Can You Answer These Economics Of Firms Flashcards

whne firms in a price taker market are temporarily able to charge prices that exceed their production costs additional firms will be attracted into the market until the price falss to the level of per-unit production costs suppose a restraurant that is highly profitable during the summer months is unable to cover its local cost during the winter months. if it wants to max profits the restaurant shouold continue to operate during hte winter months if it isable to cover its variable costs the main difference between a firm that is a price search er and a firm that is a price taker is that a price searcher will still be able to sell some of its product if it increases it prices in a competitive price-taker market many other sellers are offering a product that is essentially identical in short-run equiliibrium, a competitive price-taker firm may earn a profit or a loss competitive price-taker firms respond to changing market conditions by varying their output the marginal revenue of a price taker is equal to price in general, firms will produce at a rate of outpout such that marginal revenue equials marginal cost becuase this output rate will maximize the firms profit suppose that price is below the minimum average total cost (ATC) but above the minimumn average variable cost(AVC)_ and that the market price is expected to rise at leasst to ATC in the near future. in the short run, a firm that is a price taker would continue to produce a quantitiy such that marginal revenue equals marginal cost if a firm is making zero economic profit, it will be forced to shutdown and leve the market compared to the outcome when the firms are price takers, competitive price-seracher markets will result in a wider variety of products and higher prices which of the following is the genertal distinction between price takers and price searchers price takers confront a perfectly elastic demand curve; price searchers face a downward-sloping demand curve. if a firm in a competitive price-searcher mareket raised its price it will loose only some of its sales which of the following would be most likely if firms in a competitive price-searcher market were earning economic profit new firms would enter hte market, resulting in fewer sales by existing firms a picture frame company operates in a competitive price-searcher market. its short-run equilibrium price is $80 and its ATC is $65. It sells 100 picture frames a week. from this we can conclude economic profits are $1500 which of the following is true for firms that produce in markets where there are no barriers to entry the firms will always make sero economic profits in the long run when economic losses are present in a market, firms will tend to exit from the market in both price-taker and competitive price-searcher markets, short-run economic profits will lead to the entry of additional firms into the market and the eventual restoration of zero long-run economicprofits. in long-run equilibrium, output is expanded to the minimum long-run average total cost by price takers but no by competitve price searchers. in order for effective price discrimination to occur, a seller must have at least two distinguishable groups of consumers if a movie theater is going to gain by charging students a dollar less than the other customers the demand of students must be more elastic than that of other customers when natural monobpoly is present in an industry, the per-unit costs of production will be lowest when a single firm generates the entire output of the industry which of hte following is most likely to contribute to the presence of monoply industry economies of scale a firm that is a pure monopoly is the only seller of a good for which there are no good substitutes in a market with high barriers to entry which of hte following is true of marginal revenue for a monopolist that charges a single price P>MR becuase the monopilist must decrease price on all units sold in order to sell and addtional unit which of the following industries most closely approximates the oligopoly model automobile industry uner which one of the following market structures are firms most likley to enter in a price-fixing agreement desgined to maximikse their joint profit oligopoly market power is an expression used to indicate that a firm has some freedom from the rigors of intense competition which of the following is true of pure monoply monopolly results in allocateive inefficiency if government officials break a natural monopoly up into several smaller firms, then the average costs of production will increase which one of the following labor resources will likely have the most inelastic supply schedule in teh short run dentists as the price of a resouce descreases producers are more willing and able to hire that resource when the price of steel rises, ford use more aluminum inthe production of its cars. this is an example of substituion in production if a firm is suing a resource hired in a perfectly competitive market, and if the marginal resource cost is less than its marginal revenue product more of the resource should be used a profit-maximizing restaurant owner will hire more busboys to keep more tables clean and quickly available to new customers as long as the marginal revenue product of busboys exceeds