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  1. ___ is an institution that hires factors of
    production and organizes them to produce and sell goods and services.
    A firm
  2. A firm’s goal is to
    maximize profit
  3. If the firm fails to maximize its profit, the firm is either
    • eliminated or bought out by other firms
    • seeking to maximize profit.
  4. Profit equals
    total revenue minus total cost
  5. Economic profit profit is equal to
    total revenue minus total cost, with total cost measured as the opportunity cost of production.
  6. Firms that survive in the long run are usually those that
    earn the largest possible profit
  7. Over a given period, economic depreciation is the change in capital equipment's
    market value
  8. The average return for supplying entrepreneurial ability is the firm's
    Normal Profit
  9. Economic profit is the difference between total revenue and
    opportunity costs of production.
  10. Technological efficiency necessarily means producing
    without using excess inputs.
  11. Economic efficiency occurs when the firm produces a given output at the
    least cost
  12. The stockholders of a corporation have ________ liability and ________ required to pay all of the firm's losses.
    limited; are not
  13. The four-firm concentration ratio equals the percentage of the value of ________ accounted for by the four ________ firms in the industry.
    sales; largest
  14. Suppose the four-firm concentration ratio for an industry is 10 percent. This value indicates ________. If the four-firm concentration ratio for another industry is 95 percent, this value indicates ________.
    the industry is competitive; the industry has very little competition
  15. Herfindahl-Hirschman Index
    • It is the square of the percentage market share of each firm summed over the largest 50 firms (or summed over all the firms if there are fewer than 50) in a market.
    • A small index is indicative of a high degree of competition.
    • The index is used to measure the degree of competition.
  16. Suppose there are five firms in the disposable diaper market. Hug-Me's share is 30 percent. Plumper's share is 30 percent. Drippy's share is 20 percent. Kool Kid's share is 10 percent. Nappomatic's share is 10 percent. The Herfindahl-Hirschman Index in this industry is
  17. The implicit rental rate of capital is made up of
    • Economic depreciation
    • Interest forgone
  18. is the change in the market value of capital over a given period.
    Economic depreciation
  19. is the return on the funds used to acquire the capital.
    Interest forgone
  20. occurs when a firm produces a given level of
    output by using the least amount inputs.
    Technological efficiency
  21. occurs when the firm produces a given level of
    output at the least cost
    Economic efficiency
  22. FACT: An economically efficient production process also is technologically efficient but A technologically efficient process may not be economically efficient.
  23. is the problem of devising compensation rules that induce anagent to act in the best interests of a principal.
    principal–agent problem
  24. Three ways of coping with the principal–agent problem are
    • Ownership
    • Incentive pay
    • Long-term contracts
  25. ___ often offered to managers, gives the managers
    an incentive to maximize the firm’s profits, which is the goal of the owners, the principals.
  26. ___ links managers’ or workers’ pay to the firm’s
    performance and helps align the managers’ and workers’ interests with those of the owners, the principals.
    Incentive pay
  27. There are three types of business organization
    • Proprietorship
    • Partnership
    • Corporation
  28. ____ is a firm with a single owner who has unlimited liability, or legal responsibility for all debts
    incurred by the firm—up to an amount equal to the entire wealth of the owner.
  29. makes management decisions and receives the
    firm’s profit.
  30. ____ is a firm with two or more owners who have
    unlimited liability.
  31. Profits from ____ are taxed as the personal income of the owners.
  32. is owned by one or more stockholders with limited liability, which means the owners who have legal
    liability only for the initial value of their investment.
  33. ___ is a market structure with many firms

    -Each firm produces similar but slightly different products—called product differentiation

