true
Implicit costs are considered as economic costs.
true
Fixed costs are those that remain constant in total over a given range of output.
true
Marginal cost is the increase in total cost resulting from the production of one more unit of output.
false
Marginal revenue and marginal cost will always be equal.
false
The law of diminishing marginal productivity is applicable only to the use of labor as a factor of production.
true
Average product can be defined as the output per unit of input.
false
Implicit costs are recognized by accountants as part of the real cost of production.
false
Implicit costs involve a direct cash payment for the use of a resource.
false
All other things constant, higher implicit costs result in lower accounting profit.
true
If all my savings are invested in my consulting company, an increase in interest rates increases implicit costs.
false
The graph of average fixed cost is a horizontal line.
true
In the long run, all of a firm's inputs are variable.
false
In the short run, all costs are fixed.
true
In the long run, all inputs are variable.
true
The marginal cost curve intersects the average variable cost curve at its minimum.
false
If a firm experiencing "economies of scale" decreases its output, its long-run average cost will decrease.
true
If a firm is experiencing diseconomies of scale, its long-run marginal cost curve is upward sloping.
false
Profits are maximized where average cost and average revenue are equal.
true
Since all costs are variable in the long run period, the firm must cover all costs to stay in business.
false
An individual seller or buyer can influence the market price under conditions of pure competition.
true
Pure profits tend to be a temporary phenomenon under conditions of pure competition.
false
If marginal cost is less than marginal revenue, an expansion of output will decrease profit.
true
Under pure competition, average revenue and marginal revenue will always be equal.
true
The marginal cost curve should cross the AVC and the ATC curves at their lowest points.
true
Under conditions of pure competition, price eventually will equal cost at the lowest point of the long-run ATc curve at the optimum scale of operation.
false
The short-run price in pure competition is generally considered a stable price because all firms can at least break even.
true
Profits are dynamic in pure competition insofar as they are constantly changing in amount and among firms.
true
When a firm has reached the optimum scale of operation, no further cost advantages arise from the greater size.
true
One of the disadvantages of pure competitioon is the possible waste associated with the duplication of plant and equipment.
true
An equilibrium price results in the "clearing of the market.
false
Perfect competition is characterized by a large number of differentiated products.
true
Average variable cost will drop, reach a minimum, and begin to rise with increasing output.
true
A necessary condition associated with the law of diminishing marginal productivity is that only one factor should be varied.
true
Profit maximization for a firm depends upon demand conditions, as well as upon productivity and costs.
true
An industry consists of all firms that supply output to a particular market.
false
Perfectly competitive firms are sometimes called price makers because they have significant control over product price.
false
In perfect competition, each firm's output is a large fraction of total market supply.
false
Because it is small relative to the market, a perfectly competitive firm faces an inelastic demand curve for its output.
true
If a perfectly competitive firm raises its price, its sales decreases to zero.
true
For a perfectly competitive firm, price is identical to marginal revenue at every quantity.
true
Marginal revenue is the change in total revenue from selling one more unit of output.
true
A firm with positive accounting profit may be suffering an economic loss.
true
If a perfectly competitive firm shuts down in the short run, its variable cost equals zero.
false
When marginal revenue equals marginal cost, the firm just "breaks even.
false
In the long run in perfect competition, no firm can earn a normal profit.
false
After an increase in demand in a constant-cost industry, firms will find themselves with higher average cost curves.
true
If, as a result of a change in demand in a perfectly competitive increasing-cost industry, price and quantity rise, demand must have risen.
true
A market is said to be allocatively efficient when the marginal cost of producing each good equals the marginal benefit that consumers derive from that good.
accounting profit
a firm's total revenue minus its explicit costs
average total cost
total cost divided by output, or ATC = TC/q; the sum of average fixed cost and average variable cost, or ATC = AFC + AVC
average variable cost
variable cost divided by output, or AVC = VC/q
constant long-run average cost
a cost that occurs when, over some range of output, long-run average cost neither increases nor decreases with changes in firm size
diseconomies of scale
forces that may eventually increase a firm's average cost as the scale of operation increases in the long run
economic profit
a firm's total revenue minus its explicit and implicit costs
economies of scale
forces that reduce a firm's average cost as the scale of operation increases in the long run
explicit cost
opportunity cost of resources employed by a firm that takes the form of cash payments
fixed cost
any production cost that is independent of the firm's rate of output
fixed resource
any resource that cannot be varied in the short run
implicit cost
a firm's opportunity cost of using its own resources or those provided by its owners without a corresponding cash payment
increasing marginal returns
the marginal product of a variable resource increases as each additional unit of that resource is employed
law of diminishing marginal returns
as more of a variable resource is added to a given amount of a fixed resource, marginal product eventually declines and could become negative
long run
a period during which all resources under the firm's control are variable
long-run average cost curve
a curve that indicates the lowest average cost of production at each rate of output when the size, or scale, of the firm varies; also called the planning curve
marginal cost
the change in total cost resulting from a one-unit change in output; the change in total cost divided by the change in output, or MC = ? TC/?q
marginal product
the change in total product that occurs when the use of a particular resource increases by one unit, all other resources constant
minimum efficient scale
the lowest rate of output at which a firm takes full advantage of economies of scale
normal profit
the accounting profit earned when all resources earn their opportunity cost
production function
the relationship between the amount of resources employed and a firm's total product
short run
a period during which at least one of a firm's resources is fixed
total cost
the sum of fixed cost and variable cost, or TC = FC + VC
total product
a firm's total output
variable cost
any production cost that changes as the rate of output changes
variable resource
any resource that can be varied in the short run to increase or decrease production
allocative efficiency
the condition that exists when firms produce the output most preferred by consumers; marginal benefit equals marginal cost
average revenue
total revenue divided by quantity, or AR = TR/q; in all market structures, average revenue equals the market price
commodity
a standardized product, a product that does not differ across producers, such as bushels of wheat or an ounce of gold
constant-cost industry
an industry in which each firm's long-run average cost curve does not shift up or down as industry output changes
golden rule of profit maximization
to maximize profit or minimize loss, a firm should produce the quantity at which marginal revenue equals marginal cost; this rule holds for all market structures
increasing-cost industries
industries in which firms encounter higher average costs as industry output expands in the long run
long-run industry supply curve
a curve that shows the relationship between price and quantity supplied by the industry once firms adjust in the long run to any change in market demand
marginal revenue (MR)
the firm's change in total revenue from selling an additional unit; a perfectly competitive firm's marginal revenue is also the market price
market structure
important features of a market, such as the number of firms, product uniformity across firms, firm's ease of entry and exit, and forms of competition
perfect competition
a market structure with many fully informed buyers and sellers of a standardized product and no obstacles to entry or exit of firms in the long run
price taker
a firm that faces a given market price and whose quantity supplied has no effect on that price; a perfectly competitive firm that decides to produce must accept, or take, the market price
producer surplus
a bonus for producers in the short run; the amount by which total revenue from production exceeds variable cost
productive efficiency
the condition that exists when production uses the least-cost combination of inputs; minimum average cost in the long run
short-run firm supply curve
a curve that shows how much a firm supplies at each price in the short run; in perfect competition, that portion of a firm's marginal cost curve that intersects and rises above the low point on its average variable cost curve
short-run industry supply curve
a curve that indicates the quantity supplied by the industry at each price in the short run; in perfect competition, the horizontal sum of each firm's short-run supply curve
social welfare
the overall well-being of people in the economy; maximized when the marginal cost of production equals the marginal benefit to consumers