Exam 3 Prep

question

Profit =

answer

total revenue - total cost

question

Economic profit =

answer

total revenue - (explicit costs + implicit costs)

question

Accounting Profit =

answer

total revenue - explicit costs

question

Q =

answer

quantity

question

TC =

answer

total cost

question

ATC =

answer

average total cost

question

FC =

answer

fixed cost

question

AFC =

answer

average fixed costs

question

VC =

answer

variable costs

question

AVC =

answer

average variable costs

question

MC =

answer

marginal cost

question

ATC = (equation)

answer

TC / Q

question

AVC = (equation)

answer

VC / Q

question

AFC = (equation)

answer

FC / Q

question

Marginal cost eventually ____ with the quantity of output

answer

rises

question

The _____ curve is U-shaped

answer

average total cost

question

The ___ curve crosses the average-total-cost curve at the minimum of average total cost

answer

marginal-cost

question

Total Cost

answer

the market value of the inputs a firm uses in production

question

Profit

answer

total revenue minus total cost

question

Explicit Costs

answer

input costs that require an outlay of money by the firm

question

Implicit Costs

answer

input costs that do not require an outlay of money by the firm

question

Economic Profit

answer

total revenue minus total cost, including both explicit and implicit costs

question

Accounting Profit

answer

total revenue minus total explicit cost

question

Production Function

answer

the relationship between the quantity of inputs used to make a good and the quantity of output of that good

question

Marginal Product

answer

the increase in output that arises from an additional unit of input

question

Diminishing Marginal Product

answer

the property whereby the marginal product of an input declines as the quantity of the input increases

question

Fixed Costs

answer

costs that do not vary with the quantity of output produced

question

Variable Costs

answer

costs that vary with the quantity of output produced

question

Average Total Cost

answer

total cost divided by the quantity of output

question

Average Fixed Cost

answer

fixed cost divided by the quantity of output

question

Average Variable Cost

answer

variable cost divided by the quantity of output

question

Marginal Cost

answer

the increase in total cost that arises from an extra unit of production

question

Efficient Scale

answer

the quantity of output that minimizes average total cost

question

Economies of Scale

answer

the property whereby long-run average total cost falls as the quantity of output increases

question

Diseconomies of Scale

answer

the property whereby long-run average total cost rises as the quantity of output increases

question

Constant Returns to Scale

answer

the property whereby long-run average total cost stays the same as the quantity of output changes

question

If there are implicit costs of production,

answer

accounting profit will exceed economic proffit

question

If a production function exhibits diminishing marginal product, its slope

answer

becomes flatter as the quantity of the input increases

question

If a production function exhibits diminishing marginal product, the slope of the corresponding total-cost curve

answer

becomes steeper as the quantity of output increases

question

Which of the following is a variable cost in the short run?

answer

Wages paid to factory labor

question

When marginal costs are below average total costs,

answer

average total costs are falling

question

If marginal costs equal average total costs,

answer

average total costs are minimized

question

If, as the quantity produced increases, a production function first exhibits increasing marginal product and later diminishing marginal product, the corresponding marginal-cost curve will

answer

be U-shaped

question

In the long run, if a very small factory were to expand its scale of operations, it is likely that it would initially experience

answer

economies of scale

question

The efficient scale of production is the quantity of output that minimizes

answer

average total cost

question

Which of the following statements is true?

answer

All costs are variable in the long run

question

___ can freely enter or exit the market

answer

Firms

question

Total Revenue (TR) = (equation)

answer

price * quantity

question

Average Revenue

answer

total revenue divided by the quantity sold

question

Marginal Revenue

answer

the change in total revenue from an additional unit sold

question

Sunk Cost

answer

a cost that has already been committed and cannot be recovered

question

Which of the following is not a characteristic of a competitive market?

answer

Firms generate small but positive economic profits in the long run

question

Which of the following markets would most closely satisfy the requirements for a competitive market?