their wage rate if the demand for computer scientists increases relative to their supply a computer science major will be more attractive to college students proved reserves of petrolem are the verified quantity of petrolem that can be recovered at current prices and levels of technology. if proved resources of a mineral amount to twelve years fo use at the current rate of consumption if the good becomes more scarce relative to supply in the future, its price will riise and thereby encorage both convervation and exploration "doomsday" predictions about the imminent depletion of one or more of our vital natural rewsources usually are overstated because they disregard human responses to relative price changes what hapens to a resource as it becomes scarcer the price rises and this increases the future supply relative to demand the idea that an action should be undertaken if and only if the benfits exceed the costs is known as the concept of economic proficiency which of hte folllowing is most consistent with the idea that if it's worth doing its worth doing imperfectly when cleaning a house, people only generally clean the most visible areas there is substantial agreement among scholars that at least two functions of government are legitmitate. these two functions are teh protection of the rights of individuals to their person and property and the provision of goods that cannot easilyu be provided through markets externalitites cause the price system to misallocate resources if pollutuants emitted by firms in teh stell industry incrase, but there is no increase in the costs borne by these firms, yhou could conclude that pollution is an externality in this market, since producers and purchasers of stell do not bear the full costs of the pullution A good is considered to be a public good if it is both nonrival-in-consumption and nonexcludable which of the follwing is an example of a public good an effective antimisslie system that defends a country against a nuclear attack a car sells at different prices at different dealerships in a local market. if a consumer has imperfect information about the price of a car at each dealership, he should gather information about prices until the expected marginal benefit of more information equals the marginal cost of gathering it figure 5-3 illustrates the market for a product that gerates an external benefit. d1 is the priveate market demand curve, while d2 is the deamd curve including the external benefit. whcich of hte following is true relative to economic efficiency, output of the good will be too small and the price too low. the inefficient equilibrium price and quantity are 1.60 and 42 units, respectively the english philosper John Locke argued that people own themselves as well as the fruits of their labor and thus the role of government is to protect these natural rights of individuals when voters pay taxes in proportion to the benfits they receive from governmetn projects projects that are efficient wil ltend to be favored by an overwhelming majority of voters which of hte following explains why mangers of governmnet agencies have little incentive to achieve operational efficiency all of the above explain why government agencies have little incentive to be efficient transfer paymests are transfers of income from taxpayers to reciptients who do not provide current goods and services for payments economists refer to the lack of incentive that voters have to search for and obtain information to help make better political choices at the rational-ignorance effect public choice theory indicates competitve forces provide a politician with a strong incentive to offer voters a bundle of political goods that she believies will increase her chances of winning elections which of hte following is a distinguishing characteristic of a user charge persons pay roughly in proportion to the extent that they use the good or service for activities in which the benefits are concentrated and the costs widespread, governments are likly to undertake too much of these activities relative to what would be efficient which of hte following explains why elected officials wil find borrwoing to be an attractive method of financing current government programs the shortsightedness effect in 2006, AARP spent over 70 million on lobbying-related expense in an attempt to get policies enacted that would benefit retirees. in economics, the term used to describe such activity is rent seeking public choice theory suggest that politicians will be most likely to favor redistribution of income from unorganized taxpayers to well-organized interest groups when voters pay in porpotion to the benefits received from an economic action of the government, if the government activity is productive all voters will gain studies indicate that the demand for fresh tomatoes is much more elastic than the demand for salt. these findings relect that more good substitutes exist for fresh tomatoes than for salt suppose that the quantivey of divd players sold increased from 200 to 400 when the price fell from 225 to 175, over this price range, the absolute value fo the price elasticity of demand for dvde players is 2.67 if janes marginal benefit as a consumer in the jeans market is larger than the price of a pair of jeans, jane can benefit by purchasing more jeans if the