Chapter 9
Increasing returns is a reduction in ____ costs in the ____, while diminishing returns is an increase in ___ costs in the ____.
average; long run; marginal; short run
At the point where economic profits are neither positive nor negative (zero), the industry is said to have achieved:
long-run competitive equilibrium & P=SRMC=SRAC=LRAC
A firm that is breaking even is:
Earning a normal rate of return; in an industry that is not attracting new firms; earning zero economic profit.
Increasing returns to scale refers to a situation where an increase in a firm's scale of production leads to high costs per unit produced.
False
What is Decreasing Returns to Scale (DRS)?
If output increases by less than that proportional change in inputs, there are decreasing returns to scale (DRS).
What is Increasing Returns to Scale (IRS)?
If output increases by more than that proportional change in inputs, there are increasing returns to scale (IRS).
A profit maximizing strategy becomes a loss minimization strategy when a firm in a perfectly competitive industry is producing:
Average Variable cost (AVC) <Profit (P)< Average Total Cost (ATC)
If a firm's profit is $0, then it must be true that:
Total Revenue (TR) equals Total Cost (TC).
A firm suffering losses in the short run should continue to operate as long as price is greater than average variable cost.
True
On a graph, where can a firm's shut down price be located?
The lowest point on the Average Variable Cost curve.
The short-run supply curve of a perfectly competitive firm is:
the proportion of the marginal cost curve that lies above minimum average variable cost.
Constant returns to scale refers to a situation where an increase in a firm's scale of production leads to lower costs per unit produced.
True
Firms with constant returns to scale will have horizontal long-run average cost curves.
True
In the short run, firms earning a profit will want to ____ their profits while firms suffering losses will want to ____ their losses.
maximize; minimize