answer

gold bullion

question

If a competitive firm doubles its output, its total revenue

answer

doubles

question

For a competitive firm, marginal revenue is

answer

equal to the price of the good sold

question

The competitive firm maximizes profit when it produces output up to the point where

answer

marginal cost equals marginal revenue

question

If a competitive firm is producing a level of output where marginal revenue exceeds marginal cost, the firm could increase profits if it

answer

increased production

question

In the short run, the competitive firm's supply curve is the

answer

portion of the marginal-cost curve that lies above the average-variable-cost curve

question

In the long run, the competitive firm's supply curve is the

answer

portion of the marginal-cost curve that lies above the average-total-cost curve

question

A grocery store should close at night if the

answer

variable costs of staying open are greater than the total revenue due to staying open

question

The long-run market supply curve

answer

is more elastic than the short-run market supply curve

question

In the long run, some firms will exit the market if the price of the good offered for sale is less than

answer

average total cost

question

If all firms in a market have identical cost structures and if inputs used in the production of the good in that market are readily available, then the long-run market supply curve for that good should be

answer

perfectly elastic

question

If an input necessary for production is in limited supply so that an expansion of the industry raises costs for all existing firms in the market, then the long-run market supply curve for a good could be

answer

upward sloping

question

If the long-run market supply curve for a good is perfectly elastic, an increase in the demand for that good will, in the long run, cause

answer

an increase in the number of firms in the market but no increase in the price of the good

question

In long-run equilibrium in a competitive market, firms are operating at

answer

all of the above

question

Monopoly

answer

a firm that is the sole seller of a product without any close substitutes

question

Natural Monopoly

answer

a type of monopoly that arises because a single firm can supply a good or service to an entire market at a lower cost than could two or more firms

question

Price Discrimination

answer

the business practice of selling the same good at different prices to different customers

question

Which of the following is not a barrier to entry in a monopolized market?

answer

A single firm is very large

question

A firm whose average total cost continually declines at least to the quantity that could supply the entire market is known as a

answer

natural monopoly

question

When a monopolist produces an additional unit, the marginal revenue generated by that unit must be

answer

below the price because the price effect outweighs the output effect

question

A monopolist maximizes profit by producing the quantity at which

answer

marginal revenue equals marginal cost

question

Which of the following statements about price and marginal cost in competitive and monopolized markets is true?

answer

In competitive markets, price equals marginal cost; in monopolized markets, price exceeds marginal cost

question

Cengage Learning is a monopolist in the production of your textbook because

answer

the government has granted Cengage Learning exclusive rights to produce this textbook

question

The inefficiency associated with monopoly is due to

answer

underproduction of the good

question

Compared to a perfectly competitive market, a monopoly market will usually generate

answer

higher prices and lower output

question

The monopolist's supply curve

answer

does not exist

question

Using government regulations to force a natural monopoly to charge a price equal to its marginal cost will

answer

cause the monopolist to exit the market

question

The purpose of antitrust laws is to

answer

increase competition in an industry by preventing mergers and breaking up large firms

question

Public ownership of natural monopolies

answer

tends to be inefficient

question

Which of the following statements about price discrimination is not true?

answer

Perfect price discrimination generates a deadweight loss

question

If regulators break up a natural monopoly into many smaller firms, the cost of production

answer

will rise

question

A monopoly is able to continue to generate economic profits in the long run because

answer

there is some barrier to entry to that market

question

If marginal revenue exceeds marginal cost, a monopolist should

answer

increase output

question

Budget Constraint

answer

the limit on the consumption bundles that a consumer can afford

question

Indifference Curve

answer

a curve that shows consumption bundles that give the consumer the same level of satisfaction

question

Marginal Rate of Substitution

answer

the rate at which a consumer is willing to trade one good for another

question

Perfect Substitutes

answer

two goods with straight-line indifference curves

question

Income effect

answer

the change in consumption that results when a price change moves the consumer to a higher or lower indifference curve

question

Substitution Effect

answer

the change in consumption that results when a price change moves the consumer along a given indifference curve to a point with a new marginal rate of substitution

question

Giffen good

answer

a good for which an increase in the price raises the quantity demanded

question

The limit on the consumption bundles that a consumer can afford is known as

answer

the budget constraint

question

A change in the relative prices of which of the following pairs of goods would likely cause the smallest substitution effect?

