ECON Exam 2

  1. What can a firm do in the short run?
    • 1.earn positive economic profits
    • 2.earn zero economic profits
    • 3.suffer economic losses but continuing to operate to reduce or minimize those losses 4.shut down and bear losses just equal to fixed costs.
  2. In a PC firm, is it a profit or loss is price is below ATC?
    an economic loss
  3. For a PC firm, should a company stay in business if price is below AVC?
  4. The short run supply curve for a PC firm is also know as the __________.

    C. marginal cost curve
  5. In the short run, a firm should shut down if _____.
    P< AVC
  6. Firms earning a negative profit will eventually _____.
    leave the market
  7. Firms are going to _______ if everyone has a positive profit.
  8. There will no be action (no entry and exit into the market) if there is _________ profit.
    zero (normal profit)
  9. In the short run, perfectly competitive firms can earn ____________.
    Positive or negative profits
  10. In the long run all PC firms MUST earn________.
    zero profit
  11. Total revenue equals_______.
    Price x Quantity
  12. If PC firms are making positive profits, in the long run firms will enter this industry. This shifts the supply curve ________ and ______ the prices.
    out, lowers
  13. PC firms earning a positive profit will continue to expand as long as there are ______________.
    economies of scale
  14. True or False: In the long run all firms can make positive profits?
  15. In the short run when a PC firm is making a negative profit, they will leave the market in the long run. This shifts the supply curve _____ and ______ the prices.
    back, increases
  16. Know this equation for the tests
    P* = SRMC = SRAC = LRAC
  17. In the long run, PC firms operate at the _________ point of the LRAC curve.
  18. In the short run when demand increases, what happens to PC firms' revenues? How do other firms respond? In response, what happens to the supply curve? Then, what happens to prices in the long run?
    The PC firms raise their prices, and therefore gain more profits. Other firms see the positive profits and enter in the long run. This causes the supply curve to shift out (more products). More products in the industry causes the prices to fall.
  19. Suppose the industry we just saw starts out in LR equilibrium at P=$5. What would happen in the short run if demand shifted back and price fell below $5?
    It depends on whether price falls below average variable cost.
  20. When long-run average costs decrease as a result of industry growth, we say that then industry is a ___________.
    decreasing-cost industry
  21. A change in the size of the industry (total Q) did not affect costs-we had a ___________.
    Constant-cost industry
  22. When average costs increase as a result of industry growth, we say that the industry is a __________.
    increasing-cost industry
  23. What is a graph that traces out price and total output over time as an industry expands?
    Long-run industry supply curve
  24. Perfect competition is the ________ market structure.

    A. ideal
  25. A PC market achieves ___________.

    C. both allocative and productive

    Why?: the market supplies the right stuff (allocative) at the lowest possible cost (productive).
  26. What is an industry in which single firms have some control over the price of their output?
    imperfectly competitive industry
  27. What is an imperfectly competitive firm’s ability to raise price without losing all of the quantity demanded for its product?
    market power
  28. What is an industry with a single firm that produces a product?
    a pure monopoly
  29. What are the 2 characteristics of a monopoly?
    • 1)there are, no close substitutes and
    • 2) significant barriers to entry exist to prevent other firms from entering the industry to compete for profits.
  30. The fewer substitutes there are, the _____ elastic the demand is.
    A. Less
    B. More
    A. less

    Why? Think about coach purses. There are not many substitutes for these products, so more people are willing to pay a high price.
  31. If a product has inelastic demand, a firm should _______ price.

    Why? People will buy the item at whatever price because there demand is elastic. The firm should make the most money off of them that they can.
  32. The steeper the demand curve, the ______ power a monopoly can have.
  33. When is a monopolist able to exercise more market power?

