Term
| Total revenue minus both explicit and implicit costs is called? |
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| what is Industrial Organization? |
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Definition
| The study of how firms’ decisions about prices and quantities depend on market conditions |
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Definition
| the market value of the inputs a firm uses in production |
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what is this a representation of?
TR = PxQ |
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Definition
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| what is the definition of total revenue? |
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Definition
| the amount a firm receives from the sales of its output |
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Term
| Assuming that the firm’s main objective is to maximize profit, what would the firm do? |
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Definition
| Profit = Total Revenue – Total Cost |
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Term
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Definition
Are in terms of money
E.g., wages paid out to workers |
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Term
| What are Are Implicit Costs? |
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Definition
Do not require cash outlay
E.g. opportunity cost of worker’s time |
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Term
| Explicit Costs + Implicit costs= ? |
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Definition
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Term
2. When a certain competitive firm produces and sells 100 units of output, marginal revenue is $80. When the same firm produces and sells 200 units of output, what is average revenue?
a. $40
b. $80
c. $160
d. This cannot be determined from the given information. |
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Definition
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3. A tornado siren is a
a. private good.
b. club good.
c. common resource.
d. public good. |
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4. The efficient scale of the firm is the quantity of output that
a. maximizes marginal product.
b. maximizes profit.
c. minimizes average total cost.
d. minimizes average variable cost. |
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Definition
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Term
5. Constant returns to scale occur when a firm’s
a. marginal costs are constant as output increases.
b. long-run average total costs are decreasing as output increases.
c. long-run average total costs are increasing as output increases.
d. long-run average total costs do not vary as output increases. |
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Definition
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6. The parable called the Tragedy of the Commons applies to goods such as
a. fire protection and cable TV.
b. tornado sirens and basic research.
c. clean air and clean water.
d. antipoverty programs and national defense. |
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Definition
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Term
7. In a competitive market,
a. no single buyer or seller can influence the price of the product.
b. there are only a small number of sellers.
c. the goods offered by the different sellers are unique.
d. accounting profit is driven to zero as firms freely enter and exit the market. |
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Definition
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Term
10. The amount by which total cost rises when the firm produces one additional unit of output is called
a. average cost.
b. marginal cost.
c. fixed cost.
d. variable cost. |
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Definition
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Term
11. A local playground equipment company plans to operate out of its current factory, which is estimated to last 30 years. All cost decisions it makes during the 30-year period
a. are long-run decisions.
b. are short-run decisions.
c. involve only maintenance of the factory.
d. are zero because the cost decisions were made at the beginning of the business. |
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Definition
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Term
12. The value and cost of goods are easiest to determine when the goods are
a. private goods.
b. public goods.
c. common resources.
d. club goods. |
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Definition
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Term
| 16. Suppose that a firm in a competitive market faces the following revenues and costs: Quantity Total Revenue Total [image] |
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Walter builds birdhouses. He spends $5 on the materials for each birdhouse. He can build one in 30 minutes. He is semi-retired but earns $8 per hour at the local hardware store. He can sell a birdhouse for $20 each.
13. The implicit cost for one birdhouse is
a. $4.
b. $5.
c. $8.
d. $9.
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Definition
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Term
14. When managers of firms in a competitive market observe falling profits, they may infer that the market is experiencing
a. a violation of conventional market forces.
b. over-investment.
c. the entry of new firms.
d. too few firms in the market. |
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Term
17. Trevor’s Tire Company produced and sold 500 tires. The average cost of production per tire was $50. Each tire sold for a price of $65. Trevor’s Tire Company’s total profits are
a. $7,500.
b. $25,000.
c. $32,500.
d. $67,500. |
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Definition
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Term
. In the long run,
a. competitive firms’ profits are zero.
b. competitive firms’ variable costs are zero.
c. competitive firms’ ATC curves shift upward or downward to ensure that all demand is satisfied.
d. the number of firms in the market is fixed. |
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When the market is in long-run equilibrium at point W in panel (b), the firm represented in panel (a) will
a. have a zero economic profit.
b. have a negative accounting profit.
c. exit the market.
d. choose to increase production to increase profit. |
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Definition
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Term
21. The assumption of a fixed number of firms is appropriate for analysis of
a. the short run but not the long run.
b. the long run but not the short run.
c. both the short run and the long run.
d. neither the short run nor the long run. |
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Definition
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Term
22. Consider a competitive market with a large number of identical firms. The firms in this market do not use any resources that are available only in limited quantities. In long-run equilibrium, market price is determined by
a. the minimum point on the firms' average variable cost curve.
b. the minimum point on the firms' average total cost curve.
c. the portion of the marginal cost curve below average variable cost.
d. a firm’s level of sunk costs. |
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Definition
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Term
Christine is an artist who creates custom cookie jars. Her annual revenue from selling the cookie jars is $90,000. The annual explicit costs of the materials used to make the cookie jars are $54,000.