answer

right shoes and left shoes

question

Indifference curves for perfect substitutes are

answer

straight lines

question

Suppose a consumer must choose between the consumption of sandwiches and pizza. If we measure the quantity of pizza on the horizontal axis and the quantity of sandwiches on the vertical axis, and if the price of a pizza is $10 and the price of a sandwich is $5. Ignoring the minus sign, the slope of the budget constraint is

answer

question

The slope at any point on an indifference curve is known as

answer

the marginal rate of substitution

question

Which of the following statements is not true with regard to the standard properties of indifference curves?

answer

indifference curves are bowed outward

question

The consumer's optimal purchase of any two goods is the point where

answer

the consumer reaches the highest indifference curve subject to remaining on the budget constraint

question

Which of the following is true about the consumer's optimum consumption bundle? At the optimum,

answer

all the above are true

question

Suppose we measure the quantity of good X on the horizontal axis and the quantity of good Y on the vertical axis. If indifference curves are bowed inward, as we move from having an abundance of good X to having an abundance of good Y, the marginal rate of substitution of good Y for good X (the slope of the indifference curve)

answer

rises

question

If an increase in a consumer's income causes the consumer to increase his quantity demanded of a good, then the good is

answer

a normal good

question

If an increase in a consumer's income causes the consumer to decrease her quantity demanded of a good, then the good is

answer

inferior good

question

A pair of socks is

answer

a normal good

question

The change in consumption that results when a price change moves the consumer along a given indifference curve is known as the

answer

substitution effect

question

If income and prices were both to double, the budget line would

answer

stay the same

question

If leisure is a normal good, an increase in the wage

answer

will increase the amount of labor supplied if the substitution effect outweighs the income effect

question

If consumption when young and when old are both normal goods, an increase in the interest rate

answer

will increase the quantity of saving if the substitution effect outweighs the income effect

question

Which of the following is not true regarding the outcome of a consumer's optimization process?

answer

The consumer is indifferent between any two points on his budget constraint

1 of 109

question

Profit =

answer

total revenue - total cost

question

Economic profit =

answer

total revenue - (explicit costs + implicit costs)

question

Accounting Profit =

answer

total revenue - explicit costs

question

Q =

answer

quantity

question

TC =

answer

total cost

question

ATC =

answer

average total cost

question

FC =

answer

fixed cost

question

AFC =

answer

average fixed costs

question

VC =

answer

variable costs

question

AVC =

answer

average variable costs

question

MC =

answer

marginal cost

question

ATC = (equation)

answer

TC / Q

question

AVC = (equation)

answer

VC / Q

question

AFC = (equation)

answer

FC / Q

question

Marginal cost eventually ____ with the quantity of output

answer

rises

question

The _____ curve is U-shaped

answer

average total cost

question

The ___ curve crosses the average-total-cost curve at the minimum of average total cost

answer

marginal-cost

question

Total Cost

answer

the market value of the inputs a firm uses in production

question

Profit

answer

total revenue minus total cost

question

Explicit Costs

answer

input costs that require an outlay of money by the firm

question

Implicit Costs

answer

input costs that do not require an outlay of money by the firm

question

Economic Profit

answer

total revenue minus total cost, including both explicit and implicit costs

question

Accounting Profit

answer

total revenue minus total explicit cost

question

Production Function

answer

the relationship between the quantity of inputs used to make a good and the quantity of output of that good

question

Marginal Product

answer

the increase in output that arises from an additional unit of input

question

Diminishing Marginal Product

answer

the property whereby the marginal product of an input declines as the quantity of the input increases