    A.  When there are no close substitutes
  34. When firms _____ the market, it is no longer a monopoly.

    A monopoly is the only firm!
  35. Because of barriers, monopolies can maintain _______ profits year after year.
  36. What are types of barriers to entry in a monopoly?
    • 1.Government Franchising or Licensing:
    • (Examples:  Defense, ABC stores, USPS)
    • 2.Patents: grants exclusive use of patented product to its inventor for a limited period of time.
    • (Example: Brand-name drugs.)
    • 3.Economies of scale or other cost advantages (high start-up costs).
    • (Example:  The gas company)
    • 4.Ownership of a scarce factor of production
    • (Examples:  DeBeers in diamonds, Alcoa in bauxite)
  37. Perfectly-competitive firms are called "price-takers" and monopolies are called ________.
    price seekers
  38. A monopoly wants to produce where ___ = ____.
    MR = MC
  39. In perfect competition, the demand curve is _____________.
    perfectly elastic(at the market price).
  40. In a monopoly, if the firm wants to choose a higher quantity, it has to charge a _____ price.
  41. What is price discrimination?
    It is charging different prices to different customers.
  42. For a monopoly, marginal revenue is always going to be _____ than price.
  43. What is the equation to find marginal revenue?
    Total revenue/ quantity = marginal revenue
  44. Go study Lecture 20, slide 15
  45. As monopolies produce more and more, what happens to price?
    It decreases. (falls)
  46. True or False: A monopoly will never choose a quantity with negative marginal revenue
  47. How do you locate the point on the graph that represents the price and quantity that maximizes monopolies profit?
    • 1. locate where MR=MC
    • 2. Go straight up to the demand curve.

    Why? They want to sell at the highest price possible and be productive with their own money.
  48. All firms raise output as long as marginal revenue is _____ than marginal cost.

    Why? If marginal costs were greater that means it is more costly to produce the product.
  49. As with perfect competition, the ________ should produce in the SR if P≥AVC but should shut down if P<AVC.
  50. True or False: A monopoly firm has no supply curve that is independent of the demand curve for its product.
  51. A monopolist sets

    B. Price and Quantity
  52. The amount of output that a monopoly supplies depends on what 2 curves?
    • 1. the marginal costs curve
    • 2. the demand curve
  53. True or False: All monopolist earn a positive economic profit.
  54. Compared to the perfectly competitive equilibrium, monopolists choose a ______ quantity and charge a ______ price.
    lower, higher
  55. Which apply to monopolists?

    D. All choices are correct
  56. In monopolies, all deadweight loss is (borne) tolerated by ______.

    B. consumers
  57. For a monopoly graph, the box represents ___________.
    A monopolies' profit
  58. Draw what consumer surplus would look like under perfect competition.
    It should be a large triangle from d=MR=AR=P to the peak of the triangle.
  59. Draw what consumer surplus would look like under a monopoly.
    It would be from the price the monopoly is choosing to the peak of the triangle
  60. Draw what deadweight loss would look like under a monopoly.
    The deadweight loss will be to the right of the monopolies' profit and underneath the demand curve.
  61. What is rent seeking?
    It is when firms spend lots of money trying to influence policy to keep their monopoly.
  62. Monopolies cause deadweight loss because_____.

    B. They set the price too high
  63. Why are monopolies bad?

    1.They aren’t socially efficient
    2.Do not want to cut costs they want a profit
    3. They are trying to maintain their monopoly so they don’t try to improve the quality of the product
    • 1.Result in quantity less than the optimal PC quantity (and price higher than PC price) – this causes “deadweight loss”
    • 2.Monopolies do not have as much incentive to cut costs.  And to begin with, monopolist do not operate at the minimum of ATC like PC firms do (in the long run).
    • 3.Monopolies often spend resources to keep their power (rent seeking) and may do other bad things to keep power.
  64. True or False: While monopolies can earn more profit by cutting costs, the benefits are not as large as they would be for a PC firm.
  65. True or False: Monopolies should make improvements to their product even if they have a patent.

    Why? Even if a company has a patent, once the patent is up other companies have the ability to take over by producing better products
  66. Because of __________, sometimes it makes sense to have a monopoly in certain industries.  In these cases, the government often allows the monopoly but regulates it closely.
    economies of scale
  67. What is an industry that realizes such large economies of scale in producing its product that single-firm production of that good or service is most efficient?
    a natural monopoly
  68. True or False: Although monopolies are illegal in the United States, sometimes an industry has to be a monopoly.
  69. Which one of these examples is a natural monopoly?

