44 Questions
Which concept is referred to as 'average total cost' in the text?
Average variable cost
What is the formula for calculating marginal cost?
MC = ∆TC/∆Q
Why does marginal cost initially decline?
Because variable costs decrease
At what level of output will marginal cost and average cost be equal?
The level of output where average cost is minimized
What is the relationship between marginal revenue and marginal cost in perfect competition?
Marginal revenue is always equal to marginal cost
What is the formula for calculating total revenue?
Total revenue = P × Q
What is the formula for calculating total cost?
Total cost = QC × AC
In short-run equilibrium, can a perfectly competitive firm earn an economic profit?
It depends on the market demand
What is the difference between total revenue and total cost called?
Profit
According to the text, why are demand curves negatively sloped?
Because the value of each additional unit of the good falls as more of the good is consumed.
According to the text, what does the demand curve represent?
The willingness of consumers to pay for each additional unit of a good.
According to the text, what is consumer surplus?
The willingness of consumers to pay for each additional unit of a good.
According to the text, what is the market supply curve?
The sum of the supply curves of individual firms in the market.
According to the text, what is economic cost?
The remuneration needed to keep the productive resource in its current employment or to acquire the resource for productive use.
According to the text, what is economic profit?
The difference between total revenue and total cost.
According to the text, what is opportunity cost?
The resource's next best opportunity.
Which of the following best defines consumer surplus?
The difference between the value a consumer places on a purchase and the amount of money required to pay for it
What does a negatively sloped demand curve indicate?
As price falls, consumers are willing to buy more of the good
How can consumer surplus be interpreted?
As a measure of how much consumers value each additional unit of the good
What is the relationship between the highest price consumers are willing to pay for an additional unit and their consumption of the good?
The highest price consumers are willing to pay for an additional unit declines as they consume more and more of the good
What does it mean if a consumer receives consumer surplus from a purchase?
The price they paid was lower than the maximum amount they would have been willing to pay
Why is it important for analysts to understand the nature of equilibrium in a market?
To evaluate business pricing strategies
What is the difference between the value a consumer places on a purchase and the value of the item?
Consumer surplus
Which of the following is true about economic profit and accounting profit?
Economic profit includes opportunity cost, while accounting profit does not.
What is the equilibrium price in a perfectly competitive market with the given demand and supply functions? P = 25 − 0.5QD = − 2 + 0.2QS = P
$5.71
In a perfectly competitive market, what does each firm's demand curve look like?
A horizontal line at the equilibrium price
What is the relationship between average revenue (AR), price, and marginal revenue (MR) for an individual firm in perfect competition?
Price = AR = MR
What happens to average and marginal costs as output increases in a firm's production?
They initially decline and then increase
How is average cost (AC) calculated?
Total cost (TC) divided by output (Q)
What causes the law of diminishing returns in production?
Each additional unit of input produces a progressively smaller increase in output
Which of the following is true about the relationship between average revenue (AR), price, and marginal revenue (MR) for an individual firm in perfect competition?
AR = Price = MR
What is the relationship between total revenue (TR) and average revenue (AR) for an individual firm in perfect competition?
TR = AR x Quantity
What is the relationship between marginal revenue (MR) and price for an individual firm in perfect competition?
MR = Price
What is the formula for calculating average cost (AC) for a firm?
AC = Total cost / Output
What is the shape of the average cost (AC) and marginal cost (MC) curves in a firm's production?
U-shaped
What is the relationship between marginal cost (MC) and average cost (AC) in a firm's production?
MC intersects AC at its minimum point
What is the relationship between price and quantity in a perfectly competitive market?
Price is determined by the market supply and demand functions
Which of the following is true about economic profit and accounting profit?
Economic profit includes opportunity cost, while accounting profit does not.
What is the equilibrium price in a perfectly competitive market with the given demand and supply functions?
$5.71
Which of the following statements is true about the demand curve faced by a perfectly competitive firm?
It is a horizontal line at the equilibrium price.
What is the relationship between average revenue (AR), price, and marginal revenue (MR) for a perfectly competitive firm?
Price = Average revenue = Marginal revenue
What is the formula for calculating average cost (AC)?
AC = TC/Q
What causes average and marginal costs to increase in production?
The law of diminishing returns
What is the shape of average cost (AC) and marginal cost (MC) curves in the short run?
U-shaped
Test your understanding of economic profit and accounting profit with this quiz. Learn about the differences between the two and how opportunity cost is accounted for.
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