in a price-taker market will have to advertise in order to increase sales. There are no good substitutes for the product supplied by a firm that is a price taker.
If a price taker increased its price, consumers would buy from other suppliers.
Which of the following is a valid criticism of unregulated monopoly? Monopoly limits the options available to consumers. Relative to a competitive market, a monopolist generally will produce too great an output. Profit-maximizing monopolists will fail to produce at the lowest possible cost. A monopoly's output will often be more than if the market were competitive.
Monopoly limits the options available to consumers.
If the price of airline tickets falls, what will happen to the demand curve for flight attendants? It will shift to the right. It will shift to the left. The direction of the shift is ambiguous. It will remain unchanged.
It will shift to the left.
The short-run market supply curve in a price-taker industry equals the horizontal sum of the individual firm's MC curves above AVC. AVC curves above marginal revenue. MC curves above ATC. MC curves between AVC and ATC.
MC curves above AVC.
When a monopolist is maximizing profit, which of the following conditions will always be satisfied? P = MC MR = AVC P = ATC MR = MC
MR = MC
Which of the following is true under unregulated monopoly? Monopoly results in more output than under pure competition. Monopoly results in a more efficient allocation of resources than competition. Monopoly expands the choices available to consumers. Monopoly results in lower output and higher prices than competition.
Monopoly results in lower output and higher prices than competition.
Which of the following would be most likely if firms in a competitive price-searcher market were earning economic profit? Production inefficiencies would persist until the profit was eliminated. Firms would decrease their rate of output in the short run, causing a decline in profitability in the market. New firms would enter the market, resulting in fewer sales by existing firms. All firms in the market would continue to produce at their current levels and continue to charge the same price.
New firms would enter the market, resulting in fewer sales by existing firms.
Which of the following is an important side effect of government licensing and other grants of monopoly power? The number of options available to consumers is increased. Competition is enhanced. Firms will produce more efficiently. Rent-seeking is encouraged.
Rent-seeking is encouraged.
Consider the labor market for nurses, which initially is in equilibrium. Suppose the output price for nursing services increases. Holding all else equal, what effect will this have on the labor market for nurses? The equilibrium wage will increase, and the equilibrium quantity of nurses will increase. The equilibrium wage will increase, and the equilibrium quantity of nurses will decrease. The equilibrium wage will decrease, and the equilibrium quantity of nurses will increase. The equilibrium wage will decrease, and the equilibrium quantity of nurses will decrease.
The equilibrium wage will increase, and the equilibrium quantity of nurses will increase.
Suppose the development of new drought-resistant hybrid seed corn leads to a 50-percent increase in the average yield per acre without increasing the cost to the farmers who use the new technology. If the conditions in the corn production industry are approximated by the price-taker model, which of the following is most likely to occur? The price of corn will increase. The price of soybeans (a substitute for corn) will increase. The profits of corn farmers who quickly adopt the new technology will increase. The profits of corn farmers who do not adopt the new technology will increase.
The profits of corn farmers who quickly adopt the new technology will increase.
Which of the following is the best example of "creative destruction"? The imprudent use of a credit card by a family that already has a high level of debt. The virtual elimination of the film camera by the digital camera. The failure of a business because of poor management. The failure of a business because of higher cost resulting from government regulation.
The virtual elimination of the film camera by the digital camera.
Which of the following best explains why the monopolist's marginal revenue is less than the sales price? To sell more units, the monopolist must reduce price on all units sold. As the monopolist expands output, the average total cost will decline. The monopolist charges each consumer the highest possible price. When a firm has a monopoly, consumers have no choice other than to pay the price set by the monopolist.
To sell more units, the monopolist must reduce price on all units sold.
Several states require cosmetologists to undertake 1,500 hours or more of training in order to obtain a license to provide hair styling or braiding services. This is an example of antitrust legislation. government action that promotes competition. a barrier to entry the legal structure that is required for the operation of price-taker markets.
a barrier to entry
In a price-taker market, profits are the result of consumers being charged arbitrarily high prices. a reward for creating value. the result of barriers to entry into the market. a signal that fewer resources are needed in a market.
a reward for creating value.
When a competitive price-taker market is in long-run equilibrium the firms in the market will earn zero economic profit. the average total cost of the firms in the market will be minimized. every unit of the relevant good that is valued more than its opportunity costs will be produced and sold. all of the above are correct.
all of the above are correct.
