Exam 3

Front 1

The average variable cost curve and average total cost curve tend to converge as output rises because:

Back 1

The average fixed costs decline. That is also the difference between them.

Front 2

The firm's average total costs will be at minimum at the output level where:

Back 2

The marginal cost curve crosses the firm's average total cost curve.

Front 3

The law of diminishing returns states that:

Back 3

As we continually add variable factors to a fixed amount of other resources, ouput eventually increases at a decreasing rate.

Front 4

A publisher building a new plant to produce paperback books represents:

Back 4

A long-run adjustment

Front 5

Marginal Product

Back 5

The change in total output associated with each additional unit of an input (like labor)

Front 6

Factor of the development of a new, more efficient corn harvester is likely to do what to cost curves?

Back 6

Shift them downward.

Front 7

The reason we do not refer to lon-run variable cost as distinguished from long-run cost is:

Back 7

All costs are variable in the long run.

Front 8

T/F The ATC will always decline when MC is less than ATC.

Back 8

True.

Front 9

T/F Average fixed costs will always decline as output is expanded in the short run.

Back 9

True

Front 10

T/F Competitive firm's will never be able to earn economic profit.

Back 10

False

Front 11

T/F A firm under pure competition faces a perfectly elastic demand curve for the product it sells.

Back 11

True

Front 12

T/F A profit-maximizing perfectly competitive firm will expand output as long as the market price exceeds marginal cost.

Back 12

True

Front 13

T/F Competitive firm's always produce at the level of output at which average total costs are a minimum.

Back 13

False

Front 14

T/F In order to maximize profits in the short run, a purely competitive firm should produce at the output level where marginal cost is equal to price.

Back 14

True

Front 15

Which portion of the marginal cost curve is used to create a firm's short-run supply curve?

Back 15

The marginal cost curve above its intersection with the average variable cost curve.

Front 16

T/F The long-run supply curve for an industry characterized by perfect competition, assuming a constant-cost industry, is horizontal.

Back 16

True.

Front 17

T/F In an industry with low barriers to entry, when positive economic profits are present and expected firm's will enter the industry forcing the price down such that only zero economic profits will be possible.

Back 17

True

Front 18

Economic normally assume that the goal of a firm is to:

Back 18

Maximize profits.

Front 19

The amount of money that a firm receives from the sale of the output is called:

Back 19

Total Revenue

Front 20

A production function is a relationship between:

Back 20

Inputs and quantity of output.

Front 21

The marginal product of labor is equal to the:

Back 21

Increase in output obtained from a one unit increase in labor.

Front 22

The marginal product of labor can be defined as:

Back 22

Change in output/change in labor.

Front 23

One would expect to observe diminishing marginal product of labor when:

Back 23

Crowded office space reduces the productivity of new workers.

Front 24

When adding another unit of labor leads to an increase in output that is smaller than increases in output that resulted from adding previous units of labor, we have the property of:

Back 24

Diminishing marginal product.

Front 25

If a firm regards it's number of workers as variable and the size of its factory as fixed, the assumption is often realistic:

Back 25

In the short run, but not the long run.

Front 26

The marginal product of an,input in the production process is the increase in:

Back 26

Quantity of output obtained from an additional unit of that input.

Front 27

Costs that do not vary with the amount of output a firm produces.

Back 27

Fixed costs.

Front 28

Fixed costs are defined as:

Back 28

Costs that are incurred even if nothing is produced.

Front 29

In a small lemonade stand business what type of cost is the lemonade mix?

Back 29

Variable cost.

Front 30

If a firm produces nothing, which of its costs will be zero?

Back 30

Variable costs

Front 31

One assumption that distinguishes short-run cost analysis from long-run cost analysis for a profit maximizing firm is that in the short run:

Back 31

The size of the factory is fixed.

Front 32

Average total cost is:

Back 32

The cost of producing the typical unit of output.

Front 33

Average total cost is equal to:

Back 33

Total cost divided by output.

Front 34

The amount by which total cost rises when the firm produces one additional unit of output is called:

Back 34

Marginal cost.

Front 35

The cost of producing an additional unit of output is the firm's:

Back 35

Marginal cost

Front 36

Average total cost equals:

Back 36

(Fixed costs plus variable costs) divided by quantity produced.

Front 37

Marginal cost equals:

Back 37

The change is total cost divided by the change in quantity produced. The change in variable cost divided by the change in quantity produced.

