Econ Final

example of short run decisions

1.whether to produce or shut down temporarily 2. if the decision is to produce, what quantity to produce at.

zero

Firms total product is maximized when marginal product is

The deadweight loss associated with a monopoly occurs because the monopolist

produces an output level less than the socially optimal level.

For a monopolist, when the price effect is greater than the output effect, an increase in output sold causes marginal revenue to be

negative

Economic profit

total revenue - {total costs(explicit costs - implicit costs)}

example of long run decisions

1. whether to increase or decrease its plant size 2. whether to stay in industry or leave

average productivity

(total product/ labor inputs) average amount of goods and services produced by the inputs

partnership

2+ managers with owners having limited liability

Which of the following statements is correct? Assuming that explicit costs are positive, economic profit is greater than accounting profit. Assuming that explicit costs are positive, accounting profit is equal to economic profit. Assuming that implicit costs are positive, economic profit is positive. Assuming that implicit costs are positive, accounting profit is greater than economic profit.

Assuming that implicit costs are positive, accounting profit is greater than economic profit.

the marginal social benefit

For the perfectly competitive market, the marginal social cost is equal to

Incentive system

Organizing the factors of production through incentives

Which of the following are barriers to entry for a monopoly? Choose all that apply. 1. Patents 2.Ownership of a vital resource. 3.The existence of a close substitute good or service. 4.Public franchises 5. Diseconomies of scale

Patents, Ownership of a vital resource, Public franchises

Which of the following are features of game theory? Quantities Prices Payoffs Strategies Players Profit

Payoffs Strategies Players

When the MSB or demand curve is above the MSC curve or supply curve

Underproduction of a graph happens when which sloped line is above what other sloped line

Principle agent problem

When one persons decisions or actions effect another person

Output effect

When price is above marginal cost, selling one more unit at the current price will increase profit. This concept is known as the

Total cost and average variable cost increases

When the marginal cost curve is above the total cost and average variable cost curve

perfect information

all individuals have immediate and complete information (symmetric system)

A firm that wants to achieve economies of scale could do so by 1.employing a smaller number of workers. 2.producing a smaller quantity of output. 3.producing an output level higher than the efficient scale. 4.assigning limited tasks to its employees, so they can master those tasks.

assigning limited tasks to its employees, so they can master those tasks.

short run

at-least one input is fixed when producing goods or services

Average total cost is very high when a small amount of output is produced because marginal cost is high. average variable cost is high. average fixed cost is high. marginal product is high.

average fixed cost is high.

total variable cost

costs that rise as outputs increase.

sunk costs

decisions that create a cost that already occurred and can not be recovered

moral hazard

engage in risky behavior because others will bear the cost.

If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will 1. exactly triple. 2. less than triple. 3. be reduced by one third. 4. more than triple

exactly triple.

A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will 1. not fall in the short run because firms will exit to maintain the price. 2. fall in the short run. All firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. 3. fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. 4. fall in the short run. No firms will shut down, but some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.

fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.

Oligopoly

few large sellers producing similar but not identical goods and services, firms each have some power to affect prices.

factors that influence supply curve

firms productivity, factor costs, taxes and subsidies, # of firms

Monopoly

one seller produced goods and services (price searcher), must lower price to sell more, faces market demand, price is greater than marginal revenue,The firm determines the price to charge its buyers,There are high barriers to entry or exit, firm's demand curve is downward sloping.

Proprietorship

single owner that is responsible for all debts and damages

dominated strategy

strategies we'll want to avoid no matter what, will never be the best response to anything our opponent will do

If a firm uses labor to produce output, the firm's production function depicts the relationship between the maximum quantity that the firm can produce as it adds more capital to a fixed quantity of labor. fixed inputs and variable inputs in the short run. marginal product and marginal cost. the number of workers and the quantity of output.

the number of workers and the quantity of output.

Marginal cost increases

If marginal productivity decreases than

Marginal cost decreases

if marginal productivity increases than

total cost

Average total cost * quantity

perfect competition

to many buyers and sellers to influence the market demand curve is perfectly elastic. (price-taker), perfect elastic demand, must produce more to sell more, all units sold at same price. barriers to entry do not exist.

Average variable costs

(Total variable costs/ outputs)

Marginal productivity

(difference between total product) the change in the total amount of goods and services produced divided by the change in the inputs

A firm maximizes profit

A firm maximizes profit total revenue curve is above total cost and the distance between them is maximized

Marginal revenue, Marginal cost

A firm will expand the amount of output it produces as long as its ------ exceeds its ------.

profit maximization

A firms goal is ------- through short and long run decisions

zero-sum game.

A game in which any gains within the group are exactly offset by equal losses by the end of the game is called

cartel

A group of independent firms who collude to improve their profits

When a monopolist increases the amount of output that it produces and sells, average revenue

Average revenue decreases, and marginal revenue decreases.

Marginal costs

Change in total costs/ change in outputs

Compared to a similar perfectly competitive industry, a single-price monopoly [ Select ] consumer surplus and [ Select ] economic efficiency.

