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?
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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.
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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?
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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, average cost is rising.
When marginal cost is greater than average cost, average cost is rising.
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What happens when there are economies of scale?
What happens when there are economies of scale?
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When do diminishing returns occur?
When do diminishing returns occur?
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Describe the control an individual seller in a perfectly competitive market has.
Describe the control an individual seller in a perfectly competitive market has.
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What are firms assumed to maximize in economics?
What are firms assumed to maximize in economics?
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How are profits calculated?
How are profits calculated?
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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?
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To maximize profits, how long does a firm increase its output?
To maximize profits, how long does a firm increase its output?
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When does a firm maximize its profits?
When does a firm maximize its profits?
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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?
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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.
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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.
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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?
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Match long-run outcomes with their effect on the market supply curve.
Match long-run outcomes with their effect on the market supply curve.
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What is the formula for economic profit?
What is the formula for economic profit?
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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?
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How do competitive firms maximize profits?
How do competitive firms maximize profits?
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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 what?
A firm has market power when it can what?
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Why does marginal revenue lie below the demand curve for a monopoly?
Why does marginal revenue lie below the demand curve for a monopoly?
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How does a monopoly maximize profits?
How does a monopoly maximize profits?
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To maximize profits, a monopoly produces less output than a competitive firm.
To maximize profits, a monopoly produces less output than a competitive firm.
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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?
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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.
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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?
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In a monopolistically competitive market, firms produce what?
In a monopolistically competitive market, firms produce what?
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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?
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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?
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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?
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What characterizes an oligopoly?
What characterizes an oligopoly?
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What is often used to explain firm behavior in an oligopoly?
What is often used to explain firm behavior in an oligopoly?
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When is collusion most likely to occur?
When is collusion most likely to occur?
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How do airlines practice price discrimination?
How do 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.