Micro study guide chp 8

. If accounting profits for a firm are 20% of output, and the opportunity cost of financial capital is 8% of output, then what do the firm's economic profits equal?

12% of output

If the price that a firm charges is higher than its ________________ cost of production for that quantity produced, then the firm will earn profits.

average total

In economics, the term "shutdown point" refers to the point where the

average variable cost curve crosses the marginal cost curve.

Under perfect competition, any profit-maximizing producer faces a market price equal to its

marginal costs

Firms operating in a market situation that creates ___________________, sell their product in a market with other firms who produce identical or extremely similar products.

perfect competition

If a firm charges the same price regardless of output, the firm must be

perfectly competitive

If a perfectly competitive firm is a price taker, then

pressure from competing firms will force acceptance of the prevailing market price.

The term _________________ refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product.

price taker

In the _________, the perfectly competitive firm will seek out ________________________ .

short run; the quantity of output where profits are highest

What happens in a perfectly competitive industry when economic profit is greater than zero?

there may be pressure on the market price to fall

Refer to the diagram above. In this instance, at the range of output represented at point b

total costs exceed total revenues.

For a perfectly competitive firm, the marginal cost curve is identical to the firm's

. supply curve

Refer to the diagram above. In this instance, point e shown on the graph indicates

. the profit-maximizing point where MR = MC

Given the data provided in the table below, what is the profit-maximizing level of output?

5

. ______________________ refers to the additional revenue gained from selling one more unit.

Marginal revenue

. If a competitive firm experiences a shift in costs of production that decreases marginal costs at all levels of output,

expanding output levels at any given price will be profitable.

Economic profit can be derived from calculating total revenues minus all of the firm's costs,

including its opportunity costs

Kate's 24-Hour Breakfast Diner menu offers one item, a $5.00 breakfast special. Kate's costs for servers, cooks, electricity, food, etc. average out to $3.95 per meal. Her costs for rent, insurance cleaning supplies and business license average out to $1.25 per meal. Since the market is highly competitive, Kate should

keep the business open in the short-run, but plan to go out of business in the long-run

Refer to the diagram above. At the point marked m,

price is determining production at a level where P = MC.

If a graph is used to compare total revenue and total cost of a perfectly competitive firm, then the horizontal axis of the graph will represent the _______________ and the vertical axis will represent ______________________ .

quantity produced; both total revenue and total costs, measured in dollars