Econ Chapter 6

if a perfectly competitive firm produces an output level at which price is less than marginal costs, then the firm should:

reduce output to earn greater profits or smaller losses

a change in fixed costs will.... ?

a change in fixed cost will not change variable costs, so it will not affect profit-maximizing level of output

the short run is best defined as:

a period of time sufficiently short that at least one factor of production is fixed

jenny sells lemonade and so do several other kids in the neighborhood. if the lemonade market is perfectly competitive, and Jenny is charging the equilibrium price, then Jenny can increase her revenue if she:

keeps the price of her lemonade the same and increase the output

Assume that the production technology required to produce goods X and Y is very similar. If a firm that is producing good X notices that the market price of good Y is rising, it will:

shift into producing good Y

marginal costs is ....?

the change in total cost divided by the corresponding change in output changes from one level to another

When more firms enter an industry:

the industry supply curve will shift right (because more suppliers increase the market supply)

when more firms enter an industry:

the industry supply curve will shirt right

which of the following is the most likely to be fixed factor of production at a farm?

the land on which the farm is located (fixed factor cannot be changed in the short-run)

If a firm spends $400 to produce 20 units of output and spends $880 to produce 40 units, then between 20 and 40 units of output, the marginal cost of production is:

$24 (Total cost increased by $480 (= $880 − $400) and the number of units increased by 20, so the increase in cost per unit is $480/20, or $24.)

in which of the following markets do firms sell the same standardized products?

2% milk

as prices increase, firms in a perfectly competitive market find that it is:

beneficial to produce more units of output (because price now equals marginal cost at a higher level of output)

suppose a profit-maximizing firm in a perfectly competitive market is collecting $1,999 in total revenues. if the total cost of its fixed factors of production falls $500 to $400, the firm will:

earn greater profits or smaller losses

to produce 150 units of output, a firm must use 3 employees per day. to produce 300 units of output, the firm must use 8 employees per day. Apparently, the firm is:

experiencing diminishing returns (if production exhibits diminishing returns, then it takes even - larger increases in the variable input to increase output by a given amount)

if a perfectly competitive firm can sell each unit of output for $9, and the marginal cost of the last unit produced in $8.50, then the:

extra benefit of the last unit produced is greater than the extra cost

If a perfectly competitive firm can sell each unit of output for $9, and the marginal cost of the last unit produced is $8.50, then the:

extra benefit of the last unit produced is greater than the extra cost (For a perfectly competitive firm, the extra benefit of the last unit produced is the revenue the firm generates from selling it. So, here, the added benefit of $9.00 is greater than the added cost of $8.50)

in a perfectly competitive market:

firms maximize their profit by choosing the level of output at which marginal cost equals the market price

Total cost =

fixed cost + variable cost

as the market price of a service increases, more potential sellers will decide to perform that service because:

more potential sellers will find that the market price exceeds their reservation price

suppose that at a firm's profit maximizing level of output, its total revenue is $1,250, the total cost of it variable factors of production is $1,000 and its total fixed cost is $500. this firm will ______________ in the the short run, and will ___________ in the long run.

not shut down; exit the industry (in the short run, the firm must pay fixed costs whether is operates or not. thus, as long as the firm's total revenue is high enough to cover its variable cost, it will continue to operate in the short run. if it profits are negative, however, the firm will exit the industry in the long run)

the difference between the price a seller actually receives for a good and the seller's reservation price is:

producer surplus

Your neighbors have offered to pay you to look after their dog while they are on vacation. It will take you one hour per day to feed, walk, and care for the dog, which you can do either before or after you go to work. Your regular job pays $10 per hour, and you can work up to eight hours per day. The smallest amount of money you would accept to look after your neighbor's dog each day is equal to:

the value you place on one hour of leisure

a decrease in fixed costs decreases total cost but does not affect marginal costs.. this means?

this means the firm will earn a greater profit (or smaller loss), but their output will not change

economic profit =

total revenue - explicit costs - implicit costs (or total costs)

Average variable cost is defined as:

variable costs divided by quantity