    D. both options are apporpraite
  70. What are some possible limitations the government would set on a natural monopoly?
    • 1.Government has input on price
    • 2.Government make sure that they support everyone (even people out of the local reach)

    Some firms can change and some will never make sense as a competitive company
  71. Why do natural monopolies happen?
    economies of scale
  72. True or False: A monopoly can make negative profits.

    Example: a natural monopoly can make negative profits because of government regulations force them to lose money.
  73. ________________occurs when a firm charges the maximum amount that buyers are willing to pay for each unit.  Also called “First Degree” price discrimination.
    Perfect price discrimination
  74. True or False: When a monopoly is price discriminating, the firm stops where the cost to produce is the same as the highest price the customer is willing to spend.

    Why?: Why not?
  75. A monopolist wants to produce at a price where there is no __________.
    deadweight loss
  76. What is the best form of price discrimination?
    first degree price discrimination (meaning you are charging everyone at the highest price they are willing to pay)
  77. ________ occurs when firms charge different prices based on unobservable consumer attributes.
    Second-degree price discrimination
  78. What is are examples of second degree price discrimination?
    • - Costco or Sam’s Club – these firms extract some consumer surplus by charging membership fees that allow you to buy large quantities for cheap. 
    • - Quantitydiscounts
  79. ___________ occurs when firms charge people different prices based on observable consumer attributes.
    Third Degree Price Discrimination
  80. What are some examples of third degree discrimination?
    - Cheaper movie tickets for students or the elderly
  81. These factors may indicate, in some way, the consumers’ willingness to pay. Explain how these topics relate.
    - Hardback vs. Paperback
    - desert vs. coffee
    - airline tickets
    • -Hardbacks are more expensive but people  want them now.
    • -At restaurants people by deserts for pleasure and will pay more.
    • - last minute flyers will pay more for tickets that they need badly
  82. True or False:The firm will charge those with less elastic demand (business travelers for example) more than those with more elastic demand (leisure travelers) who are more sensitive to price.
  83. An inelastic demand curve is more ______.
    A. steep
    B. flat
    A. steep
  84. An elastic demand curve is more _______.
    A. steep
    B. flat
    B. flat
  85. in a perfectly competitive market, can firms sell different products?
  86. What kind of products are sold in monopolistic competition?
  87. True or False: There is easy entry and exit in a PC Industry.
  88. Review Lecture 21, slide 25.
  89. Which one is a common form of industry (market) structure in the United States?

    D. monopolistic competition
  90. What are the characteristics of a monopolistic competitive industry?
    • 1. a large number of firms
    • 2. no barriers to entry
    • 3. product differentiation.
  91. There are more than 1,500 restaurants in San Francisco. This industry is an example of what?

    D. a monopolistic competitive industry
  92. What are the 3 features distinguish monopolistic competition from monopoly and oligopoly?
    • 1.Firms cannot influence the market price by virtue of their size. 
    • 2.Good (but not “perfect”) substitutes exist.
    • 3.There is unrestricted entry and exit. (so, on average, firms in a Monopolistically Competitive industry will earn zero profits in the long run)
  93. What is a strategy that firms use to achieve market power.
    product differentiation
  94. What types of product differentiation are possible?
    • - location
    • - services
    • - product image
    • - physical differences