    -Each firm possesses an element of market power

    -No restrictions on entry of new firms to the industry
    Monopolistic competition
  34. ___ is a market structure in which a small number of firms compete, the firms might produce almost identical products or differentiated products, barriers to entry limit entry into the market
  35. ____ is a market structure in which one firm produces the entire output of the industry.
    There are no close substitutes for the product.
    There are barriers to entry that protect the firm from competition by entering firms.
  36. is the percentage of the total industry sales
    accounted for by the four largest firms in the industry.
    four-firm concentration ratio
  37. is the square of percentage market share of
    each firm summed over the largest 50 firms in the industry.
    Herfindahl–Hirschman index (HHI)
  38. are the costs arising from finding someone
    with whom to do business, reaching agreement on the price and other aspects of the exchange, and ensuring that the terms of the agreement are fulfilled.
    Transactions costs
  39. occur when the cost of producing a unit of a
    good falls as its output rate increases.
    Economies of scale
  40. arise when a firm can use specialized inputs to produce a range of different goods at a lower cost than otherwise.
    Economies of scope
  41. The short run is a period of time in which
    the quantity used of at least one resource is fixed
  42. The long run is a period of time in which
    all factors of production are variable.
  43. A firm's total cost (TC) equals the sum of its fixed cost plus its
    variable cost
  44. Total fixed cost is the sum of all
    costs of the firm's fixed inputs
  45. Total variable cost is the sum of all
    costs that rise as output increases
  46. Marginal cost is the increase in total ________ that results from a one-unit increase in ________.
    cost; output
  47. Average fixed cost is equal to
    total fixed cost divided by quantity
  48. Average variable cost is equal to
    average total cost minus average fixed cost.
  49. Economies to scale refer to
    the range of output over which the long-run average cost falls as output increases.
  50. When long-run average cost increases as output increases there are
    diseconomies of scale
  51. is a cost incurred by the firm and cannot be
    A sunk cost
  52. is the total output produced in a given period.
    total product
  53. The __ of labor is the change in total product that
    results from a one-unit increase in the quantity of labor employed, with all other inputs remaining the same.
    marginal product
  54. The __ of labor is equal to total product divided by the quantity of labor employed.
    average product
  55. In perfect competition, the
    market demand for the good or service is large relative to the minimum efficient scale of a single producer.
  56. In ______ there are many firms that sell identical products
    perfect competition
  57. Because each perfectly competitive firm sells a product identical to that of the other firms,
    each firm's output is a perfect substitute for the output of any other firm.
  58. Economists assume that a perfectly competitive firm's objective is to maximize its
    Economic profit
  59. In perfect competition, the marginal revenue of an individual firm is
    equals the price of the product
  60. A firm is producing the profit-maximizing amount of output when it is producing where its ________ curve intersects its ________ curve.
  61. Suppose firms in a perfectly competitive industry are incurring an economic loss. As firms exit, the price ________ and the economic loss of the surviving firms ________.
  62. ____ can influence the market quantity and price.
    unregulated monopolies
  63. When Dominant Pizza is willing to sell a pizza to a student who lives on-campus at a lower price than it is willing to sell the identical pizza to a student who lives a block away from the campus, the pizza firm is ________
    practicing price discrimination
  64. The marginal revenue curve for a single-price monopoly
    lies below the market demand curve.
  65. For a single-price monopolist that is maximizing profit, the price is
    greater than the marginal cost
  66. When comparing perfect competition to a single-price monopoly with the same costs,
    there is a deadweight loss associated with a monopoly.
  67. Monopolistic competition is a market structure in which
    a large number of firms compete.
  68. Firms in monopolistic competition charge prices that
    are close to those of the other firms in the industry
  69. Monopolistic competition is a market structure in which
    Monopolistic competition is a market structure in which
  70. In monopolistic competition, each firm has a demand curve with a ________ and there ________ barriers to entry into the market.
    negative slope; are no
  71. If firms in a monopolistically competitive industry are earning an economic profit, then
    new firms will enter the industry.
  72. A monopolistically competitive firm can increase its economic profit by ________.
    developing new products
  73. In monopolistic competition, advertising costs
    A) are fixed costs. B) can result in the firm producing an amount of output such that its average total costs are lower than if it did not advertise. C) shift the ATC curve upward.
  74. Monopolistically competitive firms constantly develop new products in an effort to
    increase the demand for their product.
  75. Oligopoly is a market structure in which ________ barriers to entry, and in which ________ number of firms compete.
    there are; a small
  76. Example of oligopoly
    Cellular telephone service
  77. The kinked demand curve model is based on the assumption that each firm believes that
    if it cuts its price, the other firms will lower their prices.
  78. A dominant firm oligopoly arises when one firm produces a large part of the industry's output and has
    a substantial cost advantage over its competitors
  79. In a dominant firm oligopoly there is one firm that can effectively act like a ________ and a few other firms that act like firms in ________.
    monopolist; perfect competition
  80. Game theory is used to explain firms' decisions in
    an oligopoly
  81. In the prisoners' dilemma game, when each player takes the best possible action given the action of the other player, ________.
    a Nash equilibrium is reached
  82. In a prisoners' dilemma game, which of the following strategies gives the best outcome for both prisoners?
    A) Both deny (collusion).
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