Microeconomics Chapter 7-9

Front 1

To determine economic profit of a company:

Back 1

Total economic costs are subtracted from total revenues

Front 2

A firm that makes zero economic profit:

Back 2

Covers all its costs, including a provision for normal profit

Front 3

The following cost would not be included in calculating accounting profit for an ice cream shop:

Back 3

Interest income foregone for the owner's initial investment

Front 4

Market structure does not refer to:

Back 4

How companies organize their production

Front 5

Perfect competition is characterized by:

Back 5

Low entry barriers, identical products, many firm

Front 6

An example of a perfectly competitive industry is:

Back 6

Catfish

Front 7

For perfectly competitive firms:

Back 7

-Price equals marginal revenue
-Profits are maximized at an output level where marginal revenue equals marginal cost
-Normal profits are earned in the long run

Front 8

A firm has an incentive to keep producing output as long as:

Back 8

Marginal cost is less than marginal revenue

Front 9

The shut down point is where:

Back 9

A firm's price is below average variable cost

Front 10

To maximize profits, a firm in pure competition will produce where:

Back 10

P=MC

Front 11

Suppose you are a perfectly competitive cotton candy make are you are charging $5 per bag and you are selling 1,000 bags a month. If you lower the price by a nickel, what do you predict will happen to sales?

Back 11

They will not increase because it can sell as many units as it wants at$5

Front 12

Competitive markets are characterized by:

Back 12

Easy entry of firms,normal profits, falling profits

Front 13

The market supply curve is:

Back 13

The sum of the marginal cost curves of all the firms in the market

Front 14

Economic profits:

Back 14

Causes new firms to enter the market

Front 15

When economic profits disappear in a perfect competitive industry:

Back 15

Entry of new firms ceases

Front 16

Technological innovations in a market cause:

Back 16

The marginal cost curve to shift down

Front 17

Competitive markets achieve allocative efficiency by:

Back 17

Producing a mix of output that consumers want

Front 18

The exit of firms from a market:

Back 18

Reduces the equilibrium output in the market

Front 19

The constant quest for profits in competitive markets results in all of the following

Back 19

-Zero economic profits in the long run
-The goods and services being produced that consumers demand
-Efficiency in production

Front 20

Characteristics of a perfectively competitive long-run equilibrium?

Back 20

-Firms are making zero economic profits
-Price equals marginal cost
-Price equals long run minimum average cost

Front 21

If a firm has market power then:

Back 21

It faces a downward sloping demand curve

Front 22

A monopolist maximizes profit at an output level where:

Back 22

Marginal revenue is equal to marginal cost

Front 23

Perfect competition differs from monopoly in:

Back 23

The perfectly competitive firm takes the equilibrium price set in the market

Front 24

Characteristics of a perfect competitive market?

Back 24

-High profits attract new suppliers
-Price equals marginal cost
-As price falls with new entry, price equals minimum average total cost

Front 25

One of the benefits of monopoly is:

Back 25

A monopolist can afford to spend more on research and development

Front 26

Price discrimination is:

Back 26

When a firm sets two different prices for different consumers for the same product

Front 27

This is true when it comes to a pure monopoly:

Back 27

-Barriers to entry
-Control over price
-Face a downward-sloping demand curve

Front 28

For a monopolist, his marginal revenue will:

Back 28

Fall as more units are sold

Front 29

For a natural monopoly to exist:

Back 29

A firm's long run average cost curve must exhibit economies of scale

Front 30

Output under a monopoly is:

Back 30

Less than what output would be if the industry were competitive