Which of the following markets will have the largest deadweight loss quizlet?

1. Social Science
2. Economics
3. Managerial Economics

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Which of the following markets is most likely to resemble a perfectly competitive market?

A. Many companies produce white socks and consumers consider all white socks as identical.
B. Scholastic Inc. owns the Canadian copyright for the COMM 295 textbook used at UBC. (monopoly)
C. Many stores in the mall sell hats. Each store's hat reflects the style of that particular store. (monopolistically competitive)
D. Both A. and C.

Many companies produce white socks and consumers consider all white socks as identical.

Assume Whistler Blackcomb (WB) is trying to decide whether to provide skiing services in the month of April. If it provides the service R = $24,000, variable cost of making artificial snows and other admin costs VC = $20,000. WB has to pay rent of $12,000 per month whether it operates of shunts down.
A. WB should shut down in April as its R > VC in April (by operating).
B. WB should operate in April although it loses $8,000.
C. WB should shut down in April as its C > R in April by operating.
D. WB should operate in April as it makes $4,000 profits in April.

WB should operate in April although it loses $8,000.

(Profits operate = 24 - 20 - 12 = - 8
Profits shut down = - 12, WB has to pay FC even if it shuts down, if R > VC, then operate (even at loss). If R - VC > FC, the company makes profits.)

In a competitive market, the market price is between minimum ATC and minimum AVC. In this case, a firm with upward sloping MC will

A. Keep producing in the short run but exit in the long run.
B. Shut down in the short run.
C. Shut down in the short run and exit in the long run
D. Keep producing in both the short and long run.

Keep producing in the short run but exit in the long run.

In a long run equilibrium of a competitive market when profits are zero, what must be true?
A. P = ATC > MC.
B. P = MC = AVC.
C. P > MC = ATC.
D. P = MC = ATC.

P = MC = ATC.

(In the LR equilibrium, a) P = MC for profit max and b) P = ATC for zero profits. So P = MC = ATC.)

Perfect competition occurs in a market where there are many firms, each selling

A) an identical product.
B) a similar product.
C) a unique product.
D) a capital-intensive product.
E) a competitive product.

an identical product.

A price-taking firm faces a

A) perfectly inelastic demand.
B) downward-sloping marginal revenue curve.
C) downward-sloping supply curve.
D) perfectly elastic demand.
E) downward-sloping demand curve.

perfectly elastic demand.

If a firm faces a perfectly elastic demand for its product, then

A) it is not a price taker.
B) it will want to lower its price to increase sales.
C) it will want to raise its price to increase total revenue.
D) its marginal revenue curve is horizontal at the market price.
E) it will always make zero economic profit.

its marginal revenue curve is horizontal at the market price.

its marginal revenue curve is horizontal at the market price.

(In a perfectly competitive market, each unit is sold for the same P and so P = MR)

A firm shuts down if price is

A) above minimum AVC.
B) below minimum AVC.
C) above minimum AFC.
D) less than MC.
E) below ATC.

below minimum AVC.

(a firm shuts down in a short run when R<VC<P<min AVC)

A firm will shut down temporarily when the price is so low that total revenue is insufficient to cover the

A) total cost of production.
B) total variable cost of production.
C) total fixed cost of production.
D) marginal cost of production.
E) average variable cost of production.

total variable cost of production.

(If you produce when R < VC, then loss > FC (or equal to FC + VC-R). If you shut down your loss = FC, less than when produce. So shut down.)

Suppose a firm is trying to decide whether to temporarily shut down to minimize total loss. If price equals average variable cost and the firm continues to produce,

A) total revenue equals total fixed cost, and the loss equals total variable cost.
B) total revenue equals total variable cost, and the loss equals total fixed cost.
C) total fixed cost is zero.
D) total variable cost equals total fixed cost.
E) total cost equals total variable cost.

total revenue equals total variable cost, and the loss equals total fixed cost.

(When R=VC or R just covers only VC but not FC, loss = FC.)

In a perfectly competitive market, a firm maximizes its profit by producing the quantity of output at which

A) market price = AFC.
B) market price = MC.
C) AVC =AFC.
D) market price = minimum AVC.
E) market price = MR.

market price = MC.

(P = MR is always true for a competitive firm. It will maximize profits only when P or MR = MC.)

