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ECON 201 > Exam 3 > Flashcards

Exam 3 Flashcards

1
Q

2 complex theories but choosing the one that is in a simpler form

A

Ockham’s razor

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2
Q

a second defense of the profit maximization assumption
ownership distributed by
-people who are inclined to pursue profit
-others favoring benevolence, ego satisfaction or the easy life

A

Survivorship Principle

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3
Q

the concept that firms are in business to maximize profits is controversial
Managers display other regarding preferences
1) some spend large amounts of time supporting arts, homeless shelters, environment, etc.
2) others led by egotists risk all; profit to build an empire
3) others earn enough profit; take wednesdays to play golf

A

profit motive

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4
Q

a complete description of the motives of businesses

-survive the market

A

profit maximization

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5
Q

revenue-cost

A

profit

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6
Q

explicit payment to suppliers of factors of production and intermediate goods
-include worker’s wages, manager’s salaries, salesperson’s commission, payments to banks and other suppliers of financial services, legal fees, etc.

A

Explicit costs

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7
Q

using resources that a firm’s owners contribute without receiving explicit payment
-an owner of a small firm who works alongside the firm’s hired employees without receiving a salary (Snow Fun)

A

Implicit costs

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8
Q

Do firms record their implicit costs?

A

NO

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9
Q

Accounting profit - Implicit costs
|
revenue - explicit costs

A

Pure economic profit

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10
Q

profit = revenue - explicit costs only without considering implicit costs
-considers only explicit payments that appear on the firms written accounts

A

accounting profit

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11
Q

the opportunity cost of capital contributed by the firm’s owners

A

normal return on capital (normal profit)

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12
Q

payments in excess of opportunity costs

  • ex: pure economic rent
  • broader notion than profit
A

economic rent

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13
Q

what entrepreneurs do when they look for ways to create goods and services that are worth more than the inputs they require
-ex: Henry Ford

A

Profit seeking

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14
Q

when firms seek to increase revenue by seeking restrictions on competition, not through innovation and cost reduction
-ex: cotton and sugar industries have increased revenues by restricting imports

A

rent seeking

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15
Q

inputs that can be varied within a SHORT TIME in order to increase or decrease output
-ex: labor, electricity, intermediate goods

A

variable inputs

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16
Q

the explicit and implicit costs of providing variable inputs
-the cost of the variable inputs

A

variable costs

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17
Q

inputs that CAN NOT be increased or decreased in a short time in order to increase or decrease output
-ex: building a new office; size of the firm’s plant, structure, production equipment

A

Fixed inputs

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18
Q

explicit and implicit opportunity costs associated with providing fixed inputs

A

fixed costs

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19
Q

a length of time in which the firm can vary output by using more or fewer variable inputs
-fixed inputs DO NOT change

A

short run

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20
Q

a time horizon long enough to change fixed as well as variable inputs

A

long run

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21
Q

costs are subjective?

A
  • fixed costs don’t vary with the firms rate of output

- they are borne by the firm as long as its in business regardless of how much it produces in the short run

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22
Q

fixed costs take the form of periodic payments

-a lease; pay $1,000 monthly

A

explicit fixed costs

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23
Q

opportunity costs associated with facilities owned by the firm itself, but not reflected on ongoing payments
-buy at the price of $120,000

A

implicit fixed costs

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24
Q

once-and-for-all costs that a firm can not recover once it incurs them
-having the logo painted on the building for $1,000, company sells the building to buy a better one; therefore, loosing the $1,000

A

sunk costs

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25
Q

the total output of a firm measured in physical

A

total physical product

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26
Q

the amount by which output increases as a result of adding one unit of a variable input

A

marginal physical product

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27
Q

as the variable input increases, the firm will eventually reach a point beyond which the marginal physical product of the firm will begin to decrease
-apply to short run

A

law of diminishing returns

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28
Q

the increase in cost required to increase the output of some good or service by 1 unit
sum of Total cost/sum of output

A

marginal cost

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29
Q

the rule that marginal cost must equal average cost when average cost is at its minimum

A

marginal average rule

30
Q

in any output range in which long run average cost decreases as output increases

1) technology
2) internal organization: teamwork, specialization, comparative advantage

A

economies of scale

31
Q

the marginal cost curve intersects the minimum points of the average total cost curve and average variable cost curve

A

minimum points

32
Q

in any output range in which long run average cost increases as output increases

1) organizational
2) as firm grows, more dependent on hierarchical means of coordinating its employees activities
3) individual incentives become harder to maintain in a hierarchial
- ex: walmart and toyota

