ECON Chapter 6

The firm's profit maximizing quantity if produce 100 shirts?

$10

The firm's average total cost for producing this many shirts?

$15

Which of the following equations represents the​ firm's average variable​ cost?

0.1q

Law of Diminishing Returns

Increases in inputs eventually lead to less additional output.

In the long​ run, the supply curve for a perfectly competitive firm is represented by​ __________.

the portion of the marginal cost curve above average total cost.

Is it possible for accounting profit to be positive and economic profit to be​ negative?

​Yes, this could occur if explicit costs were modest and implicit costs were high.

Production

The process of transforming inputs into output

In terms of economic​ profits, early market entrants earn _________ economic profits and the last entrant earns __________ economic profits.

positive, zero

All firms in a perfectly competitive market are said to be​ __________.

price takers

A perfectly competitive firm will choose to shut down when the ___________ intersects the marginal cost curve below the _________ .

price, average variable cost curve

With the​ candle license, the​ short-run average fixed cost curve _________ and the​ short-run average variable cost curve __________

shifts up, remains unchanged

The equilibrium price is the ___________

​long-run average total cost of the last entrant into the market.

When the ATC curve is​ decreasing, we know that the MC curve is ________________and when the ATC curve is​ increasing, we know that MC is ____________ .

below the ATC curve, above the ATC curve

Suppose there is a product that is being sold in a perfectly competitive market. If the market price of the product falls, producer surplus will ___________ since this change results in a lower price, which means there is______ area between the supply curve and the market price for the good.

decrease, less

In the long​ run, if Toland Fisheries would like to increase the productivity of its​ workers, it will need to​ ____________.

increase the amount of capital and equipment

The lower minimum wage ___________ the​ short-run profit-maximizing quantity of candles to produce.

increases

To construct the supply curve in a market with many firms with different cost​ structures, the​ ___________.

individual supply curves for each firm are added together.

when the price of elasticity supply is 0

it is perfectly inelastic

Consider a market with many firms that have different cost structures. Unless shutdown or exit is​ optimal, every firm expands production until​ ___________.

marginal​ revenue, marginal​ cost, and price are all equal ​(MR​ = MC​ = P​).

if the price of elasticity is greater than 1, it is __________-

relatively elastic

A firm is experiencing economies of scale when its ____________ declines as more output is produced.

average total cost

Average Total Cost formula

Total cost/Quantity

For the firm to maximize profits, it should produce _________ shirts

100

Minimum efficient scale is the lowest level of output where​ long-run average total cost is minimized. Firm​ 3's minimum efficient scale occurs when the output is​ ______ unit(s).

3

What part of the total cost function represents fixed​ costs?

500

Marginal Cost formula

Change in total cost/Change in output

Long Run

Period of time when all of a​ firm's inputs can be varied.

Short Run

Period of time when at least one of a​ firm's inputs is fixed.

Difference between accounting profit and economic profit

Economic profit subtracts both explicit and implicit costs from total​ revenue, while accounting profit only subtracts explicit costs.

Do firms 1 and 2 experience economies of​ scale? Or do they experience diseconomies of​ scale?

Firm 1 is experiencing economies of​ scale, while firm 2 is experiencing diseconomies of scale.

Average fixed cost formula

Fixed cost/Quantity

Is producer surplus always equal to​ profit?

Producer surplus is equal to profit when marginal cost is equal to average total cost.

Highlight producer's surplus on the graph

difference between market price and supply curve (to the left)

The license___________ the​ short-run profit-maximizing quantity of candles to produce.

does not change

Given this​ information, the​ senator's comment is ___________ since these types of costs___________ affect current and future decisions.

flawed, should not

Producer surplus is the difference between the ________ and the ___________.

price consumers pay, supply curve

Would a​ profit-maximizing firm continue to operate if the price in the market fell below its average cost of production in the short​ run?

Yes, but only if the price stayed above AVC

The​ "hundred billion​ dollars" that Senator Nelson is referring to is known as

a sunk cost

Producer Surplus formula

area of triangle (1/2*base*height)

Price elasticity of supply formula

(Q2-Q1)/(Q2+Q1)/2//(P2-P1)/P2+P1/2

Given that the restaurant market in this town is perfectly​ competitive, which of the following must be​ true?

From May through​ September, Crabby​ Bob's average revenue is above average total cost. In​ April, October, and​ November, Crabby​ Bob's average revenue is below ATC but is greater than AVC. From December through​ March, Crabby​ Bob's average revenue is below average variable cost.

Other things remaining​ unchanged, what is likely to happen to the marginal product of each new worker in the short​ run? (salmon fishing in alaska problem)

It will be increasing at a decreasing​ rate, meaning each additional worker will have a lower marginal product of labor than the previous one hired.

How would the introduction of legal or technical barriers to entry affect the​ long-run equilibrium in a perfectly competitive​ market?

It would reduce any downward pressure on prices from entry and allow economic profits in the long run.

Physical Capital

Machines and equipment that can be used for production.

Suppose one firm accounts for 55 percent of the global market share for a​ product, while 147 other firms account for the remaining 45 percent of the market. With such a large number of buyers and​ sellers, is this market likely to be​ competitive?

No, even though there are many firms in the​ market, there is one firm large enough to influence the market price.

Marginal Product

The change in total production associated with using one more unit of input.

Specialization

The result of workers developing a certain skill set in order to increase total productivity.

Total cost formula

Total fixed cost+Total variable cost

This likely occurred since stricter zoning laws and regulatory controls​ __________.

limit the availability of land for​ construction, causing the price elasticity of supply to decrease​ (become more​ inelastic).

With the lower minimum​ wage, the​ short-run average fixed cost curve __________ and the​ short-run average variable cost curve __________.

remains unchanged, shifts down

​Therefore, the​ short-run supply curve for a perfectly competitive firm is represented by​ __________.

the portion of the marginal cost curve above average variable cost.

Using your​ graph, the slope of the industry demand curve demonstrates​ __________.

the realistic assumption that the Law of Demand holds for the good under consideration.

should you complete the apartment building?

​No, the remaining cost to build is ​$300,000 and you only expect to earn ​$299,950​; you will ignore the ​$200,000 spent since it is a sunk cost.