A perfectly competitive firm's short run supply curve is the same as its MC curve at all prices above minimum

A) ATC.
B) AFC.
C) total C.
D) AVC.
E) total VC.

AVC.

(If P < min AVC, firms shut down and supply = 0.)

A perfectly competitive firm is maximizing profit or minimizing loss if it is producing the quantity at which

A) MC = price and price is not below minimum AVC.
B) MC = price and price is not below minimum AFC.
C) total R is at a maximum.
D) AVC is at a minimum.
E) ATC is at a minimum.

MC = price and price is not below minimum AVC.

(As long as P >= min AVC or R > VC, a firm should produce in the short run otherwise loss will be even higher = FC)

If a perfectly competitive firm is producing an output at which P = minimum ATC, the firm

A) should shut down.
B) is breaking even.
C) is making an economic profit.
D) is incurring an economic loss.
E) is not producing its profit-maximizing quantity.

is breaking even.

(When P = min ATC = MC, profits are zero note when P = ATC, profits =0)

If a perfectly competitive firm's MR < MC, the firm

A) cannot increase its economic profit.
B) must be making an economic profit.
C) will decrease its output to increase economic profit.
D) will increase its output to increase economic profit.
E) must raise the price.

will decrease its output to increase economic profit.

(When MC > MR, firms are overproducing and can increase profits by decreasing Q.)

In the price range below minimum AVC, a perfectly competitive firm's supply curve is
A) horizontal at the market price.
B) vertical at zero output.
C) the same as its MC curve.
D) the same as its AVC curve.
E) the same as its total VC curve.

vertical at zero output.

(When P < min AVC, firms shut down and produce zero)

In a perfectly competitive market, the market P = $8. An individual firm is producing the output at which MC = $8. AVC at that output is $10. What should the firm do to maximize its economic profit in the short run?
A) shut down
B) expand output
C) contract output but continue to produce D) leave output unchanged
E) raise the price

shut down.

(Since P = MC = 8 < AVC = 10, the firm should shut down.)

In which one of the following situations will a perfectly competitive firm make an economic profit?

A) MR > AVC
B) MR > ATC
C) ATC > MC
D) ATC > MR
E) MC > AVC

MR > ATC.

(P = MR and when P =MR > ATC, firms' profits > 0.)

If a profit-maximizing firm in a perfectly competitive market is making an economic profit, then it must be producing a level of output where

A) P > MC.
B) P > MR.
C) MC > MR.
D) MC > ATC.
E) ATC > MC.

MC > ATC

(Profits are maximized when P = MC. And if P = MC > ATC, firms make positive profits.)

In the short run, the firm will
A) exit from the industry if P > AVC.
B) break even.
C) make an economic profit.
D) incur an economic loss if P > AVC and P < ATC
E) raise the price.

incur an economic loss if P > AVC and P < ATC

(A firm produces and suffers economic loss if P < min ATC but higher then min AVC.)

Franklin is a fiddlehead farmer. He sold 10 bags of fiddleheads last month, with total FC = $100 and total VC = $50. If the price P = $15 per bag, Franklin
A) should have shut down because R < VC.
B) incurred an economic loss of $135.
C) made zero economic profit.
D) made an economic profit of $50.
E) made an economic profit of $100.

made zero economic profit.

(R = 15*10 = 150 and C = 100+50 =150)

When a perfectly competitive market is in long-run equilibrium,

A) at least one firm makes an economic profit.
B) all firms make zero economic profit.
C) firms enter the market if other firms are making an economic profit.
D) firms exit the market if other firms are incurring an economic loss.
E) marginal revenue equals minimum average variable cost.

all firms make zero economic profit.

(In the long run, competitive firms make zero profits.)

If firms in a perfectly competitive market are making an economic profit, new firms will enter. This entry shifts the market

A) demand curve leftward, and the market price falls.
B) demand curve rightward, and the market price rises.
C) supply curve leftward, and the market price rises.
D) supply curve rightward, and the market price falls.
E) supply curve rightward and the market demand curve leftward.

supply curve rightward, and the price market falls.

(More firms---supply shift right.)

The market for maple syrup is perfectly competitive and is in a long-run equilibrium. When the market demand for maple syrup increases. All of the following occur except

A) in the long run, firms make an economic profit.
B) the price rises in the short run.
C) the equilibrium quantity increases.
D) in the short run, existing firms make an economic profit.
E) the number of firms in the long run is greater than the number of firms in the short run.

in the long run, firms make an economic profit.

