Terms in this set (47)
Profit maximizing firms want to maximize the difference between
total revenue and total cost.
The difference between the firm's total revenues and total cost when all explicit and implicit costs are included is the firm's
Which of the following is an example of something that economists would consider a cost but accountants would not?
the wages that the owner of a firm could have earned in some alternative job
________ is a cost that is independent of the quantity produced by the firm and is incurred by the firm in the short run.
Total variable costs
always increase with output.
When an increase in a firm's scale of production leads to lower average costs, the industry exhibits
increasing returns to scale.
When a firm becomes so large that it becomes difficult to manage in an efficient manner, this is an example of
diseconomies of scale.
Engineers for The All-Terrain Bike Company have determined that a 10 % increase in all inputs will cause a 10 % increase in output. Assuming that input prices remain constant, you correctly deduce that such a change will cause ____ as output increases.
average costs to remain constant.
Which of the following situation describes a short-run adjustment of a firm to changing business conditions?
A baker works all night to prepare for a holiday rush.
Which of the following describes a long-run adjustment of a firm to changing business conditions?
A restaurant owner leases an empty store next door and expands.
Diminishing marginal returns implies that:
marginal product is decreasing.
Marginal product is defined as the change in ________ resulting from a one-unit increase in ________.
total product; output
Increased specialization in large firms might lead to:
downward-sloping long-run average cost curves
To maximize profit, firms in all market structures except oligopoly will produce where
marginal revenue equals marginal cost.
A firm in a perfectly competitive market is characterized by
many small firms selling a homogeneous product.
The horizontal demand curve facing an individual firm in a perfectly competitive market is
a reflection of the firm's small size relative to the total market.
You sell your good in a perfectly competitive market where the market price is $33.00. When you sell 100 units your total revenue is $3,300. When you sell 101 units:
total revenue increases by exactly $33.
A firm suffering economic losses decides whether or not to produce in the short run on the basis of whether
revenue covers variable costs.
In the short run, the firm should shut down when:
price is less than the minimum of the average variable cost of production.
The monopolistically competitive firm is characterized by
many firms and a differentiated product.
The demand curve faced by a monopolistic competitor is likely to be
less elastic than the demand curve faced by a perfectly competitive firm and more elastic than the demand curve faced by a monopoly.
If a monopolistically competitive firm maximizes its profit by producing 600 units per hour, it must be true that at 600 units per hour,
marginal revenue is equal to marginal cost.
The word "monopolistic" in the label "monopolistic competition" refers to the fact that:
each firm produces a slightly different version of the product.
The word "competition" in the label "monopolistic competition" refers to the fact that:
firms vie against each other to get customers to buy their version of the product.
In monopolistic competition, firms can have some market power
Which of the following statements best describes firms under monopolistic competition?
The firms compete, using quality, location, advertising, and price.
As new firms enter a monopolistic competitive industry, it can be expected that
profits of existing firms will decrease.
A monopolistically competitive firm is inefficient because it
produces an output where average total cost is not minimum.
In the long-run, both monopolistic competition and perfect competition result in
zero economic profit for firms.
Marginal revenue is equal to price for a perfectly competitive firm because:
total revenue increases by the price of the good when an additional unit is sold.
Suppose that there are 1,000 identical firms producing a product in an industry with low barriers to entry. In the short run, the total revenues of each firm exceed total costs. What will happen in the long run?
Additional firms will enter the market, and price will be driven down to the point where each firm will be making just enough to stay in business.
As compared to a perfectly competitive firm, a monopolistically competitive firm will
sell a more differentiated product.
In which of the following ways is a monopolistically competitive firm like a monopoly?
Firms face a downward demand curve.
A monopoly is characterized by
one large firm selling a unique product.
The demand curve that a monopolist faces is
the market demand curve.
For a monopolist to sell more units of output,
the price must be reduced.
For a monopoly to be a natural monopoly,
economies of scale must be realized at a scale that is close to total demand in the market.
Relative to a competitive market equilibrium, the profit maximizing quantity chosen by a monopolist will result in a deadweight loss because:
the monopolist will produce at a quantity lower than the competitive equilibrium.
Which of the following is true?
When sellers use price-discrimination, they will generally produce a larger output
than if they charged only a single price to consumers.
An oligopolistic industry is characterized by
few large firms selling a homogeneous or differentiated product.
If the price in an oligopoly market is the same as that of a monopoly with identical cost and demand conditions then:
there may be collusion between firms.
For a monopolist to practice effective price discrimination, one necessary condition is
differences in the price elasticity of demand among groups of buyers.
In general, firms in a cartel:
agree to charge the price the monopolist would charge.
When firms in an oligopolistic compete with each other rather than cooperate:
consumers will end up better off.
A firm that faces the duopolists' dilemma can avoid the dilemma by
always choosing its dominant strategy regardless of the other firm's action.
Suppose Ford, GM, and Dodge make the majority of pick-up trucks sold in the United States. If they all sell for approximately the same price, and Ford offers a $2,500 rebate on new truck sales, what can Ford expect to see?
an immediate response by GM and Dodge.
Under an average-cost pricing policy
a regulatory agency picks a price at which a natural monopoly's demand curve intersects its average cost curve.