Part II – Chapter 13 through Ch. 21
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________ _______ is the amount a firm receives for the sale of its output.
________ _______ is the market value of the inputs a firm uses in production.
________ _______ are input costs that require an outlay of money by the firm.
________ _______ are input costs that do not require an outlay of money by the firm.
Total revenue minus total cost, including both explicit and implicit costs = ______ _____.
Total revenue minus total explicit cost = ______ _____.
____ ____ is the relationship between quantity of inputs used to make a good and the quantity
of output of that good.
_____ ____ is the increase in output that arises from an additional unit of input.
_____ ____ _____ is the property whereby the marginal product of an input declines as the
quantity of the input increases.
T/F – The total cost curve gets flatter as the quantity of output increases because of diminishing
marginal product.
Costs that do not vary with the quantity of output produced are called _____ ____.
Costs that do vary with the quantity of output produced are called ____ ____.
Total cost divided by the quantity of output = _____ _____ _____.
Fixed costs divided by the quantity of output = _____ _____ ____.
Variable costs divided by the quantity of output = ____ ___ ____.
The change in total costs that arises from an extra unit of production = ____ ____.
The quantity of output that minimizes ATC is called the ______ _____.
T/F – The MC curve intersects both the ATC & AVC curves at their minimums.
T/F – If MC is below ATC, ATC per unit is falling. When MC is above ATC, ATC per unit is rising.
In the ____ ____, at least one input is fixed, usually the firm’s factory size. However, in the ____
____, all inputs are variable, allowing companies to select a factory size that can lead to cost
advantages.
The property whereby long-run ATC falls as the quantity of output increases is called ______ __
_______.
The property whereby long-run ATC rises as the quantity of output increases is called ____ ___
_______.
The property whereby long-run ATC stays the same as the quantity of output changes is called
______ ____ __ ______.
Economies of Scale result because _____________ allows the firm’s workers to be better off at
his or her assigned tasks, thereby lowering the firm’s long-run ATC per unit produced.
Diseconomies of Scale result because __________ problems that are inherent in any large
organization make it difficult for managers to keep costs down. As output is increased in the
long-run, ATC per unit increases.
A _______ ______ has three characteristics: there are many _______ and ______ in the market,
the goods offered by the various sellers are ______________, and there is _____ ____ and ____.
A PC Firm is said to be a ______ _____ as it receives the going price in the market and cannot
bring enough supply to the market to have an impact on the market price.
The profit maximizing output level for a PC Firm, and for any firm for that matter is where ____
= _____.
29. In the Short Run, a firm will either ______ ____ or ____ ____ depending on if they can cover
their _____ _____. If price is greater than or equal to _____, the firm will remain open in the
short run. If it is not, they will _____ _____. Another way to state the same condition is if Total
Revenue is greater than or equal to _______ ______ _______.
30. T/F – Firms can enter and exit in the short run.
31. ____ ____ are costs that have already been incurred and cannot be recovered. These costs
should not impact the decision of a company moving forward.
32. In the Long Run, a firm will either exit or remain open. If its ______ is greater than or equal to its
_____ ____ ____ or if its _____ _____ is greater than or equal to is ____ _____.
33. T/F – A PC firm’s short run supply curve is the portion of the MC curve that lies above ATC.
34. Since a PC Firm is a price taker, in the long run, it receives ________ _____.
35. T/F - In the short run, it’s possible for a PC firm to experience either positive or negative
economic profits.
36. A Monopoly’s Demand Curve will always lie above its MR Curve because
_____________________________________________________________________.
37. A Monopoly is a _____ ____ because it charges a price that exceeds its __ __ & __ __. Since it
can charge a higher price that a PC Firm, it can produce a smaller quantity. This smaller output
level is called ______ _____. Due to the smaller than desired output level, a _____ ____ results.
38. A Monopoly that produces at the socially optimal level is producing where the ___ ___ curve
intersects the ____ ___.
39. A Monopoly is protected by high barriers to entry. These include government protection in the
form of: _____, ___ & _____; ______ _______ due to the fact that one firm can serve the entire
market at a lower cost than if the market was opened up to competition, and that a single
company controls a _____ _____.
40. T/F – A Natural Monopoly has a U-Shaped ATC curve that allows it to serve an entire market at a
lower cost than that of a competitive market.
41. A Monopoly’s MR curve intersects the x axis at a specific quantity. The demand curve is _____
for all quantities leading up to the intersecting point. After MR goes negative, the demand curve
becomes ____________.
42. T/F – The lower portion of the demand curve is elastic while the upper portion of the demand
curve is inelastic.
43. T/F – A Monopoly charges a Price that equals MR & MC while a PC Firm charges a Price that is
greater than MR & MC.
44. The practice of selling the same good at different prices to different customers according to
their maximum willingness to pay is referred to as __________ ___________ ___________.