Front 38

Maginal cost tells us the:

Back 38

Amount by which total cost rises when output is increased by one unit.

Front 39

If marginal cost is risingg

Back 39

Marginal product must be falling.

Front 40

Diminishing marginal product suggests that:

Back 40

Marginal product of an extra worker is less than the previous worker's marginal product AND that marginal cost is upward sloping.

Front 41

The average fixed cost curve:

Back 41

Always declines with increased levels of output.

Front 42

Average total cost is very high when a small amount of output is produced because:

Back 42

Average fixed cost is high.

Front 43

When marginal cost exceeds average total cost:

Back 43

Average total cost must be rising.

Front 44

Average total cost is increasing whenever:

Back 44

Marginal cost is greater than average total cost.

Front 45

Marginal cost is equal to average total cost when:

Back 45

Average total cost is at its minimum.

Front 46

The marginal cost curve crosses the average total cost curve at:

Back 46

The efficient scale, the minimum point on the average total cost curve, and a point where the marginal cost curve is rising.

Front 47

If marginal cost is below average total cost, then the average total cost is:

Back 47

Falling.

Front 48

At all levels of production beyond the point where the marginal cost curve crosses the average variable cost curve, average variable cost:

Back 48

Rises.

Front 49

Total cost can be divided into two types:

Back 49

Fixed costs and variable costs

Front 50

Costs that do not vary with the quantity of output produced:

Back 50

Fixed costs.

Front 51

Average total cost is calculated by:

Back 51

Total cost divided quantity of output.

Front 52

The property by which marginal cost increases as the quantity of output increases:

Back 52

Diminishing marginal product.

Front 53

Whenever marginal cost is greater than average total cost:

Back 53

Average total cost is rising.

Front 54

The firm's efficient scale of the quantity of output that maximizes:

Back 54

Average total cost.

Front 55

When a factory is operating in a short run:

Back 55

It cannot adjust the quantity of fixed inputs.

Front 56

T/F In the long run inputs that we're fixed in the short run become variable.

Back 56

True.

Front 57

T/F The length of the short run is different for different types of firms.

Back 57

True.

Front 58

Economies of scale occur when:

Back 58

Long-run average total costs fall as output increases.

Front 59

Diseconomies of scale occur when:

Back 59

Long-run average total costs rise as output increases.

Front 60

Constant returns to scale occur when:

Back 60

Long-run average total costs are constant as output increases.

Front 61

When, for a firm, long-run average total cost decreases as the quantity of output increases, we have a situation of:

Back 61

Economies of scale.

Front 62

"Constant returns to scale" refers to a situation in which, for a firm:

Back 62

Long-run average total cost does not change as the quantity of output changes.

Front 63

T/F Average total costs include a payment to the entrepreneur.

Back 63

True

Front 64

T/F The normal rate of return is the same as zero economic profits.

Back 64

True.

Front 65

Economic profitsmean that a firm has enjoyed a rate of return higher than is typically expected in that industry.

Back 65

True.

Front 66

In a competitive market, the actions of any single buyer or seller will:

Back 66

Have a negligible impact on the market price.

Front 67

For a firm in a perfectly competitive market, the price of the food is always:

Back 67

Equal to marginal revenue.

Front 68

If a firm in a perfectly competitive market triples the number of units of output sold, then the total revenue will be:

Back 68

Exactly triple.

Front 69

Because the goods offered for sale in a competitive market are largely the same:

Back 69

Sellers will have little reason to charge less than the going market price.

Front 70

Characteristics of a perfectly competitive market are:

Back 70

Firm's are price takers, there are many sellers in the market and the goods offered are largely the same.

Front 71

T/F A characteristic of a perfectly competitive market is firm's have difficulty entering the market.

Back 71

False.

Front 72

When buyers in a competitive market take the selling price as given, they are:

Back 72

Price takers.

Front 73

When firm's are said to be price takers, it implies that if a firm raises its prices:

Back 73

Buyers will go elsewhere.

Front 74

Give three statements that best reflect a price-taking firm:

Back 74

1: Charging more than going price would sell zero goods. 2. Firm has no incentive to charge less than going price. 3. The firm can sell as much as it wants at the going price.

Front 75

In a competitive market, no single producer can influence the market price because:

Back 75

Many other sellers are offering product that is essentially identical.

Front 76

Whenever a perfectly competitive firmchooses to change its level of outpu, holding the price of the product constant, it's marginal revenue:

Back 76

Does not change.

