Podcast
Questions and Answers
What is the formula for Average Total Cost?
What is the formula for Average Total Cost?
Fixed Cost + Variable Cost
Define Marginal Cost.
Define Marginal Cost.
Change total cost / change quantity produced
What is the formula for Average Product of Labor?
What is the formula for Average Product of Labor?
Quantity produced / labor output
What does marginal cost equal?
What does marginal cost equal?
If a firm is experiencing diminishing returns to labor, marginal cost must be increasing.
If a firm is experiencing diminishing returns to labor, marginal cost must be increasing.
What causes the short-run average total cost curve to have a U-shape?
What causes the short-run average total cost curve to have a U-shape?
Which curve passes through the minimum point of the average total cost curve?
Which curve passes through the minimum point of the average total cost curve?
When marginal cost is greater than average cost, average cost is rising.
When marginal cost is greater than average cost, average cost is rising.
What happens when there are economies of scale?
What happens when there are economies of scale?
When do diminishing returns occur?
When do diminishing returns occur?
Describe the control an individual seller in a perfectly competitive market has.
Describe the control an individual seller in a perfectly competitive market has.
What are firms assumed to maximize in economics?
What are firms assumed to maximize in economics?
How are profits calculated?
How are profits calculated?
For a firm in a perfectly competitive market, what is marginal revenue always equal to?
For a firm in a perfectly competitive market, what is marginal revenue always equal to?
To maximize profits, how long does a firm increase its output?
To maximize profits, how long does a firm increase its output?
When does a firm maximize its profits?
When does a firm maximize its profits?
What happens to economic profits in the long run in a competitive market, if firms earn economic profits in the short run?
What happens to economic profits in the long run in a competitive market, if firms earn economic profits in the short run?
In a perfectly competitive industry where firms are making economic losses, some firms in the industry may exit the industry.
In a perfectly competitive industry where firms are making economic losses, some firms in the industry may exit the industry.
All other things equal, when firms enter a perfectly competitive market, market supply increases, and market price decreases.
All other things equal, when firms enter a perfectly competitive market, market supply increases, and market price decreases.
What is at its minimum point when a perfectly competitive market is at the long-run equilibrium?
What is at its minimum point when a perfectly competitive market is at the long-run equilibrium?
Match long-run outcomes with their effect on the market supply curve.
Match long-run outcomes with their effect on the market supply curve.
What is the formula for economic profit?
What is the formula for economic profit?
Choose the most complete and accurate response: At the long-run perfectly competitive equilibrium, what is the relationship between price, marginal revenue, average cost, and minimum average cost?
Choose the most complete and accurate response: At the long-run perfectly competitive equilibrium, what is the relationship between price, marginal revenue, average cost, and minimum average cost?
How do competitive firms maximize profits?
How do competitive firms maximize profits?
Which of the following is true of a monopoly? (Select all that apply.)
Which of the following is true of a monopoly? (Select all that apply.)
A firm has market power when it can what?
A firm has market power when it can what?
Why does marginal revenue lie below the demand curve for a monopoly?
Why does marginal revenue lie below the demand curve for a monopoly?
How does a monopoly maximize profits?
How does a monopoly maximize profits?
To maximize profits, a monopoly produces less output than a competitive firm.
To maximize profits, a monopoly produces less output than a competitive firm.
What kind of market is it when a single producer can produce large quantities efficiently because of extensive economies of scale?
What kind of market is it when a single producer can produce large quantities efficiently because of extensive economies of scale?
At the monopoly equilibrium, a portion of the consumer surplus has been transferred to the monopolist.
At the monopoly equilibrium, a portion of the consumer surplus has been transferred to the monopolist.
What is an industry called when there are a few firms and each of them reacts to the other firms' moves?
What is an industry called when there are a few firms and each of them reacts to the other firms' moves?
In a monopolistically competitive market, firms produce what?
In a monopolistically competitive market, firms produce what?
