Exam 2 Flashcards
5,6,7
As more labor is hired in the short run, diminishing returns are observed because
each new worker has less capital and land (fixed inputs) to use at work
If a firm increases output, total costs will rise because of a change in
variable costs
The maximum output that can be produced from a set of inputs is measured by
the production function
A firm can be identified as profitable if the
difference between its total revenue and total costs is positive
Flour would be considered which of the following factors of production?
capital
Which of the following is most likely a variable cost in the short run?
labor payments
If the first, second, third, and fourth worker employed by the firm add 15, 21, 12, and 8 units of total product respectively, we can conclude that
after the second worker marginal product declines
When a firm makes an investment decision, it views all inputs as
variable over the long run
For most firms, the most desirable rate of output is the one that
maximizes total profit
Average total cost is defined as
total cost divided by the quantity produced
Sam’s surf shop has total costs of $2,000 when it is not producing any surfboards. This means that
fixed costs are $2,000
Which of the following is most likely a fixed cost?
property taxes
Which of the following government policies is least likely to increase productivity?
transfer payments to unemployed workers
Which of the following must be considered in long-run planning?
investment choices
As more output is produced, a firms production cost rises. This will affect the firm’s _________blank decisions
production
Which of the following definitions is correct?
Economic Profit = Accounting Profit − Implicit Costs
When producing jeans, which of the following are not a variable cost in the short run?
rent paid for the use of a factory
Ceteris paribus, the law of diminishing returns states that beyond some point the
marginal physical product of a variable input declines as more of it is used
In defining costs, economists recognize
explicit and implicit costs, while accountants recognize only explicit costs
Economic costs are greater than accounting costs
only if implicit costs are greater than zero
If perfectly competitive firms earn economic profit in the short run, then we would expect that in the long run
new firms will enter the market
Which of the following is an example of monopolistic competition?
Many firms supply similar products, each with some consumers who show significant brand loyalty
The number and relative size of firms in an industry define the type of
market structure
Which of the following is not considered a barrier to entry?
marginal cost pricing
Market power
is the ability to alter the market price of a good or service
A perfectly competitive firm is a price taker because
it has no control over the market price of its product
When a new firm enters a perfectly competitive market, it
reduces the profits of existing firms
Which of the following is not characteristic of a perfectly competitive market?
a significant degree of brand loyalty for each firm
Which of the following does not characterize a perfectly competitive market?
advertising by individual firms
If firms in an industry are experiencing economic losses, firms will _________ the industry and the price of the good will _________.
leave; increase
An industry in which only two firms compete to supply a particular product is best characterized by which of the following market structures?
duopoly
Which of the following is an example of perfect competition?
Many small firms all produce the same good
If one perfectly competitive firm is the only one to raise its price above the market price, it will
not sell any output
Obstacles that make it difficult or impossible for additional producers to begin producing or selling in a new market are referred to as
barriers to entry
If the number of catfish farms in Arkansas fell over the course of five years, this would suggest that
firms are exiting due to reductions in economic profits
Competitive firms cannot individually affect market price because
their individual production is insignificant relative to the production of the industry
Which of the following is considered a barrier to entry?
brand loyalty
A horizontal demand curve for a firm indicates that
the firm has no market power
An individual competitive firm
produces a small proportion of output relative to the market
Which of the following is true concerning a monopoly?
The largest firm has significant market power
An industry in which a few large firms supply most or all of a product is known as
an oligopoly
From the firm perspective, the price of a good multiplied by the quantity sold equals
total revenue
The competitive process creates strong pressures on firms to
pursue product and technological innovation
In a competitive market, economic losses indicate that
consumers want resources to be reallocated
If a perfectly competitive firm produces and sells more output, its _________blank will definitely increase
total revenue
If a firm can change market prices by altering its output, then it
has market power
In a perfectly competitive market
no seller has market power
The change in total revenue that results from a one-unit increase in quantity sold is
marginal revenue
If firms are earning positive economic profits
All of these choices are correct
The total quantities of a good that people are willing and able to buy at alternative prices defines
market demand
A patent
is a government grant of exclusive ownership of an innovation
If a firm converts a previously competitive industry into a monopoly without any changes in the cost curves, it will
reduce market-level output and raise price to generate more profit
Total profit can be calculated as
the difference between price and average total cost multiplied by the quantity sold
If the entire output of a market is produced by a single seller, the firm
is a monopoly
Market power exists if a firm can alter
the market price