45. Perfect Price Discrimination ______ _____ for the producer, results in a consumer surplus that
equals ______, and raises ________ _________ because all consumers who want the product
can now buy it.
46. T/F – A Natural Monopoly arises when there are economies of scale over a relevant price range.
47. ______ ______ = the change in Total Revenue divided by the change in Quantity or can be
represented simply by Price.
48. When MR < MC, a firm should ______ quantity to maximize profits.
49. When MR > MC, a firm should ______ quantity to maximize profits.
50. A firm will enter into an industry in the Long Run if ____ > ____ or ____ > ____ as it would be
profitable to do so.
51. When a monopoly increases the amount it sells, it has two effects on Total Revenue. These
effects are the _________ Effect (since more output is sold, Q is higher) and the ________ Effect
(as Price falls, P is lower).
52. Two Important Antitrust Laws that are geared towards increasing competition within a market
are the __________ _______ ___ (1890) which attempted to reduce the power of the big trusts
of that time period and the ____________ ____ (1914) which strengthened the government’s
enforcement powers and authorized private lawsuits.
53. The Government may regulate the prices that a monopoly charges. In an attempt to increase
economic efficiency, the government could require a monopoly to set Price = to ______ ____.
However, this would not work for a Natural Monopoly because its ATC is continually declining as
quantity increases.
54. T/F – Price discrimination by a monopoly can reduce deadweight losses and raise economic
welfare.
55. Two examples of Imperfect Competition are ________ and ________ __________.
56. “With this form of market structure, because there are few sellers, there is tension between
cooperation and self-interest.” This statement refers to ____________.
57. T/F – Oligopolies wish to compete on price because they are independent of each other.
58. ______ is an agreement among firms in a market about quantities to produce or prices to
charge. Such an arrangement is illegal.
59. A _______ __________ is a situation in which economic actors interacting with one another
each choose their best strategy given the strategies that all the others have chosen.
60. A _______ __________ is the best strategy for a player to follow regardless of the strategies
chosen by the other players.
61. ____________ is difficult to maintain within an Oligopoly because it is not in the best interest of
the individual players.
62. A Monopolistic Competitive firm is one that has _______ sellers, sells a ____________ product,
and has low ________ ___________.
63. Since each Monopolistically Competitive firms have some price making ability, they have a
___________-_____ ________ _______.
64. Since there is free entry and exit, the number of firms in a Monopolistically Competitive market
will adjust in the Long run until economic profits are _________. The Long Run quantity for a
firm is found where the _________ kisses the ____ _____ at the profit maximizing price &
quantity combination.
65. ___ ___ economic profits encourage new firms to ____ the market in the ___ ___. This increases
the number of products offered. Because to the new entrants, supply in the market _________
and demand for each individual firm _________. The impact of the new entrants is that the
market price ________.
66. When there are negative economic profits in either a Perfectly Competitive market or a
Monopolistically Competitive market, firms will exit in the long run. The impact of this
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occurrence __________ quantity supplied in the total market and __________ the quantity
demanded for each remaining firm.
In Long Run Equilibrium, a Monopolistically Competitive firm is similar to a _________ because
its price exceeds MC. Additionally, it is similar to a ________ ______ firm because its Price =
ATC.
The two noteworthy differences between a Monopolistically Competitive market and a PC
Market are ____ ____ and _______.
T/F – There is not any excess capacity in the Long Run for a Monopolistically Competitive firm.
T/F – Because there is a markup of Price above MC for a Monopolistically Competitive firm, the
firm contributes to a loss of surplus in society (i.e. – it creates a deadweight loss).
Because Monopolistically Competitive firms have some level of product differentiation, it’s
important for them to communicate these differences to their customers through _______.
_____ __ ________ are the inputs used to produce goods and services.
The demand for a factor of production is based on the firm’s decision to supply a good or service
in the product market. This type of demand is referred to as ___________ _______.
The Production Function illustrates the relationship between the quantity of inputs used and the
quantity of output of a good. The Production Function is illustrated by a Total Product Curve
that gets ___________ as additional units of input (workers or machines) are added to the
production process. The reason for this is directly attributed to the quality of ___________
_________ ___________.
The _______ _____ _ ______ is the increase in the amount of output from an additional unit of
labor. It is represented by the Change in Quantity / the Change in Labor.
The Value of the Marginal Product of Labor is also referred to as the _________ ____ ____ __
_____. It can be calculated by taking ______ x the _________ ________ __ _______.
To maximize profit, the competitive, profit maximizing firm hires workers up to the point where
the ______________________________.
T/F - When a firm can increase the Marginal Physical Product of each of its workers through the
adoption of a new technology, its demand curve for labor shifts to the right, enabling the firm to
hire more workers.
