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Questions and Answers
What is the difference between short-run profit maximization and long-run profit maximization?
What is the difference between short-run profit maximization and long-run profit maximization?
Short-run profit maximization focuses on minimizing costs while maximizing output with fixed factors. Long-run profit maximization focuses on maximizing output with adjustments to all inputs, including plant size and capital investment.
Which of the following is a fixed cost?
Which of the following is a fixed cost?
What is the definition of marginal cost?
What is the definition of marginal cost?
Marginal cost is the additional cost incurred when producing one more unit of output.
What is a cartel?
What is a cartel?
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What is the key difference between perfect competition and monopolistic competition?
What is the key difference between perfect competition and monopolistic competition?
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Explicit costs are payments made directly by the firm, while implicit costs are the opportunity costs of using resources already owned by the firm.
Explicit costs are payments made directly by the firm, while implicit costs are the opportunity costs of using resources already owned by the firm.
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What is the main goal of competition law?
What is the main goal of competition law?
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In a perfectly competitive market, firms are price takers, meaning they cannot influence the market price.
In a perfectly competitive market, firms are price takers, meaning they cannot influence the market price.
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What is economic profit?
What is economic profit?
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Which of the following is NOT a characteristic of a perfectly competitive market?
Which of the following is NOT a characteristic of a perfectly competitive market?
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Study Notes
Economic Costs and Profit
- Firms aim to maximize profit, defined as total revenue minus total costs.
- Total revenue is the price per unit multiplied by the quantity sold.
- Total cost consists of variable costs (costs that change with production) and fixed costs (costs that do not change with production).
- A firm's revenue depends on demand for its product.
Two Types of Costs
- Explicit costs: Out-of-pocket payments made by the firm (e.g., wages, rent).
- Implicit costs: The opportunity cost of using resources already owned by the firm (e.g., using a building you own for a business instead of renting it out).
Accounting Profit vs Economic Profit
- Accounting profit: Total revenue minus explicit costs.
- Economic profit: Total revenue minus all costs (explicit and implicit). This includes the opportunity cost of forgone alternatives. Economic profit helps determine a business's success.
Monopsony and Oligopsony
- Monopsony: A market with only one buyer for a product or service.
- Oligopsony: A market with only a few buyers for a product or service.
- These situations can give buyers significant market power, allowing them to potentially influence prices and production decisions.
Theory of Cost and Profit
- All firms strive to earn profits.
- Profit equals total revenue minus total costs.
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Description
Explore the fundamental concepts of economic costs and profit in business. This quiz covers total revenue, total costs, explicit and implicit costs, and the distinctions between accounting and economic profit, as well as market structures like monopsony and oligopsony. Test your understanding of these key economic principles.
