Module 3

Question 1

____________ is the minimum amount of money that a supplier is willing to accept in return for the input it sells (e.g., labor, machines, other forms of capital).

Answer 1

Willingness to sell (WTS)

Question 2

The concepts of WTS and cost on the supplier side are __________ to the concepts of WTP and price on the consumer side.

Answer 2

analogous

Question 3

The _________ by a firm is the difference between the WTP of its consumers and the WTS of its suppliers.

Answer 3

value created

Question 4

The difference between the price that it charges its consumers and the price it pays its suppliers (also referred to as the firm’s cost) is its _____, or ________ by the firm.

Answer 4

profit; value captured

Question 5

The difference between WTP and price is the value captured by the consumer, or ___________.

Answer 5

consumer surplus

Question 6

The difference between the firm’s cost and WTS of its suppliers is the value captured the supplier, or __________.

Answer 6

supplier surplus

Question 7

_____ are important in analyzing whether a company’s business is in good shape and in deciding how much a company should ______.

Answer 7

Costs; produce

Question 8

An important distinction is between a firm’s _____ costs versus _____ costs.

Answer 8

fixed; variable

Question 9

Fixed costs are costs that _____ vary as quantity produced rises or falls.

Answer 9

do not

Question 10

Variable costs are costs that _____ vary with the

level of production.

Answer 10

do

Question 11

Fixed costs that have already been incurred (at the time that the firm is making a production or pricing decision) are
called ________, and should not impact decision-making.

Answer 11

“sunk costs”

Question 12

Sound decision making requires taking into account not only the direct costs of resources, but also their _________.

Answer 12

opportunity costs

Question 13

Opportunity cost is the value of the best _________ of that resource.

Answer 13

alternative use

Question 14

A firm’s __________ refers to the total cost of an activity, taking into account the direct or explicit costs as well as
its opportunity costs.

Answer 14

“economic cost”

Question 15

A firm’s __________ is the measure of profits that also takes into account the
opportunity cost of the next best alternatives.

Answer 15

“economic profit”

Question 16

__________ is the analysis of a how a firm’s costs compare to its competitors for each activity in its business.

Answer 16

Relative cost analysis

Question 17

Relative cost analysis is most useful when calculated on a _______ basis.

Answer 17

per-product

Question 18

Knowing a ___________ can help a firm predict the range of prices that the competitor would be willing to charge (including how low it might be willing to go in a price war).

Answer 18

competitor’s costs

Question 19

Relative cost analysis can also help a firm understand how _______ its own production process is.

Answer 19

efficient

Question 20

A relative cost analysis for all the firms in the industry results in a _________.

Answer 20

supply curve

Question 21

Just as a demand curve illustrates how much of a good a buyer will _______ at each price, a supply curve describes how much of a good a supplier will be willing to ______ at each price.

Answer 21

purchase; provide

Question 22

A firm that is already in an industry will be willing to sell its product for any price at or above its _________.

Answer 22

variable costs

Question 23

A firm that is considering _______ an industry will aim to cover both its variable costs and its fixed costs.

Answer 23

entering

Question 24

Since fixed costs do not vary with quantity produced, per-unit fixed costs (or “average fixed cost”) will _________ as total quantity produced increases.

Answer 24

decrease

Question 25

While total variable costs increase with quantity produced, per unit variable costs may ________ as quantity produced increases. (Per-unit variable costs and marginal costs are often used interchangeably; they are the same when per-unit variable costs are the same across different units of production).

Answer 25

not change

Question 26

A firm’s ______ are the sum of its fixed costs and its total variable costs.

Answer 26

total costs

Question 27

A firm’s ________ is its total cost divided by the total volume of goods produced.

Answer 27

average total cost

Question 28

___________ result from firms being able to spread their fixed costs over larger units of production.

Answer 28

“Economies of scale”

Question 29

Industries with _____ levels of fixed costs are therefore more attractive if a firm knows that it can produce at large scale, since it can spread these costs over many units.

Answer 29

high;

Question 30

Industries with high fixed costs are also likely to have _____ firms competing in them.

Answer 30

fewer

Question 31

Industries with low fixed costs are easier to enter and have a low ___________.

Answer 31

minimum efficient scale