If a new entrant (or an established firm) wants to leave a contestable market, all, or nearly all of, the invested capital values can be recovered. another firm will always enter to take its place. it must accept large losses in its capital investment, so it is unlikely to exit. its leaving will be contested by regulators in the market who seek to prevent exit.
all, or nearly all of, the invested capital values can be recovered.
A monopolist will earn economic profits as long as his price exceeds marginal revenue. average fixed cost. average variable cost. average total cost.
average total cost.
A competitive price-searcher market is characterized by firms being able to choose their price and by low barriers preventing firms from entering or leaving the market. being able to choose their price and by high barriers preventing firms from entering or leaving the market. having to accept the market price for their product and by high barriers preventing firms from entering or leaving the market. having to accept the market price for their product and by low barriers preventing firms from entering or leaving the market.
being able to choose their price and by low barriers preventing firms from entering or leaving the market.
The free entry and exit of firms in a competitive price-searcher market guarantees that both economic profits and economic losses can persist in the long run. both economic profits and economic losses disappear in the long run. economic profits, but not economic losses, can persist in the long run. economic losses, but not economic profits, can persist in the long run.
both economic profits and economic losses disappear in the long run.
A natural monopoly is defined as an industry in which one firm can produce the entire industry output at a lower average cost than a larger number of firms could. can produce the entire industry output at a lower marginal cost than a larger number of firms could. is very large relative to other firms that could enter the industry. can earn higher profits if it is the only firm in the industry rather than if other firms also enter the industry.
can produce the entire industry output at a lower average cost than a larger number of firms could.
An organization of sellers designed to coordinate their supply decisions to maximize joint profits is called a consumer cooperative. marketing association. regulatory agency. cartel.
cartel.
Which of the following constitutes a barrier limiting the entry of potential competitors into a market? diseconomies of scale an elastic market demand for the product produced by the industry control over an essential resource a perfectly elastic demand curve
control over an essential resource
The two conflicting tendencies that a firm has in an oligopolistic industry are the incentive to cheat to maximize joint profits and the incentive to raise prices. cheat and avoid collusion and the incentive to raise price to maximize the firm's share of profits. increase output in order to minimize per-unit costs and the incentive to reduce price in order to maximize joint profit. cooperate to maximize joint profits and the incentive to cheat on the agreement in order to increase the firm's share of the profit.
cooperate to maximize joint profits and the incentive to cheat on the agreement in order to increase the firm's share of the profit.
At his current level of output, a monopolist has an MR of $10, an MC of $6, and an economic profit of zero. If the market demand curve is downward sloping and his marginal cost curve upward sloping, the monopolist is producing his profit-maximizing level of output. could increase his profit by increasing his output. could increase his profit by increasing his price. should exit the market if he has positive fixed cost.
could increase his profit by increasing his output.
In which of the following industries would we expect collusion to be most effective? retail gasoline, where most gas is sold by a large number of small dealers crude oil production, where most oil is sold by a small number of large sellers housing construction, an industry dominated by local firms that produce unique products soybean production, where there are large numbers of farmers in many countries
crude oil production, where most oil is sold by a small number of large sellers
Suppose that sharply lower coffee prices lead to a decrease in the demand for tea. Tea price decreases, and the tea producers experience short-run economic losses. If the tea industry is a price-taker market, after sufficient time is allowed for the market to adjust fully to the decrease in the demand for tea, one would expect the tea industry's output to increase and economic losses to persist. decline and economic losses to persist. decline and economic losses to disappear. increase and economic losses to disappear
decline and economic losses to disappea
If Dell Computer finds that its marginal cost exceeds its marginal revenue on a model of laptop, then to maximize profit, it will increase output if it is a price searcher, but this may not be proper if it is a price taker. increase output if it is a price taker, but this may not be proper if it is a price searcher. decrease output, regardless of whether it is a price taker or a price searcher. increase output, regardless of whether it is a price taker or a price searcher.
decrease output, regardless of whether it is a price taker or a price searcher.
When new firms have an incentive to enter a competitive price-taker market, their entry will increase the price of the product. drive down profits of existing firms in the market. shift the market supply curve to the left. increase demand for the product.
drive down profits of existing firms in the market.
The supply curve of a human resource will be more elastic the easier it is to obtain the skill and knowledge necessary to provide the resource. more elastic the demand for the product. more inelastic the demand for the product. higher the skill level necessary to perform the job.
easier it is to obtain the skill and knowledge necessary to provide the resource.
A monopoly is most likely to emerge in a market when the producers in the market have U-shaped average total cost curves. the price elasticity of demand for the product is high. the cost of entry and exit into the market is low. economies of scale are large relative to market demand.
economies of scale are large relative to market demand.
