Econ Finals Notes
Luana gives up a salary of $80,000 per year to start her company. She invests $50,000 of her savings in her company, savings that had been earning her $4,000 per year in interest. During Luana's first year in business, total revenue is $300,000, and her explicit financial costs are $225,000. What is Luana's accounting profit from her first year in business?
$75,000
Corinne is offered a job with a salary of $70,000, which she turns down to start her own business. She uses $20,000 of her own savings to help start the business, savings that had been providing her a return of $1,000 per year. Over her first year in business, Corinne collects total revenue of $180,000 and must cover explicit costs of $105,000. During her first year in business, Corinne's accounting profit is _____, and her economic profit is _____.
$75,000; $4,000
A formal agreement to limit production and raise prices leads to:
a cartel.
What is the dominant factor determining market price in the long run (assuming the industry has unrestricted entry)?
average costs
How does marginal revenue compare to price for a seller with market power?
Beyond the first unit sold, marginal revenue is below price.
What is FALSE about a Nash Equilibrium?
Cooperation between the players could not improve the outcome.
Market power determines the shape of a firm's
marginal revenue curve
Employers use educational background and degrees obtained to indicate an applicant's:
productivity and certain traits
Your landscaping company uses labor and shovels. The price of shovels falls, and this _____ your demand for labor because labor and shovels are _____.
raises; complements
When the government requires that a person have a license to work in a particular occupation, then in the labor market for that occupation:
supply decreases
Average cost equals:
total cost divided by output.
When companies exercise market power, _____ occurs. _____ can partially solve this problem.
underproduction; Price discrimination
When an employer makes decisions based on statistical discrimination, it is:
using observations about the average characteristics of a group to make inferences about an individual.
When segmenting your market demand into groups, base them on _____ and _____ characteristics.
verifiable; difficult-to-change
Price discrimination through group pricing works when the basis for segmenting the consumers is _____, is _____, and separates consumers based on their _____.
verifiable; easy to change; flexibility in demand for the product
The Rational Rule for Sellers is that sellers should choose the quantity _____ and choose the price _____.
where marginal revenue equals marginal cost; that is on the seller's demand curve for that quantity
Which of the following is correct about the discount effect facing companies in perfectly and imperfectly competitive markets? Companies in perfect competition _____ it. Companies in imperfect competition _____ it.
do not face; face
An efficiency wage is a:
higher wage paid to encourage greater worker productivity.
In a perfectly competitive labor market, the manager's hiring decision is about
how many workers and what wage to pay
Sellers who are in _____ markets face a less extreme trade-off between higher prices and higher quantity than sellers in perfect competition. As a result of this, they can _____.
imperfectly competitive; earn higher profits
The output in a market with market power is
inefficient because the marginal benefit to society of extra output exceeds the marginal cost.
Almira is a chocolatier with a small chocolate shop. There are three other chocolatiers in her city. Almira should be concerned that new companies will enter her city's chocolate market and take away some of her customers if the average chocolatier in her city:
is earning economic profits.
A compensating differential is an:
difference in wages that offsets the desirable or undesirable aspects of a job.
What is the impact of higher wages on labor supply according to the income effect?
Leisure is more attractive.
Free entry into a market tends to cause _____ to disappear.
desirable opportunities