Econ Chapters 4 & 5
The hours of work supplied by various types of workers are referred to by economists as
Labor
The price of labor per unit times the amount of labor used is called
Labor cost
The total cost of production is determined by adding the costs of which of the following?
Labor, capital, land, intermediate inputs, and business know-how
An example of a barrier to entry is
Lack of a key resource
A good example of monopolistic competition is
Neighbourhood restaurants
The short-term cost function assumes that
Fixed costs can't be changed
Refer to Table 5.1, which gives Farmer McColl's marginal cost function for barley. If Farmer McColl is currently producing 20 bushels of barley, which of the following is the market price for a bushel of barley?
$0.60
Refer to Table 5.1, which gives Farmer McColl's marginal cost function for barley. If Farmer McColl is currently producing 25 bushels of barley, which of the following could be the market price for a bushel of barley?
$0.75
If a local car dealership can sell 8 cars per day at a price of $25,000 each, but must reduce the price to $24,000 to sell one more car, what is the marginal revenue of the 9th car?
$16000
If a local diner can sell 50 burgers per day at a price of $5 each, but must reduce the menu price to $4.95 to sell one more burger, what is the marginal revenue of the 51st burger?
$2.45
If Sara can produce 25 muffins for a total cost of $15, but her production process is subject to increasing marginal costs, which of the following could be the total cost of producing 100 muffins?
$80
If June can earn $1,500 in revenue from painting two houses, how much can she earn in revenue from painting three houses? (Assume she is just one housepainter in a large market of housepainters, and that she can easily find a third customer.)
Exactly $2250
One strategy for long-term profit maximization is
Innovation
In a simple grass-mowing business, the lawn mower and the labor would be
Inputs
What word describes the goods and services that are used to produce outputs for a business?
Inputs
The goods or services purchased by a business for immediate use in the production process are known as
Intermediate inputs
AT&T is an example of a business that used market power to
Invest in important research benefiting society
Theodore can make 6 pizzas in one hour. If Theodore's labor has a diminishing marginal product, what must be true about the number of pizzas that Theodore can make in three hours?
It must be less than 18
Inputs used by a business in the production process include
Labor
Fixed costs are also known as __________ costs because they are much harder for a business to change.
Long-term
Which of the following is NOT an example of a barrier to entry?
Lower costs
Marginal revenue is generally __________ for businesses that do not operate under conditions of perfect competition.
Lower than the price
Compared to businesses with market power, businesses in perfect competition will charge __________ prices and sell __________ output.
Lower; more
In perfect competition, a profit-maximizing business will expand production until its _________ equals the market price.
Marginal cost
The added expense of producing one more unit of output is called the
Marginal cost
_________ is the added cost to produce one more unit of output.
Marginal cost
The extra amount of output a business can generate by adding one more hour of labor is called
Marginal product
The additional money a business gets from producing and selling one more unit of output is
Marginal revenue
A profit-maximizing business will increase production as long as
Marginal revenue exceeds marginal cost
As the market price of a good rises, businesses will respond by producing more of that good because
Marginal revenue exceeds marginal cost after the price increase
From World War II to the early 1970s, GM, Ford, and Chrysler enjoyed
Market power
________ is the ability to raise prices above the level that perfect competition would produce by restricting the quantity supplied.
Market power
In perfect competition, all businesses in a market produce at the point where ________ equals ________.
Market price; marginal cost
Economists generally assume that the main goal of most businesses in the economy is to
Maximize profits
What happens to the marginal product of labor if more capital is added to a production process?
More capital generally causes the marginal product of labor to rise
A profit-maximizing monopolist will always charge _______ a perfect competitor would.
More than
A _______ monopoly is an industry in which it makes economic sense to have only one provider.
Natural
A profitable business will attract
New competitors
In a simple lawn-mowing business where you have a push mower and labor as input, what would be the impact on output of adding an additional input in the form of a gas self-propelled mower (capital)?
Output would increase
Businesses can raise their average product by investing in new equipment, by reorganizing work to be more efficient, or by
Outsourcing labor
In the long run, monopolistic competition starts to look like
Perfect competition
The four main types of market structure are
Perfect competition, monopolistic competition, oligopoly, and monopoly
If the music industry was perfectly competitive, then all performers would
Play the same music and charge the same price for concerts
In perfect competition, P = MC means
Price equals marginal cost
What name is given to the economic process of turning inputs into outputs that a business will sell to customers?
Production
Economists think of a business as a machine, where you put inputs in one end and get outputs from the other end. This metaphor is called the
Production function
The __________ summarizes the output of the business, given the level of inputs.
