micro test 2

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25 terms

opportunity cost

the foregone income that the owner could have made by spending time working on another job

ex of a short run decision

automobile manufacturing company is trying to decide whether or not to expand its existing workforce

rachel left her business where she earned 42000 to create a new one, her total costs of new business are

both the expenses incurred for office space, equipment, and supplies and her foregone salary of $42,000 per

a firm temporarily shuts down for a week

total costs equal total fixed cost

fixed costs exist only in the

short run when some inputs are fixed

in a perfectly competitive market the demand curve faced by an individual firm is

perfectly elastic

a perfectly competitive firms marginal revenue is

equal to the selling price

if marginal revenue of the last widget a firm produces is $50 and its marginal cost is $35 a firm should..

increase production

existence of economic losses induces firms to

exit an industry, which shifts the market supply curve to the left and increases market price

if demand shifts right and price/marginal revenue is above the marginal cost than

the firm is earning positive economic profit in the short run

five assumptions of the perfectly competitive market

max profits
homogenous products
easy exit/entry into the market
equal access to resources
many firms

maximize profits

firms want to produce at the max output level where marginal revenue equals marginal cost

many firms

firms are price takers and each individual firm cannot control the market price

homogenous products

all firms have identical products, are perfect constitutes of each other and have perfectly elastic demand

can accounting profit be positive while economic profits are negative

yes if total revenue covers expenditures, but not opportunity costs

average product =

APL= Q/L

a firm produces 30k vases w/ a cost of 180k, while producing 40k costs 200k, this could explain the theory of

economies of scale

economies of scale

cost advantages that a business obtains due to expansion

ex of diseconomies of scale

the xyz co. increased production capacity by 25 percent and experienced a 30 percent increase in its total cost

the upward sloping portion of the short run total average cost curve is caused by

the presence of fixed inputs

long run average cost at any output level

always be less than or equal to short run average total costs

in a perfectly competitive market the demand curve faced by an individual firm is

perfectly elastic

demand curve for a perfect competitor is equal to its

marginal revenue curve

long run competitive equilibrium in an industry implies that no firm

has an incentive to enter or exit the market

an improvement in technology of producing tv's and the production is a competitive industry. assuming they were in equilibrium the long run effect on the improvement is

lower tv prices and higher production

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