(At LR equilibrium, P = min ATC and firms make zero profits. When D shifts right, P is higher and each firm produces more (than before or at LR equilibrium). Positive profits attract new firms in the long run and market S shifts right until P = min ATC and profits = 0. Each firm will produce less (= in LR equilibrium) but total Q is high as there are more firms in the market.)

If a monopoly's fixed costs increases, its price will ________ and profits will ________.

A. Increase; decrease.
B. Decrease; decrease.
C. Stay the same; decrease.
D. Stay the same; stay the same

Stay the same; decrease.

(Profit maximizing q is given by MR = MC. Notice that MR depends on D whereas MC depends on VC only. So fixed cost does not affect profit-maximizing P and Q)

A company is considering building a bridge across a river. The bridge would cost 1 million to build and $2 to maintain per crossing. If a private company is to build the bridge, how much should it charge per crossing?

A. 2
B. 3 (PS = R - VC = 21 - 14= 7
C. 4 (PS = 20 - 10 = 10.)
D. 5 (PS = 15 - 6 = 9)

4(PS = 20 - 10 = 10.)

(A private company maximizes PS. This happens at MR = MC.)

What is the underlying reason behind deadweight loss in a monopoly market?

A. The monopoly firm makes more profits than a competitive firm.
B. Some potential buyers who are priced out value the good more than MC of production.
C. Since consumers have to pay higher, their consumer surplus is reduced.
D. The quantity produced fails to equate P = Average Costs.

Some potential buyers who are priced out value the good more than MC of production.

(some goods that are NOT sold due to higher monopoly price have higher MB than MC. Another way to look at it is: due to higher P, CS falls more than PS gain)

When a competitive market is dominated by a monopolist

A. the monopolist gain > consumers' loss.
B. monopolist gain < consumer loss.
C. the monopolist gain = consumers loss.
D. Consumer loss = DWL
E. Producer gain = DWL.

monopolist gain < consumer loss.
(due to higher P, CS falls more than monopoly's gain in PS; with monopoly relative comp market, PS increases and CS decreases. But loss in CS > gain in PS causing DWL.)

A natural monopoly exists when
A. the government protects the firm by granting an exclusive franchise.
B. production can take place with constant returns to scale.
C. there are no rivals in the market.
D. one firm can supply the entire market at a lower cost than two or more firms.
E. the average total cost curve is upward sloping.

one firm can supply the entire market at a lower cost than two or more firms.

(A natural monopoly has an economies scale and can produce at a lower costs than two or more firms as by producing more, its ATC falls)

Which one of the following is an example of a natural barrier to entry of new firms into an industry?

A. licensing of professions
B. economies of scale
C. issuing a patent
D. a public franchise
E. ownership of a significant portion of a key resource

economies of scale.

To prevent monopoly from arising, there must be

freedom of entry into the market.

A single-price monopoly is a firm that ________ each unit of its output ________. A ________ monopoly sells different units of a good or service for different prices.

must sell; for the same price to all its customers; price-discriminating.

Canada Post has a monopoly on residential mail delivery. Pfizer Inc. makes Lipitor, a prescription drug that lowers cholesterol. Rogers Communications is the sole provider of cable television service in some parts of Ontario. The monopolies which are legal monopolies are

Canada Post and Pfizer.

(Canada post is government created and Pfizer has monopoly due to patent over its innovation.)

A monopoly is a market with a single firm that

A. produces a good or service for which no close substitute exists and which is protected by a barrier that prevents other firms from selling that good or service.
B. purchases its factors of production from only one supplier because of a barrier preventing it from buying from other suppliers.
C. produces a good or service for which no close substitute exists and that sells all its output to one buyer because there is barrier preventing other buyers from purchasing the good or service.
D. cannot control the price it sets for its good or service because there is barrier that prevents the firm from changing the price.
E. produces its good or service using labour from a single source, which is usually a union.

produces a good or service for which no close substitute exists and which is protected by a barrier that prevents other firms from selling that good or service.

Firms that can price discriminate between customers do so to

increase economic profit.

(By price discriminating, a monopoly can make even higher profits or PS.)

To increase sales from 7 units to 8 units, a single-price monopolist cuts the price from $7 per unit to $6 per unit. What is MR from selling the 8th unit?

