1. All firms, no matter what type of firm structure they are producing in, make their production decisions based on where:
marginal revenue equals marginal costs.
2. According to the table below, when profits are maximized, profits are equal to:
3. Many economists believe that the market for wheat in the United States is an almost perfectly competitive market. If one firm discovers a technology that makes their wheat taste better and have fewer calories than all other wheat offered in the market, the wheat market would become less competitive because:
the products would no longer be similar in the wheat market. 4. When talking about economics profits in a perfectly competitive market, the difference between the long run and the short run is that: in the short run firms can earn positive or negative economic profits, but in the long run firms have zero economic profits. 5. Assuming a firm’s costs are split between variable costs and fixed costs, once variable costs are covered,
any extra money goes toward paying the fixed costs.
6. A firm participating in a competitive market with costs described in the table below would break even:
if the price is equal to $6.
7. As a firm attempts to expand production, it must _____________ the wage it pays to attract additional help. This leads to ________ costs, making the long-run supply curve slope ___________.
increase; higher; upward.
8. The entry and exit of firms ensure that the ________________ is much more ________ in the long run than in the short run.
market supply curve; elastic
9. Holding all else constant, an increase in the market demand for a product in a competitive market would cause:
the marginal revenue (MR) curve of the firms to increase.
10. The market for watches is perfectly competitive and is currently in
equilibrium. If watches become more popular among college students, in the short run, firms will experience economic profits; but in the long run, firms will enter the market, bringing economic profits back down to zero. 11. In a competitive market, if one firm raises their price relative to the other firms in the market, consumers are willing to go to another firm because:
the products are similar, which makes them substitutes.
12. A firm characterized as a price taker:
has no control over the price it pays, or receives, in the market.
13. Which characteristic of competitive markets is mainly responsible for ensuring that prices will be kept low?
easy entry into and exit from the market.
14. Chuck Diesel Burger is a food truck in Houston, Texas. Imagine that Chuck Diesel Burger’s minimum average total cost (ATC) is $3.75 and its minimum average variable cost (AVC) is $2.50; assume there are no barriers to entry into or exit from the food-truck market. Chuck Diesel Burger will make a positive economic profit if the price is equal to:
15. Assuming a firm’s costs are split between variable costs and fixed costs, once variable costs are covered,
any extra money goes toward paying the fixed costs.
16. Jim and Lisa own a dog-grooming business in Champlain, New York, called JL Groomers. There are many buyers and many sellers in the dog-grooming service market. JL Groomers experiences normal cost curves with the marginal cost (MC) curve crossing average variable cost (AVC) at $14 and average total cost (ATC) at $22. JL Groomers will make positive economic profits if:
the market price is above $22.
17. It’s easy to determine if a firm is making long-run production decisions by looking at its cost structurE. This is because in the long run, a firm does not have any:
18. Costs that have been incurred as a result of past decisions are known as:
19. Charlie’s Churros is a perfectly competitive firm that sells desserts in Houston, Texas. Charlie’s Churros currently is taking in $40,000 in revenues, has $15,000 in explicit costs, and $25,000 in implicit costs. Holding all else constant, the price in this market will:
stay where it is.
20. When firms exit a market, the ______________ curve shifts ____________ causing individual firms’ profits to _________________.
short-run market supply; left; increase.
21. Which of the following lists the three main characteristics of a competitive market?
many buyers and sellers, similar products, easy entry into the market
22. Total revenue minus total cost equals:
23. A firm participating in a competitive market with costs described in the table below would always shut down:
if the price is equal to $2.
24. When revenue is insufficient to cover cost,
the firm suffers a loss.
25. Sunk costs:
are costs that have been incurred as a result of past decisions.
26. According to the figure below, this firm would shut down in the long run if:
the price fell below $5.
27. One difference between implicit costs and explicit costs is that:
explicit costs are included in accounting profits, whereas implicit costs are not.
28. Holding all else constant, an increase in the price of hot dogs would cause:
the marginal revenue (MR) curve in the market for hot dog buns to decrease.
29. Marginal revenue is:
the change in total revenue when the firm produces additional units.
30. According to the figure below, if the firm is maximizing profits, profit is represented by the area:
(A – B) × C.
31. Firms will always stay in the market if:
the price they charge is greater than their minimum average variable cost (AVC).
32. A firm’s willingness to supply their product in the short run is represented on a graph by:
the part of the marginal cost (MC) curve above minimum average variable cost (AVC).
33. According to the figure below, a firm would be suffering a loss but still be producing if the price is:
below $5 but above $4.
34. A firm’s willingness to supply their product in the long run is
represented on a graph by:
the part of the marginal cost (MC) curve above minimum average total cost (ATC).
35. It’s easy to determine if a firm is making long-run production decisions by looking at its cost structurE. This is because in the long run, a firm does not have any:
36. If Nicole’s Knick-Knacks is a perfectly competitive firm and is making zero economic profits,
Nicole’s Knick-Knacks will stay in the market.
37. If Firm A is making zero economic profits,
Firm A is breaking even when opportunity cost is taken into consideration.
1. One argument against patent and copyright laws is that they:
limit exposure that can benefit companies and individuals.
2. In instances when having a single firm in the market makes sense, governments ___________ to minimize negative externalities.