prices increase from 1.00 to 1.50, the quantity demanded in teh market decreases by 7 units when the price of a good falls, consumers buy more of the good because its cheaper relative to competing goods. thsi statement indicates substitution effect if the price elasticity of demand is computed for two products, and product A meausers .79 and product B meausre 1.6, then product B is more price elastic than product A if an increase in the excise tax imposed on cigarettes pushes the price per pack up by 20 percent and the quantity sold declines by 8 percent as a result, the price elasticity of demand for cigarettes is equal to -0.4 if the quantity demanded increase by 20 percent in response to a 10 percent decrease in price, demand is classified as relatively elastice if the demand for cigarettes is highly inelastic this indicates that the quantity of cigarettes purchased by consumers is not very responsive to a change in the price of cigarettes members of alpha fraternity have developed a stong likning for coca-cola, beta fratenerity members buy the same amount of coke but believe pepsi is just as good. from this we can infer that compared to alpha members, betas will have a larger price elasticity of demand for coke when the price of pepsi-cola increases from 50 to 60 cents per cant he quantity demanded decreases from 100 cans to 50 cans. over this price range the demand for pepsi-cola is elastic which of hte following describes a situation in which demand mujst be elastic total revenue decreases by more than 15 percent when the price of corndogs rises by 15 percent. suppose a city that operates local electric and natureal gas companies wants to raise revenuse by increasing its rates fro electricity and natural gas. the price rise wil increase city revenues fi the elasticity of demand for the electricity and nature gas is inelastic if a 30 percent deline in the price of gasoline leads to a 15 percent rise in expdenditures on gasoline, the price elasticity of demand for gasoline in this range must be elastic if the price of a good falls by 5 percent, and as a result, total revenue increased by 5 percent, the good's price elasticity of demand is elastic goods that consumers regard as luxuries generally have an income elasticity greater than 1 the law of diminishing returns explains whiy marginal cost eventually increases as output expands since it is costly for stockholders to monitor corporate managers, managers may be able to achieve personal perks and pursue other policies that conflict with profit maximization this is an example of the principal-agent problem when total revenue minus total economic cost is equal to zero, the firm is earning the normal profit rate maureen left her teacing job, which paid 30,000 per year, and invested 20,000 of her retirement fund (which was earning 10 %) in a new real estate business. Her accountant projected 50,000 net revenue the first year, her husband forecast her economic profit to be 18,000 which of the following is not an advantage of the corporate structure over proprietorship and partnershipo forms of business organization corporations are less likely to suffer from the principal-agent problem the short run is a time period such that the existing firms in the market do not have sufficient time to increase the size of their existing plant or build a new factory which of hte following is most likely to be a fixed cost for a business property taxes on the firms buildings mr. hudson notes that if he produces 10 pairs of shoes per day, his average fixed costs (AFC) is $14 and his marginal cost is $8; if he produces 20 pairs of shoes per day, his MC is $15. What is his AFC when output is 20 pairs of shoes per day $7 beyond 110,000 units the per unit marginal cost of producing an additional 10,000o pencils is 7 cents in the short run, the firms average fixed costs always decline as output increases measured as a share of the economy, government expenditures on blank have declined during the last four decades national defense at the federal level which of the following accounts for almost half of all revenue personal income taxes according to adam smith, individual self-interest is a powerful force for economic progress when it is directed by competitive markets which of the following is the best definition of economics an analysis of how individuals and soceities dela with the problem of scarcity when economists say goods are scarce, they mean teh desire for goods and services exceeds our ability to produce them with the limited resources available capital is a term ecnomists use to refer to man-made resources used to produce other goods and services if income weredistributed in favore of the poor, we would eliminate scarcity. the preceding statement is incorrect; if confuses the elimination of pverty with the elimination fo the constraint imposed by scarcity the economic way of thinking is a set of basic concepts that helps one understand human chioces which of the following statements is correct oppurtunity costs will always be incurred when scarce resources are sude to produce a good the highest valued alternative that must be given up in order to choose an option is called oppurtunity cost if the government provides free schooling for all students an economists would say education is scarce even though it's