Which of the following products would most closely fit the competitive price-taker model? stereo systems-there are many reputable brands. beer-it has many consumers. eggs-there are many producers of this relatively homogeneous product. automobiles-there are substantial economies of scale in production.
eggs-there are many producers of this relatively homogeneous product.
"Market power" is an expression used to indicate that a firm has the power to sell a given output at whatever price it chooses. no freedom from the rigors of intense competition. a monopoly over the product it produces. enough market share to be somewhat insulated from competition.
enough market share to be somewhat insulated from competition.
If a product is manufactured under conditions of constant cost, an increase in the demand for the product will increase both equilibrium quantity and equilibrium price in the long run. equilibrium price, but equilibrium quantity will be unchanged in the long run. equilibrium quantity, but equilibrium price will be unchanged in the long run. equilibrium quantity but reduce equilibrium price in the long run.
equilibrium quantity, but equilibrium price will be unchanged in the long run.
When the price of a resource is set below equilibrium, excess demand for the resource will occur. excess supply of the resource will result. the supply of the resource will be inelastic. the demand for the resource will be inelastic.
excess demand for the resource will occur.
In some industries, like insurance, both small and very large firms coexist and compete quite effectively in the market. This indicates that the long-run average total cost curve in these industries is "U" shaped. is downward sloping over all levels of output. exhibits constant returns to scale over a wide range of output. exhibits diseconomies of scale beginning at a low rate of output.
exhibits constant returns to scale over a wide range of output.
The marginal productivity principle says that a profit-maximizing firm should hire capital until its marginal product is zero. hire labor until another worker costs more to hire than he can earn for the firm. hire the quantities of capital and of labor at which their marginal products are equal. hire capital until its marginal product is negative.
hire labor until another worker costs more to hire than he can earn for the firm.
In a competitive price-taker market, many other sellers are offering a product that is essentially identical. consumers have more influence over the market price than producers do. government intervention prevents firms from influencing price. producers agree not to change the price.
many other sellers are offering a product that is essentially identical.
In a competitive price taker market, a firm's short-run supply curve is its average total cost curve above its average variable cost curve. marginal cost curve above its average variable cost curve. marginal cost curve above its average fixed cost curve. entire marginal cost curve.
marginal cost curve above its average variable cost curve.
Price searchers can be expected to charge a price that is the highest at which consumers will purchase any units. they expect to provide the largest possible flow of gross revenue. minimizes their per-unit costs of production. maximizes their profit.
maximizes their profit.
Within the framework of the price-taker model, a price taker will always produce a quantity of output that minimizes the per-unit cost of production. is expected to provide the largest possible total revenue. maximizes total revenue minus total cost. brings average total cost and price into equality.
maximizes total revenue minus total cost.
Economic analysis suggests that patent laws that can often be used to limit the entry of potential competitors into an industry redistribute income from consumers to business decision makers without affecting the allocation of resources. may be a source of business monopoly power, but they may also encourage innovation in the long run. encourage product development and the adoption of cost-reducing technologies in the short run but in the long run generally lead to business monopoly. help inventors at the expense of consumers in the long run.
may be a source of business monopoly power, but they may also encourage innovation in the long run.
When a single firm has control over the market supply of a resource that is essential to the production of a good, economies of scale are usually important. monopoly is frequently the result. diseconomies of scale are the usual cause. competition for the resource makes monopoly almost impossible
monopoly is frequently the result.
The dynamic process of competition is hindered by the self-interest of business decision makers. puts the profit motive of sellers to work for buyers. conflicts with the interest of consumers when businesses pursue profit rather than the public interest. will permit business decision makers to earn long-run economic profit unless they are regulated by government.
puts the profit motive of sellers to work for buyers.
If marginal cost exceeds marginal revenue, a profit-maximizing firm should expand output until marginal cost equals marginal revenue. expand output until marginal revenue equals price. reduce output until marginal cost equals marginal revenue. reduce output until price equals average total cost.
reduce output until marginal cost equals marginal revenue.
If the marginal physical product of more labor is twice as high as the marginal physical product of more machinery, a profit-maximizing firm will reduce the labor used and increase the machinery used if labor costs half as much as machinery. reduce the labor used and increase the machinery used if labor and machinery cost the same amount. reduce the labor used and increase the machinery used only if labor costs more than twice as much as machinery. reduce the labor used and increase the machinery used only if labor costs exactly twice as much as machinery.
reduce the labor used and increase the machinery used only if labor costs more than twice as much as machinery.