    It is all about what the customer thinks
  95. What is the one thing that makes monopolistic competition different from perfect competition is?
    product differentiation
  96. According to monopolistic competitors, _________ gives the market system its vitality and are the basis of its power.
  97. Why do some people think advertising is dumb?
    • 1. Enormous sums are spent to create minute, meaningless, and possibly nonexistent differences among products.
    • 2. Advertising raises the cost of products and frequently contains very little information.
  98. True or False: I=In monopolistic competition, profits for representative firms must be zero in the long run.
  99. When more firms enter an industry, what happens to the demand curve of each individual firm?
    It shifts back
  100. Review lecture 22, slide 24
  101. What is a form of industry (market) structure characterized by a few dominant and interdependent firms?
    an oligopoly
  102. What are the characteristics of an oligopoly?
    • •Products may be homogenous or differentiated.
    • •Oligopolistic industries often have significant barriers to entry (usually cost related but could be legal).
    • •When those barriers to entry come in the form of economies of scale, the oligopoly is sometimes called a “natural oligopoly” (remember natural monopolies?)
    • •Most importantly, the behavior of any one firm in an oligopoly depends to a great extent on the behavior of others (this is what we mean by “interdependent”).
  103. Which industry is an example of an oligopoly?

    A. motor vehicles
    The behavior of any given oligopolistic firm depends on the behavior of the other firms in the industry comprising the oligopoly.
  105. An oligopoly is an industry with?

    C. A few big firms selling identical or different products
  106. The act of working with other producers in an effort to limit competition and increase joint profits
  107. A group of firms that gets together and makes joint price and output decisions to maximize joint profits.
  108. Collusion occurs when price- and quantity-fixing agreements among producers are explicit. Tacit collusion occurs when such agreements are implicit
    Tacit collusions
  109. True or False: The cartel seeks to find where MC=MR for the entire market.  It then sets a market price for the industry equal to the monopoly price.  The cartel restricts output to Q.
  110. The cartel sets production ________.
  111. A form of oligopoly in which one dominant firm sets prices and all the smaller firms in the industry follow its pricing policy.
    price leadership
  112. _______ is a web of contracts between input suppliers and the owner(s). 

  113. Production is when ________ are turned into _____.

  114. If company is not trying to maximize profits it is considered a firm.
    A. True
    B. False

  115. The U.S. Department of Agriculture is not a firm because it is government involved.
    A. True
    B. False
  116. What 2 main things do firms do?
    • 1. make outputs
    • 2. maximize profits
  117. What is the equation to calculate profits?


    Don't forget TR = P x Q
  118. A negative profit is called a ______.

  119. Accountants measure _______ costs and economists measure ___________ costs.

  120. Implicit costs are also known as __________.

  121. Suppose GM made their own tires, they put the tires on the car when bought. We can also sell to a tire market. It might be more profitable to do that. When we give up one thing, economists like to figure out what they are losing. The implicit cost is $100. This is how _______ analyze costs.
  122. To find the accounting profit, the formula is _______.

  123. The economist asks the owner of the lemonade stand(that makes 3 million a year) what he would have done if he did not run a stand.  The owner says he would have gotten a job at Wendy’s and made $24,000. What is the opportunity costs of working at the lemonade stand?
  124. What are explicit costs?
    They are basically the costs of production.
  125. Suppose you go to a movie, and the ticket price is $7.00.  Suppose you could have earned $30 during that movie at a part time job. What is the accountant's costs and the economists costs?
    • Accountant cost ==> $7
    • Economists cost ==> $37
  126. If you turn down money it is jus like earning money.
    A. True
    B. False

    It is considered a costs that you have to weigh
  127. If you gave the CEO of Philip Morris the choice between someone bombing the factory in Richmond or taking away the company’s exclusive right to sell Marlboro brand cigarettes, he would say, “Bomb the factory to the ground.” Why?
    The intangible assets of the company are more important than the tangible assets. The brand name is so valuable.
  128. For  the ___________ cost, we are going to total the costs of housing, food, transportation, and classes while at college for 1 year.
    A. economists
    B. accountants
  129. For the __________ cost, we are going to total the cost of classes, transportation, and the money we would be making if we were back at home working.
    A. economists
    B. accountants

    Remember that for costs of housing and food, we would be paying if we were back at home (so they are not included).
    A profit is also known as a(n) ____________.
    A. overall profit
    B. consumer surplus
    C. producer surplus
    D. economic profit

    • Read these types of questions carefully.
    • Profit is positive!
  131. How do you find total revenue?
    P x Q = TR
  132. Total cost is the total amount of _________.