question

Fixed Costs

answer

costs that do not vary with the quantity of output produced

question

Variable Costs

answer

costs that vary with the quantity of output produced

question

Average Total Cost

answer

total cost divided by the quantity of output

question

Average Fixed Cost

answer

fixed cost divided by the quantity of output

question

Average Variable Cost

answer

variable cost divided by the quantity of output

question

Marginal Cost

answer

the increase in total cost that arises from an extra unit of production

question

Efficient Scale

answer

the quantity of output that minimizes average total cost

question

Economies of Scale

answer

the property whereby long-run average total cost falls as the quantity of output increases

question

Diseconomies of Scale

answer

the property whereby long-run average total cost rises as the quantity of output increases

question

Constant Returns to Scale

answer

the property whereby long-run average total cost stays the same as the quantity of output changes

question

If there are implicit costs of production,

answer

accounting profit will exceed economic proffit

question

If a production function exhibits diminishing marginal product, its slope

answer

becomes flatter as the quantity of the input increases

question

If a production function exhibits diminishing marginal product, the slope of the corresponding total-cost curve

answer

becomes steeper as the quantity of output increases

question

Which of the following is a variable cost in the short run?

answer

Wages paid to factory labor

question

When marginal costs are below average total costs,

answer

average total costs are falling

question

If marginal costs equal average total costs,

answer

average total costs are minimized

question

If, as the quantity produced increases, a production function first exhibits increasing marginal product and later diminishing marginal product, the corresponding marginal-cost curve will

answer

be U-shaped

question

In the long run, if a very small factory were to expand its scale of operations, it is likely that it would initially experience

answer

economies of scale

question

The efficient scale of production is the quantity of output that minimizes

answer

average total cost

question

Which of the following statements is true?

answer

All costs are variable in the long run

question

___ can freely enter or exit the market

answer

Firms

question

Total Revenue (TR) = (equation)

answer

price * quantity

question

Average Revenue

answer

total revenue divided by the quantity sold

question

Marginal Revenue

answer

the change in total revenue from an additional unit sold

question

Sunk Cost

answer

a cost that has already been committed and cannot be recovered

question

Which of the following is not a characteristic of a competitive market?

answer

Firms generate small but positive economic profits in the long run

question

Which of the following markets would most closely satisfy the requirements for a competitive market?

answer

gold bullion

question

If a competitive firm doubles its output, its total revenue

answer

doubles

question

For a competitive firm, marginal revenue is

answer

equal to the price of the good sold

question

The competitive firm maximizes profit when it produces output up to the point where

answer

marginal cost equals marginal revenue

question

If a competitive firm is producing a level of output where marginal revenue exceeds marginal cost, the firm could increase profits if it

answer

increased production

question

In the short run, the competitive firm's supply curve is the

answer

portion of the marginal-cost curve that lies above the average-variable-cost curve

question

In the long run, the competitive firm's supply curve is the

answer

portion of the marginal-cost curve that lies above the average-total-cost curve

question

A grocery store should close at night if the

answer

variable costs of staying open are greater than the total revenue due to staying open

question

The long-run market supply curve

answer

is more elastic than the short-run market supply curve

question

In the long run, some firms will exit the market if the price of the good offered for sale is less than

answer

average total cost

question

answer

perfectly elastic

question

answer

upward sloping

question

If the long-run market supply curve for a good is perfectly elastic, an increase in the demand for that good will, in the long run, cause

answer

an increase in the number of firms in the market but no increase in the price of the good

question

In long-run equilibrium in a competitive market, firms are operating at

answer

all of the above

question

Monopoly

answer

a firm that is the sole seller of a product without any close substitutes

question

Natural Monopoly

answer

a type of monopoly that arises because a single firm can supply a good or service to an entire market at a lower cost than could two or more firms

question

Price Discrimination

answer

the business practice of selling the same good at different prices to different customers

question

Which of the following is not a barrier to entry in a monopolized market?

