Unit 3 Test!

Question 1

Equation for economitc profit or loss for one unit

Answer 1

Price - ATC

Question 2

In the short run, at least ___ inputs cant be fixed and cannot be changed

Answer 2

1

Question 3

In the long run, there are ___ fixed inputs

Answer 3

zero! All inputs can be changed

Question 4

In the short run, the shapes of the ATC and MC curves result from

Answer 4

diminishing marginal productivity of the resources (U shaped)

Question 5

In the long run, the shape of the ATC results from

Answer 5

economies and diseconomies of scale

Question 6

Economies of scale

Answer 6

where output increases and ATC decreases in the long run.

Question 7

What is the main cause of economies of scale?

Answer 7

specialization

Question 8

Diseconomies of scale

Answer 8

The forces that cause larger firms and gov’ to produce goods and services at increased per unit costs

Question 9

Long Run Sources of Economies of Scale (Long Run ATC decreases as output increases) [FIBER]

Answer 9

increase in shared Facilities; reduce per unit costs of factor Inputs; effective use of production Byproducts; more efficient use of Equipment; specialization of Resources

Question 10

Sources of Diseconomies of scale (decreasing returns to scale)

Answer 10

limitations on management decision making; competition for factor inputs; as firms increase in size, increased monitoring costs and loss of team spirit

Question 11

Increasing returns to scale

Answer 11

if output increases by more than that proportional change in inputs

Question 12

Constant returns to scale

Answer 12

if output increases by that same proportional change

Question 13

Decreasing returns to scale

Answer 13

If output increases by less than that proportional change in inputs

Question 14

Characteristics of perfect competition:

Answer 14

VERY MANY firms; Homogenous products; NO barriers (hella easy entry); Price TAKERS; BOTH allocatively and productively efficient; Only normal profits in long run. Example: doesn’t exist, but maybe agriculture?

Question 15

The demand curve is also

Answer 15

MR DARP. Marginal revenue, demand, average revenue, price…they’re all equal

Question 16

Supply is equal to

Answer 16

Marginal Cost above minimum AVC

Question 17

If the firms are making economic profits,

Answer 17

more firms will enter the industry because there are no barriers to entry

Question 18

Perf. competitive firm in long run: productive and allocatively efficient when…

Answer 18

the firm is at the lowest point on ATC

Question 19

Allocative efficiency

Answer 19

P = MC or P = S (supply and MC are the same thing!)

Question 20

Productive efficiency

Answer 20

producing a good with as few inputs as possible (MC = ATC or P = minimum ATC)

Question 21

Long term the perf. competitive firm breaks even at

Answer 21

the minimum ATC

Question 22

Method of Marginals

Answer 22

if MB > MC, do one more.

Question 23

Shutdown point

Answer 23

Where P = MR is below AVC

Question 24

Long Run equilibrium is where

Answer 24

MC = minimum ATC = MR. The firm is breaking even.

Question 25

Firms will only produce in the ___ portion of the demand curve where ________

Answer 25

elastic; where marginal revenue is positive

Question 26

Total revenue is at its maximum where

Answer 26

MR = 0

Question 27

Produces most profit

Answer 27

Where MR = MC

Question 28

Monopolists are allocatively ____

Answer 28

inefficient; they are producing less and charging more than MC

Question 29

Monopolistic competition characteristics:

Answer 29

Many firms; Differentitated products; Relativiely easy to enter; no barriers; somewhat price setting power; considerable non-price competition; less eficient; normal profits. EX: fast food, retail, cosmetics.

Question 30

Oligopoly characteristics

Answer 30

Few firms; Homogenous/differentiated products; not easy to enter; limited price setting power; considerable non price competition; less efficient than perf. competition; positive normal and ecnomic profits in long run. EX: cars, steel, soft drinks, cereals, computers.

Question 31

Monopoly characterisitics:

Answer 31

one firm; only product of its kind; impossible ease of entry; absolute price setting power; inefficient; high normal and economic profits. EX: small town newspaper, rural gas station.