Test 2 Flashcards
LEARN (44 cards)
economists normally assume that the goal of a firm is to:
maximize profit
when a factory is operating in the short run,
it cannot adjust the fixed costs
the marginal cost curve crosses the average total cost curve at
the efficient scale, the minimum point on the ATC curve, and a point where the marginal cost curve is rising
give an example of a fixed cost for a yogurt shop?
the salary
Amy used to work as a high school teacher for $40,000 per year but quit to start her own catering business. To buy the necessary equipment, she withdrew $20,000 from her savings, (which paid 3 percent interest) and borrowed $30,000 from her uncle (like the problem done in class, assume she does not make any principle payments on this loan), whom she pays 3 percent interest per year. Last year she paid $25,000 for ingredients and had revenue of $60,000. She asked Chris the accountant and Bobbie the economist to calculate her profit for her.
Chris says her profit is $34,100 and Bobbie says she lost $6,500
Jolie owns a coffee shop. Which of the following costs would be included by an economist but not an accountant?
wages Jolie could earn giving music lessons
Define diminishing marginal product (DMP). What happens to marginal costs when DMP sets in?
- Marginal product declines
- Fixed resources
- Add variable resource
When you have some fixed resources, and you add the variable resources to those fixed resources, a point will be reached when you have some marginal product decline
in the short run, a firm that produces and sells house paint can adjust…
how many workers to hire
Which of these curves is the competitive firm’s short run supply curve?
The marginal cost curve above average variable cost
What does the term shutdown refer to?
Refers to a short-run decision that a firm might make, whereas the term exit refers to a long-run decision that a firm might make
In the long run, if the owner of a firm in a competitive industry has positive opportunity costs, she:
Will earn zero economic profits but positive accounting profits
What is NOT a characteristic of a monopoly?
free entry and exit
What are the three main characteristics of a monopoly?
a unique product without close competition, barriers to entry, one seller
True/False: a monopolist can charge any price and sell any quantity that it chooses
False
Monopolistic competition is characterized by which of the following attributes?
Product differentiation
Many sellers
Free entry
What is excess capacity?
an example of the inefficiencies of monopolistically competitive markets
A monopolistically competitive firm chooses:
The quantity of output to produce and the price at which it will sell its output
When an oligopoly market reaches a Nash equilibrium,
A firm will have chosen its best strategy, given the strategies chosen by other firms in the market
The equilibrium quantity in markets characterized by oligopoly is:
Higher than in monopoly markets and lower than in perfectly competitive markets
A distinguishing feature of an oligopolistic industry is the tension between:
Cooperation and self-interest
When marginal cost is greater than average total cost, the:
average total cost increases as output increases.
Which of the following would be classified as a fixed cost for the local supermarket
the rent for the building the store uses.
In a diagram with the total cost curve and the total variable cost, as output increases, the vertical distance between these two curves
is constant
The marginal cost eventually increases because
the marginal product of the variable input eventually falls.
eventually each additional worker produces a successively smaller addition to output.
of the law of diminishing returns.