answer

A single firm is very large

question

A firm whose average total cost continually declines at least to the quantity that could supply the entire market is known as a

answer

natural monopoly

question

When a monopolist produces an additional unit, the marginal revenue generated by that unit must be

answer

below the price because the price effect outweighs the output effect

question

A monopolist maximizes profit by producing the quantity at which

answer

marginal revenue equals marginal cost

question

Which of the following statements about price and marginal cost in competitive and monopolized markets is true?

answer

In competitive markets, price equals marginal cost; in monopolized markets, price exceeds marginal cost

question

Cengage Learning is a monopolist in the production of your textbook because

answer

the government has granted Cengage Learning exclusive rights to produce this textbook

question

The inefficiency associated with monopoly is due to

answer

underproduction of the good

question

Compared to a perfectly competitive market, a monopoly market will usually generate

answer

higher prices and lower output

question

The monopolist's supply curve

answer

does not exist

question

Using government regulations to force a natural monopoly to charge a price equal to its marginal cost will

answer

cause the monopolist to exit the market

question

The purpose of antitrust laws is to

answer

increase competition in an industry by preventing mergers and breaking up large firms

question

Public ownership of natural monopolies

answer

tends to be inefficient

question

Which of the following statements about price discrimination is not true?

answer

Perfect price discrimination generates a deadweight loss

question

If regulators break up a natural monopoly into many smaller firms, the cost of production

answer

will rise

question

A monopoly is able to continue to generate economic profits in the long run because

answer

there is some barrier to entry to that market

question

If marginal revenue exceeds marginal cost, a monopolist should

answer

increase output

question

Budget Constraint

answer

the limit on the consumption bundles that a consumer can afford

question

Indifference Curve

answer

a curve that shows consumption bundles that give the consumer the same level of satisfaction

question

Marginal Rate of Substitution

answer

the rate at which a consumer is willing to trade one good for another

question

Perfect Substitutes

answer

two goods with straight-line indifference curves

question

Income effect

answer

the change in consumption that results when a price change moves the consumer to a higher or lower indifference curve

question

Substitution Effect

answer

the change in consumption that results when a price change moves the consumer along a given indifference curve to a point with a new marginal rate of substitution

question

Giffen good

answer

a good for which an increase in the price raises the quantity demanded

question

The limit on the consumption bundles that a consumer can afford is known as

answer

the budget constraint

question

A change in the relative prices of which of the following pairs of goods would likely cause the smallest substitution effect?

answer

right shoes and left shoes

question

Indifference curves for perfect substitutes are

answer

straight lines

question

answer

question

The slope at any point on an indifference curve is known as

answer

the marginal rate of substitution

question

Which of the following statements is not true with regard to the standard properties of indifference curves?

answer

indifference curves are bowed outward

question

The consumer's optimal purchase of any two goods is the point where

answer

the consumer reaches the highest indifference curve subject to remaining on the budget constraint

question

Which of the following is true about the consumer's optimum consumption bundle? At the optimum,

answer

all the above are true

question

answer

rises

question

If an increase in a consumer's income causes the consumer to increase his quantity demanded of a good, then the good is

answer

a normal good

question

If an increase in a consumer's income causes the consumer to decrease her quantity demanded of a good, then the good is

answer

inferior good

question

A pair of socks is

answer

a normal good

question

The change in consumption that results when a price change moves the consumer along a given indifference curve is known as the

answer

substitution effect

question

If income and prices were both to double, the budget line would

answer

stay the same

question

If leisure is a normal good, an increase in the wage

answer

will increase the amount of labor supplied if the substitution effect outweighs the income effect

question

If consumption when young and when old are both normal goods, an increase in the interest rate

answer

will increase the quantity of saving if the substitution effect outweighs the income effect

question

Which of the following is not true regarding the outcome of a consumer's optimization process?

answer

The consumer is indifferent between any two points on his budget constraint

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