chapter 15

Question 1

best decision for you => depends on your

Answer 1

opportunity costs!

Question 2

Accounting profit:

Answer 2

the total revenue a business receives, less its explicit financial costs

Question 3

Accounting profit =

Answer 3

total revenue - explicit financial costs

Question 4

Economic profit

Answer 4

the total revenue a business receives, less both

Question 5

Economic profit =

Answer 5

total revenue - explicit financial costs - entrepreneur’s
implicit opportunity costs

Question 6

average revenue

Answer 6

revenue per unit,calculated as the total revenue divided bythe quantity supplied

Question 7

Average revenue is

Answer 7

equal to the price if you charge everyone the same price.

Question 8

Your average cost

Answer 8

your cost perunit, calculated as your total costs(including fixed and variable costs)divided by the quantity produced.

Question 9

The average cost is the sum of

Answer 9

fixed cost per unitand variable cost per unit

Question 10

Recall your average revenue and your

Answer 10

price are the same.

Question 10

Profit margin =

Answer 10

Avg. Revenue - Avg. Cost

Question 11

Short-run analysis →

Answer 11

deciding quantity given today’s market price

Question 12

Long-run analysis →

Answer 12

planning how much to invest for a businessexpansion; launch decisions

Question 13

Cost-benefit principle:

Answer 13

It’s worth entering a new market if the benefits exceed thecosts.

Question 14

Rational Rule for Entry

Answer 14

Enter a market if you expect to earn a positive economicprofit, which occurs when the price exceeds your average cost.

Question 15

Cost-benefit principle: it’s worth exiting a market if

Answer 15

the costs exceed the benefits

Question 16

Rational Rule for Exit:

Answer 16

exit a market if you expect to earn a negative economicprofit, which occurs when the price is less than your average cost.

Question 17

Zero profit

Answer 17

occurs at the point where demand just touches average costs. → long run equilibrium!

Question 18

Zero profit point: where demand

Answer 18

just touches average cost.

Question 19

Zero profit point: where price just touches

Answer 19

average costs

Question 20

Demand-side strategies

Answer 20

prevent new entrants from winning over your existing customers by creatingcustomer lock-in.

Question 21

Barriers to entry

Answer 21

Demand-side strategies, Supply-side strategies, Regulatory strategies, Entry deterrence

Question 22

2: Supply-side strategies

Answer 22

big Picture Goal: Deter the entry of new rivalsby gaining cost advantages that newcomerscannot easily replicate

Question 23

Regulatory Strategies

Answer 23

Government regulates who can enter a market for two main reasons: (1.) to counter amarket failure, (2.) because politicians are swayed by corporate lobbyists.

Question 24

4: Entry deterrence strategies

Answer 24

Big Picture Goal: Convince your potential rivals that if they enter your market, you willCRUSH THEM. These are some strategies that make your threat seem credible:

Question 25

ways to regulate strategies

Answer 25

patents, Copyrights, and Trademarks:, Regulations make it difficult for new businesses to enter your market:, Compulsory government licenses can limit competition:, Businesses lobby to create new regulator barriers: