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Test 2 micro
terry hagen
48
Economics
Undergraduate 1
04/17/2012

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Term

Unlike implicit costs, explicit costs

Definition

are actual cash payments

Term

Explicit costs are

Definition

actual monetary payments for resources purchased

Term

Opportunity cost usually

Definition

is involved in calculating economic profit

Term

John moved his office from a building he was renting downtown to the carriage house he owns in back of his house. How will his costs change?

Definition

explicit costs fall; implicit costs rise

Term

Suppose Ernie gives up his job as financial advisor for P.E.T.S., at which he earned $30,000 per year, to open up a store selling spot remover to Dalmatians. He invested $10,000 in the store, which had been in savings earning 5 percent interest. This year's revenues in the new business were $50,000, and explicit costs were $10,000. Calculate Ernie's economic profit

Definition

$9,500

Term

If the Money Store earns a normal profit this year, its

Definition

economic profit is zero

Term

John moved his office from a building he was renting downtown to the carriage house he owns in back of his house. How will his profit change?

Definition

Accounting profit will rise.

Term

            Which of the following is true of marginal product?

Definition

When marginal product is increasing, total product is increasing by increasing amounts.

Term

What is the relationship between marginal cost and marginal product?

Definition

When marginal product increases, marginal cost falls.

Term

As output expands, the slope of the average total cost curve

Definition

is first negative and then positive

Term

For building contractors, doubling the size of an office building does not require double the inputs because there are common walls. This is an example of

Definition

economies of scale

Term

A Midwestern wheat farmer faces a horizontal demand curve because

Definition

it is so small relative to the market as a whole that it has no impact on market price

Term

In the short run, if a firm shuts down, its total revenue is

Definition

$0

Term

For a perfectly competitive firm operating at the profit-maximizing output level in the short run,

Definition

MC = price

Term

To maximize profit, a perfectly competitive firm that decides not to shut down will choose the rate of output at which

Definition

price equals marginal cost

Term

All of the following are true of a perfectly competitive firm in long-run equilibrium except one. Which is the exception?

Definition

Marginal cost is minimized.

Term

A constant-cost industry is one

Definition

whose cost curves do not change as new firms enter

Term

Suppose that a long-run adjustment in a perfectly competitive industry results in decreased industry output but leaves price unchanged. Which of the following must be true?

Definition

The industry is a constant-cost industry

Term

Assume that a perfectly competitive constant-cost industry is in long-run equilibrium when market demand suddenly decreases. Which of the following statements is incorrect?

Definition

Some firms will leave the industry in the long run

Term

Suppose a perfectly competitive increasing-cost industry is in long-run equilibrium when market demand suddenly decreases. What might happen to the typical firm in the long run?

Definition

It would experience a lower equilibrium price

Term

To achieve allocative efficiency, firms

Definition

produce the output consumers want most

Term

Allocative efficiency occurs in markets when

Definition

marginal benefit and marginal cost for the last unit sold are equal

Term

Natural monopolies form when

Definition

long-run average cost declines as a firm expands output

Term

A monopolist has complete control over both price and quantity of output

Definition

False

Term

For a monopolist

Definition

both marginal revenue and price fall as quantity increases, but marginal revenue falls faster

Term

Suppose that a monopolist must choose between two points on its demand curve: it can sell 100 units for $3 each, or it can sell 150 units for $2 each. Which of the following is true?

Definition

The monopolist is facing unit elastic demand

Term

A monopolist maximizes profit at the quantity where the slope of its total revenue curve equals the slope of its total cost curve.

Definition

True

Term

Suppose that at an output of 1,000 units, a monopolist has marginal cost of $40, marginal revenue of $30, average variable cost of $30, and average total cost of $50. In order to maximize profit or minimize loss in the short run, the firm should

Definition

produce more than 1,000 units

Term

The main reason a monopolist can earn long-run economic profit, whereas a perfectly competitive firm cannot, is that

Definition

there are no barriers to entry in perfect competition

Term

Unlike perfectly competitive firms, monopolists can

Definition

earn long-run economic profits

Term

Firms can earn economic profits even in the long run if

Definition

there are significant barriers to entry

Term

In the short run, a monopolistically competitive firm is

Definition

not guaranteed any level of economic profit

Term

The defining characteristic of oligopoly is that each firm

Definition

is mutually interdependent

Term

Which of the following is inconsistent with the model of perfect competition?

Definition

advertising of product differences in the industry

Term

Which of the following characteristics does perfect competition share with monopolistic competition?

Definition

zero long-run economic profit

Term

Economies of scale yield

Definition

declining average cost as output increases

Term

If a firm must produce a significant share of market output before low average costs can be achieved, the structure of this industry will tend to be

Definition

oligopoly

Term

Which of the following is not an example of an oligopolistic barrier to entry?

Definition

diseconomies of scale

Term

Which of the following helps to make a cartel successful?

Definition

stable demand and costs

Term

A formal agreement among the firms in an industry to coordinate their production and pricing decisions in order to earn monopoly profits is known as

Definition

a cartel

Term

A cartel is

Definition

explicit collusion

Term

The principal advantage of the game theory approach is that it allows us to

Definition

take all possible information into consideration before developing a theory

Term

The payoff matrix refers to

Definition

a listing of the rewards and penalties associated with pursuing various strategies

Term

The dominant-strategy solution implies that each firm

Definition

ignores the decisions of the other firms

Term

Which of the following is not a strategy employed by Zara?

Definition

increasing production based on inventories of available raw materials

Term

Zara believes that making its own apparel rather than outsourcing production does all of the following except

Definition

minimizing production costs

Term

As a real estate agent, Krista Otavi prides herself on her good training, availability to clients, and hard work to make a sale. Which one of the basic ways of product differentiation does Krista emphasize?

Definition

services

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