52 terms

Econ II Test review

To the economist, total cost includes:
explicit and implicit costs, including a normal profit.
unlike a private good, a public good:
has benefits available to all
positive externality or spillover benefit occurs when:
the benefits associated with a product exceed those accruing to people who consume it
At the optimal quantity of a public good:
marginal benefit equals marginal cost
a demand curve for a public good is determined by:
summing vertically the individual demand curves for the public good
for which good would you sum individual demand curves vertically to obtain the total demand curve
courts of law
producer surplus
is the difference between the minimum prices producers are willing to accept for a product and the higher equilibrium price
at the output level defining allocative efficiency
the maximum willingness to pay for the last unit of output equals the minimum acceptable price of that unit of output.
the price of elasticity of demand coefficient measures:
buyer responsiveness to price change
the demand for a product is inelastic with respect to price if
consumers are largely unresponsive to a per unit price change
the larger the coefficient of price elasticity of demand for a product, the
smaller the resulting price change for an increase in supply.
the price elasticity of demand of a straight line demand curve is:
elastic in high price ranges and inelastic in low price ranges
the main determinant of elasticity of supply is the
amount of time the producer has to adjust inputs in response to a price change
the larger the positive cross elasticity coefficient of demand between products x and y:
the greater their substitutability
we would expect the cross elasticity of demand between dress shirts and ties to be:
negative, indicating complementary goods
when a firm does more of something they get better at it. this is called
source of economies of scale
economists use the term imperfect competition to describe:
those markets which are not purely competitive
which industry structure is the entry of new firms most difficult
pure monopoly
a one firm industry is known as
pure monopoly
what statement applies to a purely competitive producer
it will not advertise its product
a purely competitive seller is
a price taker
the demand schedule or curve confronted by the individual purely competitive firm is:
perfectly elastic
for a purely competitive seller, price equals
average revenue
marginal revenue
total revenue divided by output
the demand curve in a purely competitive industry is_____, while the demand to a single firm is ___
downsloping, perfectly elastic
firms seek to maximize:
total profit
The MR=MC rule applies:
to firms in all types of industries
suppose the price of your product is less than minimum AVC. You should
close down because by producing, your losses will exceed your total fixed costs
a purely competitive firm should produce in the short run if its total revenue is sufficient to cover its
total variable costs
in the short run a purely competitive firm will always make an economic profit if
if a purely competitive firm is producing at some level less than the profit maximizing output
marginal revenue exceeds marginal cost
the short run supply curve for a purely competitive industry can be found by:
summing in horizontally the segments of the MC curves lying above the AVC curve for all firms
If a purely competitive firm is producing at the P=MC output and realizing an economic profit at that output:
ATC being minimized
when a purely competitive firm is in long run equilibrium
price equals marginal cost
assume a competitive firm is maximizing profit at some output at which long run average total cost is at a minimum. then:
there is no tendency for the firm's industry to expand or contract
a decreasing cost industry is one in which:
input prices fall or technology improves as the industry expands
if an industry's long run supply curve is downsloping
it is a decreasing cost industry
Allocative efficiency is achieved when the production of a good occurs where:
the term productive efficiency refers to:
the production of a good at the lowest average total cost
if for a firm P=minimum ATC=MC, then:
both allocative efficiency and productive efficiency are being achieved.
pure monopoly means
a single firm producing a product for which there are no close substitutes
pure monopolists may obtain economic profits in the long run because:
of barriers to entry
are also called trademarks
all of these are barriers to entry
economies of scale
the ownership of essential raw materials
For a nondiscriminating imperfectly competitive firm
marginal revenue will become zero at that output where total revenue is at a maximum
With respect to the pure monopolist's demand curve it can be said that:
price exceeds marginal revenue at all outputs greater than 1.
the pure monopolist's demand curve
identical with industry demand curve
when total revenue is increasing:
marginal revenue is positive
Suppose a pure monopolist is charging a price of $12 and the associated marginal revenue is $9. We thus know that:
total revenue is increasing
Imperfectly competitive producers
-do not compete with one another
-can alter their output by changing price
-find that, when they reduce price, their total revenue increases by less than the new price.
the supply curve of a pure monopolist
does not exist because prices are not "given" to a monopolist
to maximize profit a pure monopolist must:
maximize the difference between total revenue and total cost
X inefficiency refers to a situation in which a firm:
fails to achieve the minimum average total costs attainable at each level of output