What is the difference between short-run demand and long-run demand for a firm in monopolistic competition?
What is the difference between short-run demand and long-run demand for a firm in monopolistic competition?
Compared with a monopoly, a monopolistically competitive industry in long-run equilibrium results in what?
Compared with a monopoly, a monopolistically competitive industry in long-run equilibrium results in what?
Compared with perfect competition, a monopolistically competitive industry in long-run equilibrium results in what?
Compared with perfect competition, a monopolistically competitive industry in long-run equilibrium results in what?
What characterizes an oligopoly?
What characterizes an oligopoly?
What is often used to explain firm behavior in an oligopoly?
What is often used to explain firm behavior in an oligopoly?
When is collusion most likely to occur?
When is collusion most likely to occur?
How do airlines practice price discrimination?
How do airlines practice price discrimination?
Flashcards
Average Total Cost
Average Total Cost
Fixed Cost + Variable Cost
Average Fixed Cost
Average Fixed Cost
Fixed / Quantity produced
Marginal Cost
Marginal Cost
Change total cost / change quantity produced
Average Product of Labor
Average Product of Labor
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Marginal cost equals
Marginal cost equals
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If a firm is experiencing diminishing returns to labor,
If a firm is experiencing diminishing returns to labor,
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The short-run average total cost curve gets its U-shape as a result of:
The short-run average total cost curve gets its U-shape as a result of:
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Which curve passes through the minimum point of the average total cost curve?
Which curve passes through the minimum point of the average total cost curve?
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When marginal cost is greater than average cost,
When marginal cost is greater than average cost,
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Economies of scale occur when an increase in inputs causes
Economies of scale occur when an increase in inputs causes
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Diminishing returns occur when the
Diminishing returns occur when the
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An individual seller in a perfectly competitive market
An individual seller in a perfectly competitive market
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In economics, firms are assumed to maximize:
In economics, firms are assumed to maximize:
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Profits are
Profits are
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For a firm in a perfectly competitive market, marginal revenue is always equal to:
For a firm in a perfectly competitive market, marginal revenue is always equal to:
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To maximize profits, a firm increases its output as long as
To maximize profits, a firm increases its output as long as
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A firm maximizes its profits when
A firm maximizes its profits when
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In a competitive market, if firms earn economic profits in the short run, then economic profits in the long run will
In a competitive market, if firms earn economic profits in the short run, then economic profits in the long run will
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In a perfectly competitive industry where firms are making economic losses,
In a perfectly competitive industry where firms are making economic losses,
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All other things equal, when firms enter a perfectly competitive market,
All other things equal, when firms enter a perfectly competitive market,
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Which of the following is at its minimum point when a perfectly competitive market is at the long-run equilibrium?
Which of the following is at its minimum point when a perfectly competitive market is at the long-run equilibrium?
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All firms earn zero economic profits.
All firms earn zero economic profits.
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Some firms earn positive economic profits.
Some firms earn positive economic profits.
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Some firms incur economic losses.
Some firms incur economic losses.
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Economic profit equals
Economic profit equals
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Choose the most complete and accurate response: At the long-run perfectly competitive equilibrium,
Choose the most complete and accurate response: At the long-run perfectly competitive equilibrium,
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A competitive firm maximizes profits by producing the output level at which
A competitive firm maximizes profits by producing the output level at which
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Which of the following is true of a monopoly? (Select all that apply.)
Which of the following is true of a monopoly? (Select all that apply.)
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A firm has market power when it can
A firm has market power when it can
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Marginal revenue lies below the demand curve because
Marginal revenue lies below the demand curve because
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A monopoly maximizes profits by producing the output level at which
A monopoly maximizes profits by producing the output level at which
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To maximize profits, a monopoly
To maximize profits, a monopoly
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A market in which a single producer can produce large quantities efficiently because of its extensive economies of scale is called a:
A market in which a single producer can produce large quantities efficiently because of its extensive economies of scale is called a:
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Which of the following is true about the monopoly equilibrium?