  133. ___________ is basically the minimum amount you have to pay back your investors to convince them to keep investing in your firm.  Unless you have lots of money on your own, you must borrow to run a firm.

  134. ___________ is the accounting profit earned when all resources earn their opportunity cost.  This occurs when TR=Total economic cost


    It is also known as zero profit
  135. When TR - TC is equal to zero there is a ______.

  136. Is having zero profit a bad state for a company?
    No, everyone is happy. Products are being made and everyone is profiting. Everyone is making money for it but there is no extra money. It is not “negative.” Everyone is happy.
  137. What are the 3 decisions made by profit maximizing firms?
    • 1. how much output to supply
    • 2. Which production technology to use
    • 3. how much of each input to demand
  138. What 3 factors determine firms decisions?
    • 1. The market price of output
    • 2. The techniques of production that are available
    • 3. The prices of inputs
  139. Optimal method of production __________.

  140. ____________ is the relationship between inputs and outputs – how inputs get turned into outputs.

  141. ________ is when technology relies heavily on human labor instead of capital.

  142. ___________ is when technology relies heavily on capital instead of human labor.

  143. Getting your car washed by a group of 30 kids is an example of a ________.


    Why would we have kids wash it? We want it to be cheaper.
  144. Getting your car washed by an autospa is an example of a _____________.

  145. How do firms choose what method to use (capital or labor intensive technology)?
    They decide to choose the option that is cheaper. They want to minimize the costs as much as possible.
  146. If labor gets expensive, we want _____ labor and _____ capital.

  147. If capital gets expensive, we want ______ labor and ______ capital.

  148. Inputs can be substitutes for each other. If you are making a desk, you can use metal OR wood – these are __________ inputs.

  149. Capital (buildings and machines) is of no use without people to operate it, we sometimes say that capital and labor are ________ inputs.

  150. Firms in an economy with high labor costs have an incentive to use:

  151. __________ is the relationship between the amount of resources (inputs) employed and a firm’s total product (output).

  152. __________ is the additional output that can be produced by adding one more unit of a specific input, ceteris paribus.

  153. Go to Lecture 15, slide 15 to find out what the equations are to find marginal product
    Look it up!
  154. If we hire a new worker to a pizza shop, how much more pizzas can we make. This is marginal _______.

  155. Add 1 unit of labor, 50 more pizzas a day. Total product is ______.


    50/ 1
  156. _______ is the average amount produced by each unit of a variable factor of production (input).

  157. To find average product, the equation is _____.
    A. Total product/ total units of (labor of capital)
    B. Change in total product/ change in total (labor or capital)
  158. Take the number of units,
    500 pizzas/5 workers = 1pizza per worker
    This the ___________.
    A. marginal product
    B. average product
  159. One person working at subway, one person makes sandwich and has to take gloves off to ring up. The second person adds more than the first person because he can double the help. They can finally divide up tasks. The third person does not make a  big difference. What law is this?
    the law of diminishing marginal product
  160. Draw 2 separate graphs of the total product(production function) and the marginal product.
    • total product is slowly increasing
    • marginal product goes up for the first 2 inputs then falls
  161. ___________ is when additional units of a variable input are added to fixed inputs, after a certain point the marginal product of the variable input declines.
    Law of diminishing marginal returns(product)

    They are the same thing.
  162. Every firm has some limit on capacity (like the size of a shop) and so you reach the point where adding more labor will hurt the shop. Too many people and it is costly to add a worker (input). This is the law of diminishing __________.

  163. ___________is the period of time for which two conditions hold:  The firm is operating under a fixed scale (fixed factor) of production, and firms can neither enter nor exit an industry.
    A. short run
    B. long run
  164. __________ is the period of time for which there are no fixed factors of production:  Firms can increase or decrease the scale of operation, and new firms can enter and existing firms can exit the industry.
    A. short run
    B. long run
  165. In the short run, total production will _____ because of specialization.