The labor supply curve reflects how workers’ decisions about the ______-_____ _______
respond to changes in opportunity cost.
T/F – An upward-sloping labor supply curve means that an increase in the wages induces
workers to increase the quantity of labor they supply.
The labor supply curve in the factor market can shift when there are changes in ________ ,
______ ______ and ___________.
An increase in the supply of labor results in a __________ in the equilibrium wage rate. Since
________ ________ are now lower, firms will hire more workers. This new wage ________ the
MRPL of each worker.
An increase in the demand for labor on the part of firms puts __________ pressure on wages
and ________ the MRPL of each worker.
The economy’s accumulation of capital goods is referred to as its ________ _________.
The _____ ____ is what a person pays to use a factor of production for a limited period of time.
86. The rental price of capital is determined by supply and demand; with each firm increasing the
quantity of capital employed in their operations up to the point where _______ _____ _____
___ _____ is greater than or equal to the __________ ________.
87. T/F – A change in the supply of one factor alters the earnings of all the factors.
88. ______ ______ is the accumulation of investments in people, such as education and on-the-job
training.
89. The Income Distribution within a country can be measured by dividing the total population into
________ in an effort to analyze the equity among the different groups.
90. The ________ __________ is used to analyze the income distribution within a country. Included
within it is a 45 degree line and a second curve. The dispersion between the two curves is
measured by the ______ ________.
91. Consumer Satisfaction is measured by analyzing the consumer’s __________ associated with a
purchase decision.
92. The marginal benefit associated with the additional purchase of a product begins to decline due
to ___________ ___________ ___________.
93. Faced with a budget constraint and two product options, customers will seek to maximize total
utility by selecting the combination of products that allows them to experience the “biggest
bang for their buck” for each product. To find this combination of products, you will need to use
which formula?
94. A ___________ is one in which there is one buyer in a market. For example, there could be only
one firm in town that offers employment to the entire town. With regard to this type of market
structure, the firm will hire a quantity of workers that is ___________ than the socially desired
quantity, while paying a wage that is __________ than the socially optimal wage. Can you draw
it?
95. T/F – A Giffen Good is a good that when price is increased, demand for the good increases.
Part 2:
1. Total Revenue
2. Total Cost
3. Explicit Costs
4. Implicit Costs
5. Economic Profit
6. Accounting Profit
7. Production Function
8. Marginal Product
9. Diminishing Marginal Product
10. False
11. Fixed Costs
12. Variable Costs
13. Average Total Costs
14. Average Fixed Costs
15. Average Variable Costs
16. Marginal Cost
17. Efficient Scale
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True
True
Short Run, Long Run
Economies of Scale
Diseconomies of Scale
Constant Returns to Scale
Specialization
Coordination
Competitive Market, Buyers, Sellers, Homogeneous, Free Entry & Exit
Price Taker
MR = MC
Remain Open, Shut Down, AVC, Shut Down, Total Variable Costs
False
Sunk Costs
Price, ATC, Total Revenue, Total Cost
False
Normal Profit
True
In order to sell an additional unit of output, it must lower the price on all previous units.
Price Maker, MR, MC, Excess Capacity, Deadweight Loss
MC, Demand
Patents, Copyrights & Trademarks, Natural Monopolies, Key Resource
False
Elastic, Inelastic.
True
False
Perfect Price Discrimination
Increases Profits, Zero, Economic Welfare
True
Average Revenue
Decrease
Increase
TR > TC, P > ATC
Output, Price
Sherman Antitrust Act, Clayton Act
Marginal Cost
True
Oligopoly, Monopolistic Competition
Oligopoly
False
Collusion
Nash Equilibrium
Dominant Strategy
Cooperation
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Many, Differentiated, Entry Barriers
Downward-Sloping Demand Curve
Zero or Normal, ATC, Demand Curve
Short Run, Enter, Long Run, Increases, Decreases, Falls
Decreases, Increases
Monopoly, Perfectly Competitive
Excess Capacity, Markup
False
True
Advertising
Factors of Production
Derived Demand
Flatter, Diminishing Marginal Returns or Diminishing Marginal Product
Marginal Product of Labor
Marginal Revenue Product of Labor, Price, Marginal Product of Labor (or Marginal Physical
Product)
MRPL is greater than or equal to the Wage
True
Labor-Leisure Tradeoff
True
Tastes, Alternative Opportunities, Immigration
Decrease, Resource Costs, Reduces
Upward, Raises
Capital Stock
Rental Price
Marginal Revenue Product of Capital, Rental Price
True
Human Capital
Quintiles
Lorenz Curve, Gini Coefficient
Utility
Diminishing Marginal Utility
MU of good 1 / Price of good 1 = MU of good 2 / Price of good 2
Monopsony, Lower, Lower
True