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In Samoa the opportunity cost of producing one coconut is four pineapples, while in Guam the opportunity cost of producing one coconut is five pineapples. In thissituation,
if trade occurs, both countries will be able to consume beyond the frontiers of their original production possibilities.
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the di fference between what a consumer is willing and able to pay and what a consumer actually has to pay is calledÂ
consumer surplus
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Compared to the no-trade situation, when a country imports a good,
domestic consumers gain, domestic producers lose, and the gains outweigh the losses
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Compared to the no-trade situation, when a country exports a good:
domestic consumers lose, domestic producers gain, and the gains outweigh the losses.
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The infant-industry argument for protectionism claims that an industry must be pro-tected in the early stages of its development so that
domestic producers can attain the economies of scale to allow them to compete in world markets
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After the United States introduces a tariff in the market for steel, the price of steel in the United States will
increase
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Introducing a tari ff on vitamin E would
increase U.S. consumption of domestically produced vitamin E.
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Import quotas and tari ffs
- (a) reduce the quantity of imports.
- (b) raise the domestic price of the good.
- (c) decrease the welfare of domestic consumers.
- (d) increase the welfare of domestic producers.
- (e) lead to deadweight loss.
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A tariff raises ______ for the government
Revenue
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An explicit cost
- (a) is an opportunity cost.
- (b) is an out-of-pocket expense.
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The crucial di fference between how economists and accountants analyze the pro tability of a business has to do with whether or not _______ are included when calculating total production costs
implicit costs
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If a fi rms implicit costs are zero, accounting profi ts _____ economic pro fits.
equal
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If a fi rms implicit costs are positive, accounting profi ts ____ economic profi ts.
exceed
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Sunk Costs
have already been incurred and cannot be recovered
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The long run
- (a) is a period in which a fi rm can adjust all its inputs.
- (b) can vary in length from industry to industry.
- (c) is a period in which all costs are variable costs.
-
Describe the long-run period.
The long run is of sufficient length to allow a firm to alter its plant capacity and all other factors of production
-
Production in the short run
- (a) is subject to the law of diminishing marginal product.
- (b) involves some fixed factors.
- (c) can be increased by employing another unit of a variable input, as long as the marginal product of that input is positive.
-
A production function shows the relationship between
variable inputs and output
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Diminishing marginal productivity in a frozen-pizza company means that
hiring additional workers adds fewer and fewer pizzas to total output
-
Total fixed costs
- (a) do not vary with the level of output.
- (b) cannot be avoided in the short run without going out of business.
- (c) do not exist in the long run
-
What is most likely a variable cost for a business?
payments for electricity
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The change in total cost that results from the production of one additional unit of output is called
Marginal Cost
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What short-run curve typically declines continuously as output expands?
average fi xed cost
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The short-run ATC ______ the short-run AVC at any given level of output.
exceeds
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When marginal product is increasing,
marginal cost is decreasing
-
If a taxi service is operating in the region of diminishing marginal product and more taxi service is added in the short run, what will happen to the marginal cost of providing the additional service?
marginal cost will increase.
-
If a firms ATC is falling in the long run, then
it is subject to economies of scale over that range of output.
-
In the long run,
all costs are variable
-
When a firm experiences economies of scale in production,
long-run average total cost declines as output expands
-
The lowest level of output at which a fi rms goods are produced at minimum long-run average total cost is called
the minimum efficient scale
-
Perfectly competitive markets tend to have a ______ number of sellers and a(n) ______ entry.
large; easy
-
In perfectly competitive markets, products are _______ and sellers are _______.
homogeneous; price takers
-
Perfectly competitive markets have _______ sellers, each of which produces a _______ share of industry output
many; small
-
Perfectly competitive firms sell _______ products.
homogeneous
-
An individual, perfectly competitive firm
has no perceptible influence on the market price.
-
In a perfectly competitive market, individual sellers can change their output ______ altering the market price.
without
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When market demand shifts _______, a perfectly competitive fi rms demand curve shifts ________ .
(a) rightward; upward
and
(d) leftward; downward
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Pure monopoly is de fined as
an industry consisting of a single seller.
-
For a true, or pure, monopoly,
- (a) there is only one seller of the product.
- (b) no close substitutes are available.
- (c) the fi rm and the industry are the same.
- (d) it must be virtually impossible for other fi rms to overcome barriers to entry.
-
What is inconsistent with monopoly?
selling in the elastic portion of the demand curve in order to maximize pro fits
-
What are potentially barriers to entry into a product market?
- (a) patent protection on the design of the product
- (b) economies of scale in the product market
- (c) government licensing of the products producers
- (d) the control of a crucial input necessary to produce the product
-
The monopolists demand curve is
Downward Sloping
-
In monopoly, the firm
cannot set both its price and the quantity sold; if the monopolist reduces output, the price will rise, and if the monopolist expands output, the price will fall.
-
In Monopoly,
- (a) the firms demand curve is the market demand curve for the product.
- (b) the marginal revenue is less than the price.
- (c) the fi rm can set its price anywhere but will enhance its pro fits by raising or lowering the price, depending on the circumstances
-
in order to sell more output, the monopolist must accept a _____ price on all units sold.
lower
-
A profi t-maximizing monopolist sets
output where marginal cost equals marginal revenue.
-
For a monopolist,
- (a) its demand curve is downward sloping.
- (b) its marginal revenue is less than price.
- (c) existing economic profi ts can be sustained over time.
-
Of a pro fit-maximizing monopolist is currently charging a price on the inelastic portion of its demand curve, it should
raise price and decrease output.
-
If a monopolist had a zero marginal cost of production, it would maximize pro fits by choosing to produce a quantity where
demand was unit elastic.
-
Monopoly is unlike perfect competition in that
a monopolists price is greater than marginal cost.
-
A price-taking firm and a monopolist are alike in that
both maximize profi ts by choosing an output where marginal revenue equals marginal cost, provided that price exceeds average variable cost.
-
Monopoly results in ______ output and a ______ price than would be the case under perfect competition.
smaller; higher
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A natural monopoly is de fined as an industry in which
one firm can produce the entire industry output at a lower average cost than can two or more fi rms.
-
If regulators set a price according to marginal cost pricing, the firm will
suff er an economic loss.
-
Average cost pricing for a natural monopoly will
result in a less than socially efficient level of output.
-
Under average cost pricing by a natural monopoly
- (a) price is greater than marginal cost.
- (b) a welfare cost will be incurred.
- (c) the producer will earn a normal rate of return.
- (d) a producer experiences little or no incentive to hold down costs
-
Antitrust laws can promote ______ competition.
greater
-
A price-discriminating monopolist will
- (a) price where marginal revenue equals marginal cost for each di fferent group of demanders.
- (b) charge a higher price to those with a greater willingness to pay (the more inelastic demanders) .
- (c) have to face customers who have a difficult time reselling the good to others who were charged more.
-
A price-discriminating monopolist will tend to charge a lower price to students if it believes that student demand is
more elastic than that of other demanders.
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