Chapter 11:

Question 1

In a competitive market producers are (blank)

Answer 1

price takers.

- the firm accepts the price that is determined by the market.

Question 2

The demand for one firms product is said to be ?

Answer 2

perfectly elastic.

Question 3

When is an industry competitve?

Answer 3

When a firm doesn’t have much influence over the price of their product.

Question 4

What is the long run?

Answer 4

the time after all exit or entry has occurred.

Question 5

What is the short run?

Answer 5

The time period before exit or entry can occur.

Question 6

You are considered dumb as a producer if you set your price in what way?

Answer 6

above or below the market price.

Question 7

What is a sunk cost?

Answer 7

It is a cost that cannot be recovered. (they are never relevant because they cannot be changed by any choice.)

Question 8

What is a fixed cost?

Answer 8

They are costs that don’t vary with output.

-

Question 9

In a long or short run, when can a fixed cost by changed ?

Answer 9

in the long run.

Question 10

What are variable costs?

Answer 10

costs that do vary with output.

Question 11

What are explicit costs?

Answer 11

A costs that requires a money outlay

Question 12

What are implicit costs?

Answer 12

a costs that requires no money outlay; opportunity costs.

Question 13

What is the difference between accounting profit and economic profit?

Answer 13

accounting: TR- explicit costs

Economic profit = TR - TC (including implicit costs)

Question 14

What is the equation for profit?

Answer 14

Total revenue - total costs

Question 15

What is the equation to calculate total revenue?

Answer 15

price x quantity.

Question 16

Total costs include?

Answer 16

fixed and variable cost.

Question 17

What is maximum profit = to? it isn’t an equation it is a point in the table?

Answer 17

It is the point where total cost and revenue are the same

Question 18

What is the equation for marginal revenue?

Answer 18

Total revenue / Quantity

Question 19

On a supply and demand graph, the maximum profit is located?

Answer 19

World market price intersects with the marginal cost curve.

Question 20

What is the average cost of production equation?

Answer 20

AC= Total cost / Q (units)

Question 21

What is the equation for profit that includes AC?

Answer 21

Profit = (P - AC) x Q

Question 22

Where is AC maximized on a graph?

Answer 22

Find the point where world market price intersects with the marginal cost curve.
- then move up or down and find where it aligns with the AC cost curve.

Question 23

Any price below the minimum on AC curve and above the MC curve = ?

Answer 23

LOSS.

Question 24

In what scenario will MR=MC not always make a profit?

Answer 24

If the average cost is greater than price, the firm will have a loss.

Question 25

When : p = ac? P > AC? P < AC?

Answer 25

- 1.) no incentive to join or exit the industry 2. ) firms will enter 3. ) firms will exit.

Question 26

The firm will leave if (BLANK) is the case?

Answer 26

TR < VC

Question 27

IF Price is below (average variable cost) AVC ?

Answer 27

the firm should shut down immediately.

Question 28

Increasing cost industry?

Answer 28

An industry in which industry costs increase with greater output; shown with an upward-sloped supply curve. ( basically increasing costs of labor increase the intersection point of AC and MC)

Question 29

Constant cost industry

Answer 29

an industry in which industry costs do not change with greater output; flat supply curve.

Question 30

Decreasing cost industry?

Answer 30

an industry in which industry costs decrease with greater output; shown with a downward sloped supply curve.