3. The following table represents the costs of production and market demand faced by a monopolist. As production increases, the price consumers are willing to pay for the good:
4. At high price levels, demand tends to be ____________ and the price effect is ________, relative to the output effect.
5. According to the figure below, this profit-maximizing firm’s total profit is equal to:
6. Christopher’s Campground is the only campground located in Abilene, Texas. Christopher’s Campground’s demand curve is:
the market demand curve.
7. If a monopolist is producing a quantity where marginal revenue is equal to $32 and the marginal cost is equal to $30, the monopolist should:
increase production and lower the price to maximize profits.
8. According to the accompanying figure, the deadweight loss associated with this profit-maximizing monopoly is represented by areas:
E + H.
9. Deadweight loss results in a monopoly because:
some consumers who would benefit from a competitive market lose out.
10. A privately owned firm that is regulated by the government is very similar to a firm that the government owns because:
neither have a profit motive.
11. Patents and copyright law:
assure inventors that no one else will sell their idea.
12. Barriers to entry:
restrict the entry of new firms into the market.
13. The following table represents costs and production for a monopolist. The profit-maximizing quantity for this firm is:
14. The price effect refers to:
how lower prices affect revenue.
15. At high price levels, demand tends to be ____________ and the price effect is ________, relative to the output effect.
16. Because the demand curve for a monopolist is downward sloping,
the monopolist has many price-output combinations.
17. Which of the following is a characteristic of a monopoly but not a characteristic of a competitive market?
Price > Marginal Cost
18. According to the accompanying figure, consumer surplus associated with a profit-maximizing monopoly is equal to:
19. Rent seeking:
occurs when resources are used to secure monopoly rights through the political process.
20. Which pricing rule generates the greatest welfare for society?
marginal cost pricing rule
21. Raising capital to compete against an entrenched monopolist:
is very difficult.
22. Economies of scale is an example of:
a natural barrier.
23. According to the accompanying figure, the profit-maximizing price and quantity are:
$25 and 100.
24. According to the accompanying figure, the revenue received by the profit-maximizing monopolist is:
25. According to the accompanying figure, the revenue received by the
profit-maximizing monopolist in this market is represented by:
C + D + F + G + I + J
26. According to the figure below, the profit-maximizing price and quantity are:
$26 and 20, respectively.
27. When a monopolist lowers a price from $80 to $70, the quantity that the firm is able to sell increases from 100 to 150. The change in revenue associated with the price effect is equal to:
28. Monopolies result in a(n) ____________ level of output and provide ________ choice to consumers.
29. According to the figure below, if this firm is profit maximizing, society would experience __________ in deadweight loss.
1. Economists consider both explicit and implicit costs when measuring economic profit. The reason they consider implicit costs is that: in order to be truly profitable, a business must cover its opportunity costs as well as its out-of-pocket expenses.
2. Ralph owns a small pizza restaurant, where he works full time in the kitchen. His total revenue last year was $100,000, and his rent was $3,000 per month. He pays his one employee $2,000 per month, and the cost of ingredients and overhead averages $500 per month. Additionally, Ralph could earn $35,000 per year as the manager of a competing pizza restaurant nearby. His total accounting profit for the year was:
3. A firm’s inputs are also known as its:
factors of production.
4. If all workers are able to specialize and become more productive as more labor is hired, the amount of total output produced:
increases at an increasing rate.
5. When the average variable cost curve is upward sloping, what must be true about the marginal cost curve?
The marginal cost curve is above the average variable cost curve.
6. Audrey owns a horse ranch. Her total costs are $550,000 per year, and her fixed costs are $205,000 per year. This means that her variable costs are:
7. When the average total cost curve is downward sloping, what must be true about the marginal cost curve?
The marginal cost curve is below the average total cost curve.
8. Which is the best example of diseconomies of scale?
A parking garagE.
9. Darrell owns a furniture storE. In the long run, if he moves into a larger store but finds that his average costs have increased, we know that Darrell is experiencing:
diseconomies of scale.
10. If the firm depicted in the following graph expanded its scale of production and found that its average costs decreased, which of the curves shown would reflect this situation?
11. Implicit costs are:
the opportunity cost of the means of production.
12. Lauren is the owner of a bakery that earns 0 (zero) economic profit. Last
year her total revenue was $145,000, her rent was $12,000, her labor costs were $65,000, and her overhead expenses were $15,000. From this we know that her total implicit costs were:
13. If a firm hires another worker and her marginal product of labor is positive, we know that the firm’s total output is:
14. The production function for automobiles would include:
a factory, an assembly line, workers, and robots.
15. A firm’s short-run cost curves show us graphically:
what is the lowest-cost level of output.
16. The change in total cost given a change in output is also known as:
17. The full set of short-run cost curves for a firm tells us:
what is the cost-minimizing level of output.
18. Madison owns a boxing gym. She recently expanded the size of her gym by adding another boxing ring and moving into a larger building so that she can serve more clients. How would Madison know if she is experiencing economies of scale from increasing the size of her boxing gym?
Her average cost per client decreases
19. If a firm experiences economies of scale, its long-run average cost curve will be:
20. Use the following table to answer this question: What is the average variable cost of producing three (3) units of the good?