Chapter 15: Entry, Exit, and Long-Run Profitability

The toothpaste aisle at a large store that sells personal care products contains many versions of toothpaste produced by a small number of sellers. This indicates that toothpaste producers are engaging in _____ to _____.

brand proliferation; deter new entrants

The two main types of implicit opportunity costs are:

forgone wages and forgone interests

When market leaders produce on a mass scale, new entrants:

have a hard time competing

When new sellers enter a market, existing sellers will:

have less market power

Malia earns a yearly salary of $130,000 in her job and earns $1,000 per year in interest on her savings. After she quits her job to start a company, she uses all her savings to purchase manufacturing equipment for her company. Given the above information and the data summarizing her first year in business in the table, how much economic profit or loss does Malia earn?

$19,000

(Figure: Profit Margin) What is the profit margin for this firm if it produces a quantity of six?

$7- $4= $3

Which of the following statements is true?

A firm with economic profits will also have accounting profits

If a seller can create switching costs for its product, then:

It is difficult or costly for the customers to switch to another seller of the product

Michelle owns the largest florist shop in her town. Each week, she orders a truckload of flowers from the flower wholesaler. The other two florists in town order only one-third as many flowers. Because Michelle's order fills the delivery truck, the wholesaler sells flowers to her at a lower price than the other florists must pay. How will this situation impact potential new entrants?

New florists will be discouraged from entering the market because of the difficulty of competing on cost

Which of the following is NOT a strategy used by a company to "lock-in" customers to ensure demand for its product?

Pressuring the government to require a license for entry into the market

Because _____ profit is calculated based on _____ costs, it allows firm owners to make better decisions about _____.

economic; total; entering and exiting a market

The formula for calculating accounting profit is total revenue minus _____ costs.

explicit financial

As output rises, average fixed costs:

fall

When government regulations are influenced by lobbyists for the producers in a market, the regulations often:

make it difficult for new producers to enter the market

The strong incentive of sellers to deter the entry of new sellers is a major reason that:

most markets are imperfectly competitive

Sellers try to avoid the entry of new rivals through the use of demand-side strategies. These demand-side strategies do NOT include:

raising the market demand for the product

Adhika is deciding whether to open a company to produce step stools. He should start the company if he expects that:

the price will exceed his average cost

Mario's company definitely has economic losses in which of the following situations?

total costs exceeds total revenue

When the typical seller in a market has economic profits, then:

new sellers will enter the market

When firms in a market with free entry and exit experience economic losses, then:

some sellers will exit the market, reducing average seller losses