Which of the following is true about the monopoly equilibrium?
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An industry in which there are a few firms and each of them reacts to the other firms' moves is called:
An industry in which there are a few firms and each of them reacts to the other firms' moves is called:
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In a monopolistically competitive market, firms produce
In a monopolistically competitive market, firms produce
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Which of the following is the difference between short-run demand and long-run demand for a firm in monopolistic competition?
Which of the following is the difference between short-run demand and long-run demand for a firm in monopolistic competition?
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Compared with a monopoly, a monopolistically competitive industry in long-run equilibrium results in
Compared with a monopoly, a monopolistically competitive industry in long-run equilibrium results in
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Compared with perfect competition, a monopolistically competitive industry in long-run equilibrium results in
Compared with perfect competition, a monopolistically competitive industry in long-run equilibrium results in
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An oligopoly is an industry characterized by:
An oligopoly is an industry characterized by:
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Game theory is often used to explain firm behavior in:
Game theory is often used to explain firm behavior in:
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Collusion will most likely occur when
Collusion will most likely occur when
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Which of the following most accurately describes how airlines practice price discrimination?
Which of the following most accurately describes how airlines practice price discrimination?
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Study Notes
Cost Concepts
- Average Total Cost (ATC) = Fixed Cost + Variable Cost
- Average Fixed Cost (AFC) = Fixed Cost / Quantity Produced
- Marginal Cost (MC) = Change in Total Cost / Change in Quantity Produced
- Average Product of Labor (APL) = Quantity Produced / Labor Output
- Marginal Cost equals the change in total cost given a one-unit change in output.
- Diminishing returns to labor cause marginal cost to increase.
- Short-run ATC curves are U-shaped due to diminishing marginal returns.
- The MC curve intersects the ATC curve at the ATC curve's minimum point.
- When MC > ATC, ATC is rising.
- Economies of scale mean a more-than-proportionate increase in output.
- Diminishing returns occur when marginal product of an input falls.
Perfect Competition
- In perfect competition, individual sellers have no control over price but can control quantity.
- Firms aim to maximize profits.
- Profit = Total Revenue - Total Costs
- In perfect competition, marginal revenue = market price
- Firms increase output as long as marginal revenue > marginal cost.
- Profit maximization occurs when marginal revenue equals marginal cost.
- Short-run economic profits drive new firms into the market, shifting supply right and lowering price, eliminating profits in the long run.
- If firms lose money in the short run, some might exit the industry, shifting supply left and raising price, eliminating losses.
- Long-run equilibrium in perfect competition has all firms earning zero economic profit when price equals minimum average total cost.
Monopoly
- Monopolies have no close substitutes, high barriers to entry, and market power.
- Firms can change price without losing all market share.
- Marginal revenue is below the demand curve because price declines as output increases.
- Monopolies maximize profits where marginal revenue equals marginal cost.
- Monopolies produce less output than competitive firms.
- A natural monopoly results from extensive economies of scale.
- In monopoly equilibrium, some consumer surplus is transferred to the monopolist.
Imperfect Competition
- Oligopoly has a few sellers who react to each other's moves.
- Game theory is used to explain oligopoly behavior.
- Collusion is more likely when firms interact frequently.
- Monopolistic competition involves differentiated products.
- Long-run demand results in zero economic profit.
- Monopolistic competition has lower price and greater output than monopoly, but higher price and lower output than perfect competition.
Cost and Profit
- Economic profit is equal to accounting profit minus implicit cost.
- Long-run competitive equilibrium: P = MR = AC = minimum (AC).
- To maximize profits, a competitive firm produces at the output level where marginal revenue equals marginal cost.
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Description
This quiz covers essential economic concepts related to cost structures and market dynamics under perfect competition. You'll explore average total cost, marginal cost, and the firm's role in a competitive market. Test your understanding of these fundamental principles in economics.