Decreases, decreases

implicit costs

Depreciation, interest payments, owners time

price falls to break even price

Firms enter market

Price increases to break even level

Firms exit market

monopoly firm must face a downward-sloping demand curve, firm needs to prevent the resale of the good or service, the monopoly firm must separate their customers by age, group affiliation (ex. students), or preferences, and the monopoly firm must be able to determine the different price elasticities of their customers

For firms to price discriminate, certain conditions must exist?

Nash

In the prisoners' dilemma game, when each player takes the best possible action given the action of the other player, a ------ equilibrium is reached.

Rent seeking by a monopolist increases the social [ Select ] of a monopoly and [ Select ] its average total cost

Increases, increases

Rent seeking

Increasing one's wealth (rent) without producing any good or service.

command system

Managerial system hierarchy, information passed down through line of command

Which of the following can eliminate the inefficiency inherent in monopoly pricing?

Price discrimination

Which of the following are barriers to entry for a oligopoly? Choose all that apply. 1.Price wars 2.Ownership of a vital resource. 3.Diseconomies of scale 4.The existence of a close substitute good or service. 5.Economies of scale

Price wars, Ownership of a vital resource, economies of scale

production function

Relationship between outputs of a good or service and the inputs used to produce the outputs

Which of the following represents the firm's short-run condition for shutting down? 1. Shut down if TR < FC 2. Shut down if TR < VC 3. Shut down if P < ATC 4. Shut down if TR < TC

Shut down if TR < VC

The position of a firm's cost curves depends on two factors:

Technology and prices of factors of production

total productivity

Total amount of Goods or services produced by the inputs per period

Average total cost

Total costs/ outputs

Average fixed costs

Total fixed costs/ outputs

decreases

Total productivity ------ when marginal product is negative

increases

Total productivity ------ when marginal product is positive

A competitive firm maximizes profit at the point where average revenue equals marginal cost; a monopolist maximizes profit at the point where average revenue exceeds marginal cost. True or false

True

Total cost and average variable cost decreases

When the marginal cost curve is below total cost and average variable cost curve

long run

all inputs are variable in producing goods or services

adverse selection

buyer and seller has more information than the other

When firms are said to be price takers, it implies that if a firm raises its price, 1. firms in the industry will exercise market power. 2. competitors will also raise their prices. 3. buyers will pay the higher price in the short run. 4. buyers will go elsewhere.

buyers will go elsewhere.

The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which 1. profit is maximized. 2. total revenue is equal to fixed cost. 3. total revenue is equal to total cost. 4. total revenue is equal to variable cost.

profit is maximized.

Economic loss

if the price (P) is below the minimum average total cost (ATC) but above the minimum average variable cost (AVC)

Bubba is a shrimp fisherman who could earn $5,000 as a fishing tour guide. Instead, he is a full-time shrimp fisherman. In calculating the economic profit of his shrimp business, the $5,000 that Bubba gave up is counted as part of the shrimp business's marginal costs. total revenue. implicit costs. explicit costs.

implicit costs

Marginal revenue (MR) = Marginal cost (MC)

in a data set if both units produce the same profit what can you do to know how many units to produce. What two variables must be equal?

Imperfect information

individuals do not have immediate and complete information (asymmetric system)

Firms may experience diseconomies of scale when 1. average fixed costs begin to rise again. 2. large management structures are bureaucratic and inefficient. 3. they are too small to take advantage of specialization. 4. there are too few employees, and managers do not have enough to do.

large management structures are bureaucratic and inefficient.

corporation

legal structure authorized by the government, double taxation, owners have limited liability over the initial value of their investments.

economies of scale

long-run average cost decreases as output increases

When a firm experiences constant returns to scale, 1.long-run marginal cost is less than long-run average total cost. 2.long-run marginal cost is greater than long-run average total cost. 3. long-run average total cost is unchanged, even when output increases. 4. the firm is experiencing coordination problems.

long-run average total cost is unchanged, even when output increases.

When Sidney's Sweaters, Inc. makes exactly zero economic profit, Sidney, the owner,

makes an income equal to his best alternative forgone income.

The minimum points of the average variable cost and average total cost curves occur where the 1. marginal cost curve lies below the average variable cost and average total cost curves. 2. average variable cost and average total cost curves intersect. 3. marginal cost curve intersects those curves. 4. slope of total cost is the smallest.

marginal cost curve intersects those curves. slope of total cost is the smallest.

Profit

price (P) is greater than/ above the average total cost (ATC).

Shutdown

price (P) they receive falls below the minimum average variable cost (AVC)

For a monopoly, the socially efficient level of output occurs where

price equals marginal cost

In the short run, a firm will

produce and incur an economic loss if its total revenue covered its total variable cost but not its total cost.

If there is an increase in market demand in a perfectly competitive market, then in the short run 1. the demand curves facing firms will become more elastic. 2. profits will rise. 3. there will be no change in the demand curves faced by individual firms in the market. 4. the demand curves facing firms will shift downward.

profits will rise

law of diminishing marginal returns

says that as the firm uses more of a" variable" , with a given quantity of "fixed inputs", the "marginal"product of the variable input eventually diminishes.

monopolistic competition

sellers produce similar but not identical goods and services

Accounting profit

total revenue minus total explicit cost