Exam 3 Prep - Custom Scholars
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# Exam 3 Prep

question

Profit =

total revenue - total cost
question
Economic profit =
total revenue - (explicit costs + implicit costs)
question

Accounting Profit =

total revenue - explicit costs
question
Q =
quantity
question

TC =

total cost
question
ATC =
average total cost
question

FC =

fixed cost
question
AFC =
average fixed costs
question
VC =
variable costs
question
AVC =
average variable costs
question
MC =
marginal cost
question
ATC = (equation)
TC / Q
question
AVC = (equation)
VC / Q
question
AFC = (equation)
FC / Q
question
Marginal cost eventually ____ with the quantity of output
rises
question
The _____ curve is U-shaped
average total cost
question
The ___ curve crosses the average-total-cost curve at the minimum of average total cost
marginal-cost
question
Total Cost
the market value of the inputs a firm uses in production
question
Profit
total revenue minus total cost
question
Explicit Costs
input costs that require an outlay of money by the firm
question
Implicit Costs
input costs that do not require an outlay of money by the firm
question
Economic Profit
total revenue minus total cost, including both explicit and implicit costs
question
Accounting Profit
total revenue minus total explicit cost
question
Production Function
the relationship between the quantity of inputs used to make a good and the quantity of output of that good
question
Marginal Product
the increase in output that arises from an additional unit of input
question

Diminishing Marginal Product

the property whereby the marginal product of an input declines as the quantity of the input increases
question
Fixed Costs
costs that do not vary with the quantity of output produced
question
Variable Costs
costs that vary with the quantity of output produced
question
Average Total Cost
total cost divided by the quantity of output
question
Average Fixed Cost
fixed cost divided by the quantity of output
question
Average Variable Cost
variable cost divided by the quantity of output
question
Marginal Cost
the increase in total cost that arises from an extra unit of production
question
Efficient Scale
the quantity of output that minimizes average total cost
question
Economies of Scale
the property whereby long-run average total cost falls as the quantity of output increases
question
Diseconomies of Scale
the property whereby long-run average total cost rises as the quantity of output increases
question
Constant Returns to Scale
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,
accounting profit will exceed economic proffit
question
If a production function exhibits diminishing marginal product, its slope
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
becomes steeper as the quantity of output increases
question
Which of the following is a variable cost in the short run?
Wages paid to factory labor
question
When marginal costs are below average total costs,
average total costs are falling
question
If marginal costs equal average total costs,
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
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
economies of scale
question
The efficient scale of production is the quantity of output that minimizes
average total cost
question

Which of the following statements is true?

All costs are variable in the long run
question
___ can freely enter or exit the market
Firms
question
Total Revenue (TR) = (equation)
price * quantity
question
Average Revenue
total revenue divided by the quantity sold
question
Marginal Revenue
the change in total revenue from an additional unit sold
question
Sunk Cost
a cost that has already been committed and cannot be recovered
question

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

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?
gold bullion
question
If a competitive firm doubles its output, its total revenue
doubles
question
For a competitive firm, marginal revenue is
equal to the price of the good sold
question
The competitive firm maximizes profit when it produces output up to the point where
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
increased production
question
In the short run, the competitive firm's supply curve is the
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
portion of the marginal-cost curve that lies above the average-total-cost curve
question
A grocery store should close at night if the
variable costs of staying open are greater than the total revenue due to staying open
question
The long-run market supply curve
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
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
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
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
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
all of the above
question
Monopoly
a firm that is the sole seller of a product without any close substitutes
question
Natural Monopoly
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
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?

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
natural monopoly
question
When a monopolist produces an additional unit, the marginal revenue generated by that unit must be
below the price because the price effect outweighs the output effect
question
A monopolist maximizes profit by producing the quantity at which
marginal revenue equals marginal cost
question

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

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
the government has granted Cengage Learning exclusive rights to produce this textbook
question
The inefficiency associated with monopoly is due to
underproduction of the good
question
Compared to a perfectly competitive market, a monopoly market will usually generate
higher prices and lower output
question
The monopolist's supply curve
does not exist
question
Using government regulations to force a natural monopoly to charge a price equal to its marginal cost will
cause the monopolist to exit the market
question
The purpose of antitrust laws is to
increase competition in an industry by preventing mergers and breaking up large firms
question
Public ownership of natural monopolies
tends to be inefficient
question

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

Perfect price discrimination generates a deadweight loss
question
If regulators break up a natural monopoly into many smaller firms, the cost of production
will rise
question
A monopoly is able to continue to generate economic profits in the long run because
there is some barrier to entry to that market
question
If marginal revenue exceeds marginal cost, a monopolist should
increase output
question
Budget Constraint
the limit on the consumption bundles that a consumer can afford
question
Indifference Curve
a curve that shows consumption bundles that give the consumer the same level of satisfaction
question
Marginal Rate of Substitution
the rate at which a consumer is willing to trade one good for another
question
Perfect Substitutes
two goods with straight-line indifference curves
question
Income effect
the change in consumption that results when a price change moves the consumer to a higher or lower indifference curve
question
Substitution Effect
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
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
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?
right shoes and left shoes
question
Indifference curves for perfect substitutes are
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
2
question
The slope at any point on an indifference curve is known as
the marginal rate of substitution
question

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

indifference curves are bowed outward
question
The consumer's optimal purchase of any two goods is the point where
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,

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)
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
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
inferior good
question
A pair of socks is
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
substitution effect
question
If income and prices were both to double, the budget line would
stay the same
question
If leisure is a normal good, an increase in the wage
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
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?

