Theory Of The Firm Flashcards
What is the primary focus of the Theory of the Firm?
The primary focus is to understand how firms make decisions regarding production, pricing, and resource allocation.
True or False: The Theory of the Firm only applies to large corporations.
False
Fill in the blank: The Theory of the Firm is closely related to the concepts of _____ and _____ in economics.
production, cost
What is ‘marginal cost’?
Marginal cost is the cost of producing one additional unit of a good or service.
Multiple Choice: Which of the following is a key assumption of the Theory of the Firm?
A) Firms aim to minimize costs
B) Firms aim to maximize profit
C) Firms do not face competition
D) Both A and B
D) Both A and B
What does ‘economies of scale’ refer to?
Economies of scale refer to the cost advantages that firms experience as their output increases.
Short Answer: Name one factor that can influence a firm’s production decisions.
Market demand, technology, input costs, or regulatory environment.
True or False: A firm operating in a perfectly competitive market can influence market prices.
False
What is the difference between ‘fixed costs’ and ‘variable costs’?
Fixed costs do not change with the level of output, while variable costs do.
Multiple Choice: In which market structure do firms have some degree of pricing power?
A) Perfect competition
B) Monopolistic competition
C) Monopoly
D) Both B and C
D) Both B and C
What is ‘opportunity cost’?
Opportunity cost is the value of the next best alternative foregone when making a decision.
Fill in the blank: A firm’s _____ is the combination of inputs used in the production process.
production function
True or False: The Theory of the Firm assumes that all firms have perfect information.
False
What is ‘market structure’?
Market structure refers to the characteristics of a market that influence the behavior of firms within it.
Multiple Choice: Which of the following is NOT a characteristic of perfect competition?
A) Many buyers and sellers
B) Homogeneous products
C) Barriers to entry
D) Perfect information
C) Barriers to entry
Short Answer: What does the term ‘sunk costs’ mean?
Sunk costs are costs that have already been incurred and cannot be recovered.
Fill in the blank: The _____ curve shows the relationship between the quantity of output produced and the total cost of production.
cost
What is the significance of the ‘profit maximization rule’?hhhhh
The profit maximization rule states that firms should produce up to the point where marginal cost equals marginal revenue.
True or False: A monopoly is characterized by a single seller and many buyers.
True
What is ‘price discrimination’?
Price discrimination is the practice of charging different prices to different consumers for the same good or service.
Multiple Choice: Which type of firm is most likely to engage in research and development?
A) Perfectly competitive firm
B) Monopoly
C) Oligopoly
D) All of the above
C) Oligopoly
Short Answer: Define ‘barriers to entry’.
Barriers to entry are obstacles that prevent new competitors from easily entering a market.
What role do ‘incentives’ play in the Theory of the Firm?
Incentives influence the behavior of firms and individuals, guiding decisions on production, pricing, and investment.
Fill in the blank: A firm’s _____ is the total revenue minus total costs.
profit