A

diseconomies of scale

33
Q

any range of output for which long run average cost curve does not change as output varies

A

constant returns to scale

34
Q

business managers make a serious attempt to record costs in numerical form

A

true

35
Q

opportunity costs measure

A

the value of alternative uses of resources

36
Q

when a firm hires an additional worker and production output increases, this is called

A

marginal physical product

37
Q

the law of diminishing marginal returns has an exception, which of the following is the exception

A

there are no exceptions

38
Q

in the short run, firms can

A

adjust some, but not all inputs

  • varied inputs can vary
  • fixed inputs can not vary
39
Q

the point where economies of scale end and constant returns to scale begin

A

minimum efficient scale

40
Q

constant returns to scale occur when the long run cost curve do not vary with increases in output

A

true

41
Q

in economics there are 3 average costs

A

true

  • average fixed cost
  • average total cost
  • average variable cost
42
Q

the long run average cost curve is constructed by fitting a line that is tangent to a series of short run average total cost curves

A

true

43
Q

assume that the cost curves are all functioning normally, which curve is not U shaped?

A

average fixed cost

44
Q

The ‘ideal type” of market is

A

perfect competition

45
Q

a market in which a homogeneous product is sold is

A

perfect competition

46
Q

the perfect competition firm is

A

a price taker

47
Q

a price taker means a firm that sells its products at a price determined by forces outside the firms control

A

true

48
Q

a market which only has differentiated products is

A

monopolistic competition

49
Q

perfect competition is a market structure containing many small firms

A

true

50
Q

in the perfect competitive market there are no sunk costs

A

false

51
Q

a market which has substantial (common) barriers to entry is

A

monopoly

52
Q

one of the key assumptions of perfect competition is

A

firms have the same long and short run cost curves

53
Q

free market entry means

A

firms with sufficient capital can enter if they wish

54
Q
  • resembles perfect competition
  • many small firms
  • easy entry and exit
  • firms products differ from one another
A

monopolistic competition

55
Q
  • market with only a few firms, some of which have a significant share of the market
  • product may be homogeneous or differentiated
  • may/may not be significant barriers to entry
  • buyers and sellers need not have equal access to all kinds of information
  • most familiar markets fit this category
A

oligopoly

56
Q
  • a single firm accounts for 100% of sales of a product that has no close substitutes
  • perfect competition and monopoly are ideal type market structures
  • few markets fit the definition
A

monopoly

57
Q

all buyers have complete information about the price of the product and of the inputs used to produce it

  • producers have equal knowledge/production techniques
  • know all about the products characteristics
A

equal access to information

58
Q

firms that are just starting to produce the product can do so on an equal footing with existing firms in terms of the prices paid for inputs, availability of technology, access to government permit/licenses

A

easy entry and exit from industry

59
Q

firms products are so alike that they are perfect substitutes in the buyers eyes

A

homogeneous product

60
Q

each firm is small that its actions, alone have no noticeable effect on the market price

A

significant share of the market

61
Q
  • presence of many firms (ALL SMALL)
  • none with a significant share of the market
  • product is homogeneous
  • easy entry and exit from industry
  • equal access to information by buyers and sellers
A

perfect competition

62
Q
  • conditions that shape the competition in a market
  • depends on the number and size of firms
  • the nature of the product
  • ease of entry and exit
  • availability of information
A

market structure

63
Q

how many market structures are there?

A

4

64
Q

what do firms in the market have access to?

A
  • same technology

- know where to buy inputs at the same prices

65
Q

what do economies of scale cease in perfect competition?

A

a small level of output relative to the quantity demanded by the market
-producing at the minimum long run average cost

66
Q

a firm that sells its output at prices determined by forces beyond its control

  • if 1 price were to raise the price of its output above prevailing price, it would lose all its customers
  • perfectly competitive firm
A

price taker

67
Q
  • firms leaving the firm can recover implicit fixed costs by selling their plant and equipment to other firms
  • requirement of free entry and exit
A

no sunk costs

68
Q

what is the difference of fixed and variable inputs?

A

depending on the context of decisions around them

69
Q

total variable cost/output

A

average variable cost

70
Q

total fixed cost/output

A

average fixed cost

71
Q

total cost/output

A

average total cost

72
Q

as the VARIABLE INPUT increases, all other inputs remain fixed, the firm will reach a point where marginal physical product begins to decrease

A

law of diminishing returns

ECON 201 (1 decks)

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