    It is like an S curve
  166. The short run is:
    A. The period during which some factor of production cannot be changed.
    B. The period during which some factor of production can be changed.
  167. If there are fixed costs, a firm is operating in the _____ run.
    A. long
    B. short
  168. If there are only variable costs and no fixed costs, a firm is operating in the ____ run.
    A. short
    B. long
  169. Draw what the average product line and the marginal product line look like in the short run.
    • Average product is a upside down parabola.
    • Marginal product is like a bump and goes down once it intersects with the average product.
  170. What are the 4 important types of costs that firms are concerned with?
    • 1. total costs
    • 2. marginal costs
    • 3. variable costs
    • 4. fixed costs
  171. ___________ any cost that does not depend on the firm’s level of output (Q).
    Fixed costs
  172. Rent on a store and property taxes are considered ________.

  173. Sunk costs are also known as ______. Check all that apply.

  174. For ________ costs, firms have no choice but to pay them in the short run.
  175. Fixed costs influence our decisions.
    A. True
    B. False

    We cannot do anything about them so why care.
  176. How do we find average fixed costs?
    TFC/q = AFC
  177. Draw the total fixed costs in the short run and an average fixed costs in the long run.
    • Short run --> straight line (horizontal)
    • Long run --> downward sloping (like a demand curve)
  178. Average fixed costs _________ as quantity rises.

  179. As quantity increase, total fixed costs


  180. __________ is a cost that depends on the level of production chosen.

  181. Lemons and labor at a lemonade stand are examples of _________.

  182. Variable cost _____ change as quantity changes.

  183. Variable costs are also known as _____.
    Fixed costs are also known as ______.
    • TVC
    • and
    • TFC
  184. How do you calculate average variable costs?
    TVC/q = AVC
  185. Remember this equation when looking at how much capital or labor intensive technologies you are going to use.
    TVC= (Kx PK)+ (Lx PL
  186. How do we calculate average total costs?
    ATC = AFC + AVC


    TC/ q = ATC
  187. How do we calculate total costs?
    TC = FC + VC
  188. There are no fixed costs in the long run.
    A. true
    B. false
  189. _________ is the increase in total cost that results from producing one more unit of output.  Marginal costs reflect changes in variable costs only since fixed costs do not change.
    Marginal cost
  190. How do we calculate marginal cost?
    MC = change in TC/change in Q
  191. Your variable costs will ________ if you increase production.
    A. fall
    B. rise
    C stay the same
    D. none of the above
  192. What are the 2 effects of fixed costs on firms?
    • 1. leads to diminishing marginal returns
    • 2. limits its capacity to produce
  193. Marginal costs ultimately _______ with output in the short run.

  194. The law of diminishing marginal returns is the same as the law of increasing marginal costs.
    A. true
    B. false
  195. The fixed costs at the production of zero, will stay the same in the _____.
    A. long run
    B. short run
  196. Draw the graphs for the marginal product and the marginal costs.
    • The marginal product increases and then decreases once it hits about 2.
    • The marginal cost decreases at first and then it increases once it hits about 2.
  197. The shape of the short-run marginal cost curve is fundamentally attributed to: 
    A. the short run curve not allowing firms to make decisions 
    B. A capacity constraint due to limited fixed       inputs

  198. Marginal cost intersects average variable cost at the lowest, or minimum, point of AVC.
    A. True
    B. False

    Try to draw the curves
  199. Draw the average variable curve and the marginal cost curve.
    • The marginal costs curve is like a check mark.
    • The average variable costs is like a U with the marginal costs intersecting at the lowest point.
  200. Marginal cost below average -->pulls average down--> average declining
    Marginal cost above average-->pulls average up--> average increasing
  201. What is the difference between the total fixed costs and the total variable costs?
    the total fixed costs.