23. Christine used $5,000 from her personal savings account to buy pottery tools for her business. The savings account paid 1% annual interest. What is Christine’s annual opportunity cost of the financial capital that she invested in her business?
a. $5
b. $50
c. $100
d. $200 |
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Definition
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Term
24. Consider a firm that operates in a perfectly competitive market. The firm is producing at its profit maximizing output level. If this is true, then
a. average revenue is maximized.
b. the firm must be earning a positive economic profit.
c. marginal revenue is greater than the market price.
d. price must be equal to marginal cost. |
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Term
[image]
25. If the firm is currently producing 14 units, what would you advise the owners?
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26. According to the Coase theorem, private markets will solve externality problems and allocate resources efficiently as long as
a. the externalities that are present are positive, not negative.
b. government assigns property rights to the harmed party.
c. private parties can bargain with sufficiently low transaction costs.
d. businesses determine an appropriate level of production. |
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Definition
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Term
27. Markets are often inefficient when negative externalities are present because
a. private costs exceed social costs at the private market solution.
b. externalities cannot be corrected without government regulation.
c. social costs exceed private costs at the private market solution.
d. production externalities lead to consumption externalities. |
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Definition
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Term
28. For a construction company that builds houses, which of the following costs would be a fixed cost?
a. the $50,000 per year salary paid to a construction foreman
b. the $30,000 per year salary paid to the company's bookkeeper
c. the $10,000 per year premium paid to an insurance company
d. All of the above are correct. |
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Definition
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Term
29. Thirsty Thelma owns and operates a small lemonade stand. When Thelma is producing a low quantity of lemonade she has few workers and her equipment is not being fully utilized. Because she can easily put her idle resources to use,
a. the marginal cost of an extra worker is large.
b. the marginal cost of one more glass of lemonade is smaller than if output were high.
c. the marginal product of an extra worker is small.
d. her lemonade stand is likely to be crowded with workers. |
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Definition
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Term
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Definition
| firms change production levels in response to (expected) economic profits or losses, and entrprenuership vary to reach the minimum level of long-run average cost |
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Term
| How do we determine the average cost? |
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Definition
| we divide the Total cost by the quantity |
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Term
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18. The marginal product of an input in the production process is the increase in
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Definition
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Term
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[image]
8. . An alternative label for the quantity Q1 would be
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Definition
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Term
[image]
9. Let Q represent the quantity of output and suppose the price of the good is $125. Then marginal revenue is
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Definition
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Term
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14. When managers of firms in a competitive market observe falling profits, they may infer that the market is experiencing
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Definition
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Term
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15. Cindy’s Car Wash has average variable costs of $2 and average fixed costs of $3 when it produces 100 units of output (car washes). The firm's total cost is
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Definition
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Term
15. Cindy’s Car Wash has average variable costs of $2 and average fixed costs of $3 when it produces 100 units of output (car washes). The firm's total cost is
a. $100.
b. $200.
c. $300.
d. $500. |
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Definition
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Term
| what are the 4 market structures? |
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Definition
1. Perfectly compectitive
2. Momopoly
3. Oligopoly
4.Monopolistic competition |
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Term
| What is Marginal Revenue = to? |
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Definition
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Term
| Marginal revenue is = to? |
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Definition
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Term
| What could cause a short-run decision(referring to Shutdowns)? |
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Definition
| If the Average Variable Cost is = to the price then a Short-run decision is made |
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Term
| What happen if a Long-run shutdown decision is made? |
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Definition
1. TR< VC
2. Loss of Revenue
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Term
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Definition
| costs that can't be recovered |
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Term
Are Markets are usually a good way to organize economic activity’? If Yes is it efficient? What is maximized?
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Definition
- yes
- In absence of market failures, the competitive market outcome is efficient
- maximizes total surplus
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Term
What is one type of market failure and what is the specific term?
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Definition
-
The uncompensated impact of one person’s actions on the well-being of a bystander
- Externality
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Term
What is Negative externality?
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Definition
Impact on the bystander is adverse
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Term
What is Positive externality?
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Definition
Impact on the bystander is beneficial |
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Term
Self-interested buyers and sellers usually? and make the market....
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Definition
Neglect the external costs or benefits of their actions
So the market outcome is not efficient |
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Term
What happens If negative externality occur?
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Definition
| Market quantity larger than socially desirable |
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Term
What happens If positive externality? |
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Definition
| Market quantity smaller than socially desirable |
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Term
What would remedy an, “internalize the externality”?
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Definition
- Tax goods with negative externalities (Pigouvian tax)
- Subsidize goods with positive externalities
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Term
“If private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own”
What is this referring to?
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Definition
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Term
The Coase Theorem
What does this promote?
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Definition
- Whatever the initial distribution of rights
Interested parties can reach a bargain:
A) Everyone is better off
B) Outcome is efficient |
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Term
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Definition
| is a person who receives the benefit of the public good without paying for it |
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Term
The free-rider problem causes what?
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Definition
- Public goods are not excludable, so people have an incentive to be free-riders
- If no one pays for the public good, the good will not be supplied
- The amount of public good supplied is usually less than the socially efficient amount
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Term
What are Common Resources?
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Definition
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Common resources are non-excludable but also rival in consumption
- The combination of these factors means you cannot prevent free riders from using the good
- Little incentive for firms to provide (done by government)
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Term
formulas to memorize
maximize profit:
Profit = Total Revenue – Total Cost
Total Revenue =
- the amount a firm receives from the sales of its output
Total Revenue = PxQ
Total Cost = the market value of the inputs a firm uses in production
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Definition
if mc<mb keep productivity
if mc>mb make less
short-run < 1yr
Long-run will make all fixed costs = 0
Suppose a firm has three factory sizes: Small, Medium, or Large
Each factory size has its own SRATC curve
In long run, can “choose” the SRATC curve, i.e. the firm can change to a different factory
[image]
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