Front 77

When a profit maximizing firm In a competitive market has zero economic profit, accounting profit is:

Back 77

Positive.

Front 78

In a competitive market what can a seller not determine?

Back 78

The price.

Front 79

What happens in a competitive market?

Back 79

Each seller can sell all they want at the going price both buyers and sellers are price takers, and the goods offered by the different sellers are largely the same.

Front 80

The equation for profit:

Back 80

Total revenue minus total cost.

Front 81

The equation for marginal revenue:

Back 81

Change in total revenue divided by change in quantity of output.

Front 82

The equation for average revenue:

Back 82

Total revenue divided by quantity of output.

Front 83

In a competitive market, you maximize profits by choosing:

Back 83

The quantity at which market price is equal to the farm's marginal cost of production.

Front 84

Comparison of marginal revenue to marginal cost:

Back 84

Reveals the contribution of the last unit of production to total profit and is helpful in making profit-maximizing production decisions.

Front 85

If marginal cost exceeds marginal revenue, the firm:

Back 85

May still be earning a profit.

Front 86

When marginal revenue equals marginal cost, the firm:

Back 86

May be minimizing its losses, rather than maximizing its profit.

Front 87

As a general rule, profit maximizing producers in a competitive market produce output at a point where:

Back 87

Marginal cost is increasing.

Front 88

When price is greater than marginal cost for a firm in a competitive market:

Back 88

There are opportunities to increase profit by increasing production.

Front 89

The short-run supply curve for a firm in a perfectly competitive market is:

Back 89

Its marginal cost curve (above average variable cost).

Front 90

When a firm makes a short-run decision not to produce anything during a specified period of time because of current market conditions, the firm is said to:

Back 90

Shut down.

Front 91

Firm's shut down in the short run still have to pay their:

Back 91

Fixed costs.

Front 92

When total revenue is less than variable costs, a firm in a competitive market will:

Back 92

Shut down.

Front 93

When price is below average variable cost, a firm in a competitive market will:

Back 93

Shut down and incur fixed costs.

Front 94

I'm a competitive market, when market price falls below the minimum average total cost, but still lies above the minimum average variable cost:

Back 94

The firm will experience losses but still continue to produce product.

Front 95

A profit maximizing firm will shut down in the short run when:

Back 95

Price is less than (<) average variable cost.

Front 96

When a profit-maximizing firm in a competitive market is unable to generate enough revenue to pay all of its fixed costs it should, in the short run:

Back 96

Continue to produce as long as total revenue is sufficient to pay variable costs.

Front 97

When profit-maximizing firm's in competitive markets are earning profits:

Back 97

New firm's will enter the market.

Front 98

Profit-maximizing firm's enter a competitive market when, for existing firm's in that market:

Back 98

Price exceeds average total cost.

Front 99

When a profit-maximizing firm is earning profits, those profits can be identified by:

Back 99

(P minus ATC) times Quantity.

Front 100

When a profit-maximizing firm finds itself minimizing losses because it is unable to earn a positive profit, the task is accomplished by producing the quantity at which the price is equal to:

Back 100

Marginal cost.

Front 101

If a profit maximizing firm In a competitive market discovers that at its current level of production price is greater than marginal cost of should:

Back 101

Increase its output.

Front 102

For any given price, a firm in a competitive market will maximize profit by selecting the level of output at which price intersects the:

Back 102

Marginal cost curve.

Front 103

In the long-run, a profit maximizing firm will choose to exit a market when:

Back 103

Total revenue is less than total cost.

Front 104

If a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost then:

Back 104

A one-unit increase in output will increase the firm's profit.

Front 105

The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which:

Back 105

Profit is maximized.

Front 106

A firm that shuts down temporarily;

Back 106

Still has to pay its fixed costs but not its variable costs.

Front 107

A competitive market is in a long-run equilibrium. If demand increases we vmcan be certain that the price will:

Back 107

Fall in the short run. All, some, or no firm's will shut down, and some will exit the industry. Price will then rise.

Front 108

When new firm's have an incentive to enter a competitive market their entry will be:

Back 108

Drive down profits of existing firms in the market.

Front 109

In a perfectly competitive market the process of entry and exit will end when:

Back 109

Economic profits are zero.

Front 110

The entry of new firm's into the competitive market will:

Back 110

Increase market supply and decrease market prices.

Front 111

When calculating economic profit, total costs include:

Back 111

A payment to the entrepreneur, fixed costs, and variable costs.