Production function
What is the difference between revenue and cost?
Profit
The main objective of a business in a market economy is
Profit maximization
Companies will often spend considerable amounts of money to create a ________with respect to their brand name.
Reputation effect
Marginal ________ is the added revenue from producing and selling one more unit of output.
Revenue
What word describes the money that customers pay for the output of a business?
Revenue
________ is the amount of money a company receives for selling its product or service.
Revenue
When a business expands production and increases sales, what generally happens to revenue?
Revenue rises because the business is selling more output
In a market where businesses are earning high profits, new entrants will cause the supply curve to shift to the _________ and thus cause the market price to _________.
Right; fall
Marginal cost generally ________ quantity produced.
Rises with
In short-run profit maximization, businesses focus on the ______, holding fixed costs constant.
Short-term cost function
Variable costs are also known as
Short-term costs
Variable costs are relevant for
Short-term everyday decision making
If all of the restaurants in a small town colluded and agreed to raise dinner prices, this would lead to a loss to society because
Some dinners that could be served would not be served
A business with market power may
Sometimes use high profits to research new technologies
Natural monopolies have been slowly eroded by
Technological change
In perfect competition, higher-cost businesses
Tend to go out of business if unable to adjust
In the process of long-term profit maximization, the business makes decisions under the assumption that it can
Vary all the inputs
What word describes the money that a business pays for its inputs?
Cost
Refer to Table 5.1, which gives Farmer McColl's marginal cost function for barley. Suppose Farmer McColl is one of 20 farmers in the barley market, and all of the farmers have identical marginal cost functions. If the market price of barley is $1.00 per bushel, which of the following could be the total amount of barley produced in the market?
700
Monopolistic competition is characterized by
A large number of sellers with similar products
A market where there is only one seller, and buyers have no good alternative, is called
A monopoly
The local department store might have been considered ________ before technological change.
A monopoly
It could be argued that Microsoft's two main products, Windows and Office, are examples of
A natural monopoly
__________ is paid communication with potential customers in a public medium, such as newspapers and television.
Advertising
An example of an oligopoly is the
Airline industry
Which of the following is an example of a profit-maximizing business?
An accountant who makes her living preparing tax returns for other people
An oligopoly occurs when there
Are only a few sellers in a market
Monopolies generally ________ technology and globalization.
Are reduced in number by
Inputs to production do NOT include
Average product
Output divided by the number of hours worked or by the number of workers is called
Average product
In a simple lawn-mowing business where you have a push mower and labor as input, what would be the impact of adding an additional input in the form of a gas self-propelled mower (capital)?
Average product would rise, and marginal product would rise
A __________ is anything that might make it more difficult for a competitor to enter a market.
Barrier to entry
A ___________ makes it more difficult for a competitor to enter a market.
Barrier to entry
Government regulations, such as zoning laws, can act as
Barriers to entry
Refer to Table 5.1, which gives Farmer McColl's marginal cost function for barley. If the current market price for barley is $1.00 per bushel, how much barley should Farmer McColl produce?
Between 30 and 40 bushels
The technology or knowledge necessary for a production process is called
Business know-how
The difference between long-term and short-term profit maximization is that, in the short term,
Businesses focus on achieving as much profit as they can, given that fixed costs cannot be changed
The long-lived physical equipment and structures that a business uses in its production process are called
Capital
If two bodegas in a market agree verbally that they will both sell Fritos at a higher price, and neither will undercut the other, this is called
Collusion
If two or more oligopolistic companies work together to keep their prices high and split the market between them, this is called
Collusion
Profit is the difference between revenue and
Cost
If you add too many inputs, your business may experience
Diminishing marginal product
Many times, technology is ________the equipment a company buys.
Embodied in
When businesses have market power, they are able to charge a price higher than the price charged by a business in perfect competition. Thus,the market power equilibrium on a diagram will be
Higher and to the left of the perfect competition equilibrium
An example of variable costs is
Hourly labor
_________ collusion can occur even when oligopolistic businesses do not directly communicate with each other.
Implicit
Market power is
The ability to raise prices above perfectly competitive prices
______ shows the potential cost for each level of output.
The cost function
Natural monopolies include
The local water company
The easiest way to have a monopoly today is
To have the government protect you
Which of the following is most likely to be sold in a perfectly competitive market?
Wheat
The profit-maximizing rule says that any seller will expand output up to the point
Where marginal revenue equals marginal cost
Does the stock market resemble a perfectly competitive market?
Yes, the stock market does resemble a perfectly competitive market