# Shared Flashcard Set

## Details

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

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

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