ECON 231 - Quizzes 9-11

Implicit costs are:

"payments" for self-employed resources

All of the following are long-run changes, except:

A firm produces more output by acquiring more raw materials for its existing factory

In the standard model of pure competition, a profit-maximizing firm will shut down in the short run if price is below:

Average variable cost

A tariff is a:

tax

The higher price of imported products due to trade barriers causes some consumers to shift their purchases to a domestically-produced product which is now:

Higher in price because import competition has declined

Which of the following is not an assumption that we make in analyzing pure competition in the long run?

Profits are not relevant to firm behavior anymore, because competitive firms earn zero profits in the long run

A purely competitive firm will be willing to produce even at a loss in the short run, as long as:

The loss is smaller than its total fixed costs

One defining characteristic of pure monopoly is that:

The monopolist produces a product with no close substitutes

Which market model assumes the least number of firms in an industry?

Pure monopoly

Harvey quit his job at State University where he earned $45,000 a year. He figures his entrepreneurial talent or foregone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 for each unit. Of the $75 per unit, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building. Refer to the above information. The normal profits for Harvey in the first year were:

$5,000

Suppose that a firm produces 200,000 units a year and sells them all for $10 each. The explicit costs of production are $1,500,000 and the implicit costs of production are $300,000. The firm earns an accounting profit of:

$500,000 and an economic profit of $200,000

Harvey quit his job at State University where he earned $45,000 a year. He figures his entrepreneurial talent or foregone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 for each unit. Of the $75 per unit, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building. Refer to the above information. The implicit costs of Harvey's firm in the first year were:

$60,000

In pure competition, each extra unit of output that a firm sells will yield a marginal revenue that is:

Equal to the price

Cash expenditures a firm makes to pay for resources are called:

Explicit costs

Fixed costs are those costs which are:

Independent of the rate of output

A purely competitive firm does not try to sell more of its product by lowering its price below the market price because:

It can sell all it wants to at the market price

A purely competitive firm's output is currently such that its marginal cost is $4 and marginal revenue is $5. Assuming profit maximization, the firm should:

Leave price unchanged and raise output

The use of tariffs and quotas for trade protection results in:

Less efficiency in the economy

Many people believe that monopolies charge any price they want to without affecting sales. Instead, the output level for a profit-maximizing monopoly is determined by:

Marginal cost = marginal revenue

One major barrier to entry under pure monopoly arises from:

Ownership of essential resources

Which idea is inconsistent with pure competition?

Product differentiation

Suppose that the corn market is purely competitive. If the corn farmers are currently earning negative economic profits, then we would expect that in the long run the market's:

Supply curve will shift to the left

Which of the following does not necessarily apply to a pure monopoly?

The firm will charge the highest price possible

When tariffs on imported products are removed by a nation, it will result in:

When tariffs on imported products are removed by a nation, it will result in:

The representative firm in a purely competitive industry:

Will earn zero economic profit in the long run