-$1

(R1 = 77 = 49 and R2 = 68 = 48. MR = increase in R from an extra sales = -1)

If a profit-maximizing monopoly is producing an output at which MC > MR, it

A) raises the price and decreases output to increase economic profit.
B) lowers the price and increases output to increase economic profit.
C) lowers the price and decreases output to increase economic profit.
D) is incurring an economic loss.

raises the price and decreases output to increase economic profit.

(When MC > MR, it is overproducing. So decreasing Q and raising P can increase profits.)

Given a linear demand, if MR = 0, then demand at this level of output is

unit elastic

(Since MR is twice steeper than D curve, MR = 0 at the midpoint where E = -1.)

If the demand for its good or service is elastic, a monopoly's

marginal revenue is positive

(On the elastic side of D curve, MR > 0 and on the inelastic side MR <0. This is the reason why a monopolist does not produce at the inelastic side of D curve.)

For a single-price monopoly, MR < P because

A. the revenue gained from the last unit sold is offset by further gains in price on units not sold at all.
B. total revenue always decreases as output increases.
C. the revenue gained from the last unit sold is offset by a revenue loss on the units that previously had been sold at a higher price. D. the price does not need to be lowered on all previous units sold. E. demand is perfectly elastic.

the revenue gained from the last unit sold is offset by a revenue loss on the units that previously had been sold at a higher price.

(When one more unit is sold, monopoly has to decrease P for all units including sold previously at a higher P. So the monopoly gains R from the extra unit but loses R from the previous units.)

Nicole is a hotdog vendor; she spends $10 for ingredients and sells $60 worth of hotdog in two hours. If she could have mowed her neighbour's lawn for $30 in those two hours, what is her economic profit?
A. 10.
B. 50.
C. 20.
D. 40.

20.

(Opportunity cost = Explicit cost + implicit cost = 10+30 = 40. Revenue = 60. So profits = 20)

A firm produces 20 bikes in a day; its daily rental cost for its factory is $200. The cost of producing each extra bike is constant and is equal to $15. If the firm were to increase production to 21 units, which of the following must occur?
A. ATC will increase.
B. ATC will decrease.
C. AVC will increase.
D. AVC will decrease.

ATC will decrease.

(The cost of producing each extra is constant and so MC and AVC do not change. If you produce more, FC gets distributed over larger amount and AFC and hence ATC decline.)

The government imposes $100 daily tax on the bike factory. Which cost curves shift upwards as a result?
A. ATC and MC.
B. ATC and AVC.
C. ATC and AFC.
D. AVC and MC.

ATC and AFC.

(Tax = 100 (irrespective of production level) and so is a FC. Thus AFC and ATC increase or shift up.)

The implicit rental rate

is the firm's opportunity cost of using the capital it owns

Flora's Flowers bought a new van last year for $10,000. It can now sell the van for $8,500. To buy this year's model of the same van it would have to pay $11,000. What is the one-year amount of economic depreciation?

$1,500 (depreciation=10,000 - 8500)

Which of the following is part of a firm's opportunity cost of production? I. wages II. utility costs III. interest on a bank loan IV. interest forgone on funds used to buy capital equipment

I, II, III, IV

When the demand for electricity peaks during the hottest days of summer, Hydro One can generate more electricity by using more fuel and increasing the working hours of many of its employees. The company cannot, however, increase electric power production by building additional generating capacity. This means that the company is operating in the

short run (Generating plant size is fixed fuel and workers are variable)

Suppose a firm increases the quantity of labour employed from 5 to 6 workers, and as a result, the firm's total output increases from 100 units to 400 units. The marginal product of the sixth worker is

300

Which one of the following statements is true?
A) The highest value of AP occurs where AP is greater than MP.
B) When the AP curve is rising, MP is less than AP.
C) When the AP curve is falling, MP is greater than AP.
D) The maximum total product occurs at minimum MP.
E) The highest value of AP occurs where AP = MP.

The highest value of AP occurs where AP = MP.

(If MP > AP, AP increases; if MP < AP, AP decreases. At MP =AP, AP is max.)

The law of diminishing marginal returns refers to the tendency for the ________ to eventually decrease as more labour is employed, everything else remaining the same.

MP of labour

When the MP of labour is less than the AP of labour,

the firm is experiencing diminishing marginal returns.