cost is paid by taxpayers rather than by students if a motorists is stranded in front of a pay phone and has only dollar bills, and he ends up buying a quarter from a passerby for $1. teh stranded motorist valued the quarter more than he valude the dollar bill and made an economical sound decision; both people are better off. middlemen are individuals who provide services that reduce the cost of transactions and help achieve additional gains from trade. when property rights are clearly defined and enforced, private owners wil develop and direct their property toward uses that others value higly because the market will generally reward them for doing so. the reason theat the production possibilities curve is usually a bow-shaped curve instead of a straight line is that resources are not perfectly adaptable to the production of all goods which of hte following is true of a production possibilities curve reveals the maximum amount of any two goods that cab be produced from a fixed quantity of resources which of hte following is true over time, teh output of goods and services can be increased through human ingenuity and discovery of betterways of doing things according to the law of comparative advantage individuals and nations gain when they specialize in productin those items for which they are the low opportunity cost producers and exchanges for other desired goods they can't produce as cheaply which of hte following is true of exchange exchange makes it possible for trading partners to produce more goods through division of labor and adoption of mass production methods three basic decisions must be made by all economies what goods will be produced, how will goods be produced, for whom will goods be produced if cursoe and friday want to maximize their consumption possibilities, crusoe should specialize in producing good Y and Friday in producing good X; trade should occur to maximize joint consumption which of the following is least likely to increase the demand for new tires a decrease in the price of tires two goods are considered substitutes if an increase in the price of one leads to an increase in teh demaind of the other if salsa and nacho chips are complements, an increase in teh price of nacho chips would decrease the demand for salsa which of the following is most likely to shift the demand curve for electricity to the left consumers becoming more energy conscious if the market price is 1,000 the producer surplus in the market is $750 farmers can choose to produce eggs or milk. if there is an increase in teh price of milk then what will be the effect in teh egg market egg supply will decrease in the orange market, what impact would an increase in teh price of oil that orange growers burn to keep oranges from freezing in the winter have on the market it would shift the supply curve to the left which of hte following would decrease teh suply of sugar the tariff(tax) on imported sugar increases when there is excess demand for a product in a market price must be below the equilibrium price last year 1000 cases of bottled water were sold at $5, this year, 1200 cases were sold at $7. these data could be explained by demand curve shifting to the right, with no change in supply an increase in supply will cause an increase in quantity demanded the laffer curve indicates that when taxes are high, an increase in tax rates is likely to decrease in tax revenues if the government imposes a price floor of $25 for compact discs, which of the following will be true consumers will wish to purchase 1,000 cds producers will wish to sell 5,000 cds there would be a surplus of 4,000 cds all of the above will be true given the demand and supply conditions show in figure 4-4, what will happen as the result of imposing a price ceiling of a there will be a shortage of the product the deadweight loss of the tax illustrated in figure 4-6 ekg teh supply curve S1 and the demand curve D indicate initial conditions in teh market for gasoline. A $.60 per gallon excise tax on gasoline is leveid. which shifts the supply curve from S1 to S2. which of the following states teh actual burden of the tax $.50 for buyers and $.10 for sellers teh supply curve S1 and the demand curve D indicate initial conditions in teh market for gasoline. A $.60 per gallon excies tax on gasoline is levied. How much revenue does the $.60 per gallon tax generate for the government $48 billion The author of the textbook "Money, greed and god" Jay Richards According to the textbook "Money, greed and god", the only way to alleviate poverty is to with the creaton of wealth and that capitalism is the best engine for creating this wealth in the textbook, money greed, and god, the author discusses a trading game that he did in elementary school that we also played. Which one was not the game oppurtunity costs: when theres scarcity theres tradeoffs the game is win-win normally when trading freely the more trading partners there are, the better off trading freely does not add value sicne the traded items remain physically unchanged economic value is in the eye of the beholder according to economist Thomas Sowell, the minimum wage (price control) does not help the section of the population that it was designed to help. in fact, only about blank percent of american workers over the age of 24 earn the minimum wage 2