    Draw the graphs.
  202. Lecture 15, slide 42 is REALLY helpful.
    Look it up.
  203. If marginal cost is below average total cost, average total cost will decline toward marginal cost.  If marginal cost is above average total cost, average total cost will increase.   As a result, marginal cost intersects average total cost at ATC’s minimum point
  204. If you want a review of all the costs
    Go to Lecture 15, slide 48
  205. When we talk about costs in economics, we are always talking about the economic costs.
    A. True
    B. False
  206. What is the main goal for the long run?

  207. _______ is a curve that indicates the lowest average cost of production at each rate of output when the size or “scale” of the firm is allowed to vary.
    The long run average cost curve
  208. For a long run average cost curve, each point of tangency represents the least cost way of producing that level of output.
    A. True
    B. False
  209. _________ is an increase in a firm’s scale of production leads to lower costs per unit produced.

  210. ___________ is an increase in a firm’s scale of production has no effect on costs per unit produced.

  211. ___________ is an increase in a firm’s scale of production leads to higher costs per unit produced.

  212. Wal-Mart is a firm that has achieved _______.

  213. You have a lemonade stand and you make another one. You make the same prices. This firm has achieved _________.

  214. ____________ is the lowest point on the LRAC.  It is also known as the optimum plant size (where production occurs at the lowest possible cost), and varies for each firm/industry.
    Minimum efficient scale

    It can occur over a range, it does not just have to be a point. The range is where the curve is flat.
  215. MES is the lowest rate of _________.

  216. If P>AVC the firm should not shut down.
    A. True
    B. False
  217. If P<AVC the firm should not shut down.
    A. True
    B. False
  218. If the P>AVC the firm should shut down.
    A. True
    B. False
  219. If P<AVC the firm should shut down.
    A. True
    B. False
  220. If P> ATC then there is a _________ profit.
    A. negative
    B. positive
    I don't know
  221. How do you calculate profits?
    • Profits = TR - TC
    • Profits = Q (P - ATC)
  222. A firm will want to produce where ______ to maximize profits.

  223. Marginal revenue is also known as ________.


    • This is important when we are trying to set
    • MR =MC
  224. When P=ATC the profit is _________.

  225. Overall, the best option for society is when a firm sets ________.


    This is efficient because benefit = society
  226. If the benefit is greater than the marginal cost, ____ products should be produced.
    A. more
    B. less
  227. If the marginal cost is greater than the benefit, _______ products should be produced.
    A. more
    B. less
  228. Where marginal benefit = marginal cost, it is considered socially efficient because we have allocated all the goods.
    A. true
    B. false
  229. ________ is an industry structure with many fully informed buyers and sellers of a standardized product and no obstacles to entry or exit of firms in the long run.
    Perfectly competition
  230. What are the 5 characteristics of a perfectly competitive firm?
    • 1.There are many small firms and many small consumers.
    • 2.The firms sell a homogeneous product (commodity).
    • 3.Everyone (buyers and sellers) has access to full information.
    • 4.There is unrestricted entry and exit to the market, (but not necessarily “costless”).
    • 5.Prices are not fixed or regulated by the state
  231. __________ can change their level of output without affecting the price. The follow the price given and change their output in response.

  232. You are on the Drillfield and want to buy a pencil. There are 200 companies selling at one price. No one can make their own price but they can choose their own quantities. This is a _____ firm.
    perfectly competitive
  233. Wheat, copper, and stocks are examples of products that are __________.

  234. Which one is perfectly competitive?


    If you can think of a brand name for a certain product, it is probably not perfectly competitive.
  235. The curve for a perfectly competitive firm is ___________.


    • Same price, different quantities
    • Because they have a perfect $1,000 substitutes because there are 1,000 other companies that are selling the same product
  236. Buyers know exactly what they are buying is a characteristic of ________ firms.

  237. Unprofitable firms can leave the market and new firms can enter profitable markets.
    This is a characteristic of ___________.

  238. Which is Not a characteristic of a perfectly competitive firm

  239. Where does the price taken for perfect competition come from?

  240. For a perfectly competitive firm, the demand curve is equal to what?


    D = P = MR =AR
Card Set
ECON Exam 2
Notecards for Exam 2