(In this portion of production, AP is declining. For AP to decline MP < AP. With declining AP and MP < AP, each successive MP must be lower.)

When Coffee 'n' Cream in Victoria, British Columbia hires two students, 64 customers can be served in one hour. Suppose the manager of the restaurant observes that after hiring the third student, 80 customers are being served in one hour. The MP of the third student is ________ customers per hour.

16

Suppose the MP of energy equals the AP of energy. This implies that

AP is at its maximum value.

Choose the correct statement.
A) When MP of labour > AP of labour and MP is either increasing or decreasing AP of labour is increasing.
B) When total product is increasing AP of labour and MP of labour are both increasing.
C) When MP of labour > = AP of labour, AP of labour is increasing.
D) When MP of labour is increasing, AP of labour > MP of labour.
E) When total product is increasing, AP of labour is decreasing and MP of labour is increasing

When MP of labour > AP of labour and MP is either increasing or decreasing AP of labour is increasing.

(For AP to decline the only requirement is MP < AP, not that MP is declining)

Which one of the following is false?

A) The MC curve intersects the AVC curve and the ATC curve at their maximum points.
B) When MC > AVC, AVC is increasing.
C) When MC > ATC, ATC is increasing.
D) The ATC curve is U-shaped.
E) The AFC curve is downward sloping.

The MC curve intersects the AVC curve and the ATC curve at their maximum points.

(MC passes through the minimum of ATC or AVC.)

15) Which one of the following statements is false?
A) The ATC curve and AVC curve are U-shaped.
B) The gap between the ATC curve and the AVC curve equals MC.
C) The gap between the ATC curve and the AVC curve narrows as output increases.
D) The MC curve intersects the AVC curve at minimum AVC.
E) The MC curve intersects the ATC curve at minimum ATC.

The gap between the ATC curve and the AVC curve equals MC.

(ATC - AVC = AFC, not MC)

As soon as diminishing returns set in, a firm's

MC increases.

(Diminishing MP is the source behind increasing MC)

A firm's total fixed cost is $100. If total cost is $200 for one unit of output and $310 for two units, what is the MC of the second unit?

110

(C(q =1) = 200. C(q=2)= 310. So MC of 2nd unit = 110. Note MC is also equal to an increase in VC for one more unit)

If the ATC curve is falling, then the MC curve must be

below ATC.

(ATC falls when MC < ATC Note MC does not have to be falling)

The MC curve shifts upward if

factor prices rise.

(With higher factor price, the cost of producing one more unit will be higher.)

The AFC curve shifts upward if
A) factor prices rise.
B) a new technology is introduced.
C) more workers are hired.
D) all of the above.
E) none of the above.

none of the above.

The marginal cost curve slopes upward due to

diminishing marginal returns.

(The primary reason behind increasing MC is diminishing MP.)

A technological advance will shift
(1) TP, AP, and MP curves up.
(2) TP, AP, and MP down.
(3) TC, ATC, and MC curves up.
(4) TC, ATC, and MC curves down.
A) (1) and (3)
B) (1) and (4)
C) (2) and (3)
D) (2) and (4)
E) (1) only

1 and 4.

Ernie's Earmuffs produces 200 earmuffs per year at a total cost of $2,000 and $400 of this cost is fixed. What is Ernie's total variable cost?

1600

Economies of scale are present when

the LRAC curve slopes downward.

Which of the following markets will have the largest deadweight loss?
A) a single-price monopoly
B) a perfectly competitive market
C) a perfectly price discriminating monopoly
D) a monopoly that discriminates among groups of buyers
E) a monopoly that discriminates among units of a good

a single price monopoly

A monopoly can practice price discrimination when it
A) can segment the market according to the different prices the consumers are willing to pay.
B) is a price taker.
C) has different marginal costs of production for different output levels.
D) has decreasing average variables cost.
E) produces a good with close substitutes.

can segment the market according to the different prices the consumers are willing to pay.

Which of the following quotes by a store manager describes price discrimination in action?
A) "Since bulk goods are cheaper to package, I can offer a lower price."
B) "I can get a 4-litre jug of milk from the supplier for less than four 1-litre cartons, so I can sell it for less per litre."
C) "We offer our employees a 10 percent price discount."
D) "I offer discounts if you buy 12 apple juice cartons in one box, although it costs me the same as if I split it up and sell them separately."
E) "We set price equal to average variable cost."