The market where firms purchase factors of production is referred to as the product market. resource market. capital market. foreign exchange market.
resource market.
The ability of price-taker firms to freely expand or contract their businesses and to enter or exit the market means that prices will always be high enough to generate positive economic profit. resources that would be more valuable elsewhere will be trapped, unproductively, in a particular industry. resource owners cannot move their resources to other areas where they would be more highly valued. resources that would be more valuable elsewhere will not be trapped, unproductively, in a particular industry.
resources that would be more valuable elsewhere will not be trapped, unproductively, in a particular industry.
Which of the following conditions is most essential if a firm is going to earn long-run economic profits? an inelastic market demand for the product a small number of firms, even though competitors are free to enter the industry a differentiated product restrictions that limit the entry of potential competitors into the industry
restrictions that limit the entry of potential competitors into the industry
A firm that is a price taker can substantially change the market price of its product by changing its level of production. sell all of its output at the market price. sell some of its output at a price higher than the market price. decide what price to charge for its product.
sell all of its output at the market price.
Breaking a monopoly firm into several rival firms will be unlikely to improve economic efficiency when economies of scale are important because several smaller firms will have higher per-unit costs than a single larger firm. a single firm will have higher per-unit costs than several smaller firms. it is harder to regulate many smaller firms than it is one large firm. consumers will find it harder to choose among the products of many alternative sellers.
several smaller firms will have higher per-unit costs than a single larger firm.
If unskilled labor is relatively plentiful and cheap in many foreign countries, then as the United States expands its trade with these foreign countries, the domestic demand for unskilled labor will rise and skilled labor will fall. skilled labor will rise and unskilled labor will fall. both skilled and unskilled labor will rise proportionately. both skilled and unskilled labor will be unaffected, assuming no barriers to free trade.
skilled labor will rise and unskilled labor will fall.
One of the effects of patents is to reduce incentives for innovation. give firms incentives to worry less about minimizing production costs. temporarily provide the patent owner with monopoly power. reduce the degree of monopoly power in the short run.
temporarily provide the patent owner with monopoly power.
In competitive price-taker markets, if one firm raises its price, others will follow that firm will increase its revenues that firm will lose revenues because other firms will not follow all consumers will be adversely affected the market demand curve will shift
that firm will lose revenues because other firms will not follow
Profit-maximizing firms will expand their employment of each variable resource until the Marginal Revenue Product (MRP) of the resource is just equal to the price of the resource. other firms realize they can't compete. the MRP of the resource is below the cost of the resource. the MRP of the resource is above the cost of the resource.
the Marginal Revenue Product (MRP) of the resource is just equal to the price of the resource.
If government officials break a natural monopoly up into several smaller firms, then competition will force firms to attain economic profits rather than accounting profits. competition will force firms to produce surplus output, which drives up price. the average costs of production will increase. the average costs of production will decrease.
the average costs of production will increase.
Which of the following is true for a firm that is a monopolist? the firm will make an economic profit in the short run. the firm will produce a smaller quantity of output than what would be best from the viewpoint of ideal economic efficiency. the additional revenue that can be generated from an increase in output will exceed the firm's price. You Answered the firm can charge whatever it wants for its product since consumers have no alternatives.
the firm will produce a smaller quantity of output than what would be best from the viewpoint of ideal economic efficiency.
In a constant cost industry, a natural monopoly is likely to occur. total cost is the same, no matter how much a firm produces. the long-run supply curve will be perfectly elastic. entry of new firms in the industry will lead to a reduction in the cost of inputs.
the long-run supply curve will be perfectly elastic.
A competitive market economy with low barriers to entry affords an entrepreneur with an environment that shields each currently successful producer from changing market conditions. the opportunity to bring new and different products and services to the market. little opportunity for wealth creation. a static business environment.
the opportunity to bring new and different products and services to the market.
If entry-restricting legal barriers effectively organized the funeral home industry of a large city into a monopoly cartel, economic theory indicates that, compared to the previously competitive situation, the price of funeral services would decline, and output would increase. both the price and output of funeral services would decline. the price of funeral services would increase, and output would decline. both the price and output of funeral services would increase.
the price of funeral services would increase, and output would decline.
The owners of a firm are earning economic profit if return on their capital is lower than the opportunity cost of employing that capital in their industry. their total revenues exceed the monetary payments to labor and other resources in the long run after all plant size adjustments are made. price exceeds average variable costs at the shutdown point. they are earning a return on their capital that is higher than what can generally be earned in other markets.
they are earning a return on their capital that is higher than what can generally be earned in other markets.