The consumer is indifferent between any two points on his budget constraint
1 of 109
question

Profit =

total revenue - total cost
question
Economic profit =
total revenue - (explicit costs + implicit costs)
question

Accounting Profit =

total revenue - explicit costs
question
Q =
quantity
question

TC =

total cost
question
ATC =
average total cost
question

FC =

fixed cost
question
AFC =
average fixed costs
question
VC =
variable costs
question
AVC =
average variable costs
question
MC =
marginal cost
question
ATC = (equation)
TC / Q
question
AVC = (equation)
VC / Q
question
AFC = (equation)
FC / Q
question
Marginal cost eventually ____ with the quantity of output
rises
question
The _____ curve is U-shaped
average total cost
question
The ___ curve crosses the average-total-cost curve at the minimum of average total cost
marginal-cost
question
Total Cost
the market value of the inputs a firm uses in production
question
Profit
total revenue minus total cost
question
Explicit Costs
input costs that require an outlay of money by the firm
question
Implicit Costs
input costs that do not require an outlay of money by the firm
question
Economic Profit
total revenue minus total cost, including both explicit and implicit costs
question
Accounting Profit
total revenue minus total explicit cost
question
Production Function
the relationship between the quantity of inputs used to make a good and the quantity of output of that good
question
Marginal Product
the increase in output that arises from an additional unit of input
question

Diminishing Marginal Product

the property whereby the marginal product of an input declines as the quantity of the input increases
question
Fixed Costs
costs that do not vary with the quantity of output produced
question
Variable Costs
costs that vary with the quantity of output produced
question
Average Total Cost
total cost divided by the quantity of output
question
Average Fixed Cost
fixed cost divided by the quantity of output
question
Average Variable Cost
variable cost divided by the quantity of output
question
Marginal Cost
the increase in total cost that arises from an extra unit of production
question
Efficient Scale
the quantity of output that minimizes average total cost
question
Economies of Scale
the property whereby long-run average total cost falls as the quantity of output increases
question
Diseconomies of Scale
the property whereby long-run average total cost rises as the quantity of output increases
question
Constant Returns to Scale
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,
accounting profit will exceed economic proffit
question
If a production function exhibits diminishing marginal product, its slope
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
becomes steeper as the quantity of output increases
question
Which of the following is a variable cost in the short run?
Wages paid to factory labor
question
When marginal costs are below average total costs,
average total costs are falling
question
If marginal costs equal average total costs,
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
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
economies of scale
question
The efficient scale of production is the quantity of output that minimizes
average total cost
question

Which of the following statements is true?

All costs are variable in the long run
question
___ can freely enter or exit the market
Firms
question
Total Revenue (TR) = (equation)
price * quantity
question
Average Revenue
total revenue divided by the quantity sold
question
Marginal Revenue
the change in total revenue from an additional unit sold
question
Sunk Cost
a cost that has already been committed and cannot be recovered
question

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

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?
gold bullion
question
If a competitive firm doubles its output, its total revenue
doubles
question
For a competitive firm, marginal revenue is
equal to the price of the good sold
question
The competitive firm maximizes profit when it produces output up to the point where
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
increased production
question
In the short run, the competitive firm's supply curve is the
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
portion of the marginal-cost curve that lies above the average-total-cost curve
question
A grocery store should close at night if the
variable costs of staying open are greater than the total revenue due to staying open
question
The long-run market supply curve
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
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
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
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
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
all of the above
question
Monopoly
a firm that is the sole seller of a product without any close substitutes
question
Natural Monopoly
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
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?

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
natural monopoly
question
When a monopolist produces an additional unit, the marginal revenue generated by that unit must be
below the price because the price effect outweighs the output effect
question
A monopolist maximizes profit by producing the quantity at which
marginal revenue equals marginal cost
question

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

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
the government has granted Cengage Learning exclusive rights to produce this textbook
question
The inefficiency associated with monopoly is due to
underproduction of the good
question
Compared to a perfectly competitive market, a monopoly market will usually generate
higher prices and lower output
question
The monopolist's supply curve
does not exist
question
Using government regulations to force a natural monopoly to charge a price equal to its marginal cost will
cause the monopolist to exit the market
question
The purpose of antitrust laws is to
increase competition in an industry by preventing mergers and breaking up large firms
question
Public ownership of natural monopolies
tends to be inefficient
question

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

Perfect price discrimination generates a deadweight loss
question
If regulators break up a natural monopoly into many smaller firms, the cost of production
will rise
question
A monopoly is able to continue to generate economic profits in the long run because
there is some barrier to entry to that market
question
If marginal revenue exceeds marginal cost, a monopolist should
increase output
question
Budget Constraint
the limit on the consumption bundles that a consumer can afford
question
Indifference Curve
a curve that shows consumption bundles that give the consumer the same level of satisfaction
question
Marginal Rate of Substitution
the rate at which a consumer is willing to trade one good for another
question
Perfect Substitutes
two goods with straight-line indifference curves
question
Income effect
the change in consumption that results when a price change moves the consumer to a higher or lower indifference curve
question
Substitution Effect
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
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
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?
right shoes and left shoes
question
Indifference curves for perfect substitutes are
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
2
question
The slope at any point on an indifference curve is known as
the marginal rate of substitution
question

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

indifference curves are bowed outward
question
The consumer's optimal purchase of any two goods is the point where
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,

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)
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
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
inferior good
question
A pair of socks is
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
substitution effect
question
If income and prices were both to double, the budget line would
stay the same
question
If leisure is a normal good, an increase in the wage
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
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?

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

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