"I offer discounts if you buy 12 apple juice cartons in one box, although it costs me the same as if I split it up and sell them separately."

Donna owns the only dog grooming salon on Lonely Island. If Donna can price discriminate between dog owners who are seniors and those who are not, her economic profit will be ________ than if she does not price discriminate and the number of dog groomings will be ________ if she does not price discriminate.

greater; more than
(With group-based price discrimination, a monopoly can make more profits and produces more quantity)

Which of the following occurs with both perfectly price-discriminating and single-price monopolies?
A) The amount of output is inefficient.
B) All consumer surplus goes to the monopoly.
C) Deadweight loss is created.
D) Consumer surplus is smaller than in a perfectly competitive industry.
E) Demand is perfectly elastic

Consumer surplus is smaller than in a perfectly competitive industry.

(CS is highest under competitive market But note DWL = 0. Also note: DWL is also zero under perfect price discrimination as Q is the same as competitive market)

A price cap is a price ________. A price cap might be a more effective way of regulating monopoly than rate of return regulation because under rate of return regulation, ________.
A) ceiling; a firm incurs an economic loss
B) floor; price is set equal to marginal cost
C) ceiling; the firm's managers have an incentive to inflate costs
D) floor; the firm's managers have an incentive to purchase more than the efficient quantity of capital
E) floor; the firm's managers have an incentive to inflate costs

ceiling; the firm's managers have an incentive to inflate costs

(Under rate of return regulation, monopoly can charge price based on (return on) capital investment and so this regulation provides incentives to invest more or inflate costs.)

Rent seeking

increases deadweight loss above the original monopoly deadweight loss, but the monopoly continues to produce the same inefficient quantity.

monopoly

arises because of no close substitutes and barrier to entry, sets its price and output at levels to maximize economic benefit, inneffecient because MSB > MSC, deadweight loss, brings redistribution

Barrier to Entry

a natural or legal constraint that protects a firm from potential competitors: natural, ownership, legal.

natural monopoly

economies of scale enable one firm to supply the entire market at the lowest possible cost.

ownership barrier to entry

occurs if one firm owns a significant portion of a key resource.

legal barrier to entry

a market in which competition and entry are restricted by the granting of a public franchise, government license, patent, or copyright.

public franchise

exclusive right granted to a firm to supply a good or service, Canada Post.

patent

exclusive right granted to the inventor of a product, copyright is a patent for artistic work, stimulates invention.

single price monopoly

a firm that must sell each unit of its output for the same price to all its customers.

price discrimination

sells different units of a good or service for different prices, among buyers or units of a good.

Demand is elastic when

1 percent fall in price brings a greater than 1 percent increase in the quantity demanded.

Demand is inelastic when

1 percent fall in price brings less than 1 percent increase in the QD.

Demand is unit elastic when

1 percent fall in price brings a 1 percent increase in QD.

in a monopoly

demand is always elastic, if it is not it could charge a higher price, produce a smaller quantity, and increase its profit.

maximizing economic profit

if MC = MR, TC and TR both rise as output increases. But, TC rises increasingly and TR rises decreasingly.

Economic profit

TR-TC or PS - TFC

MR > MC

profits increase if output increases.

MC > MR

profits increase if output decreases.

D

MSB

S

MSC,

Competitive Equilibrium

MSB = MSC, Total Surplus mazimized, firms produce at the lowest possible long-run average cost, and resource use is efficient.

a monopoly produces smaller output than perfect competition

faces no competition, so it does not produce at lowest possible long-run average cost, monopoly produces less, increases costs of production and the increases the price.

economic rent

any surplus - consumer surplus, producer surplus, or economic profit.

rent seeking

The lobbying for special treatment from the government to create economic profit or to divert consumer surplus or producer surplus away from others, buys or creates monopoly for their goals.

Producer Surplus

TR - TVC

perfect price discrimination

Occurs when a firm charges the maximum amount that buyers are willing to pay for each unit, no deadweight loss, achieves efficiency, monopoly takes all total surplus.

Perfect Competition Characteristics

total surplus is shared by consumers and producers.

solution to negative externality

property rights, clean technology, tax or price pollution, abatement technology, produce less pollute less.

firm's goal

maximize profit

short run

a time frame in which the quantity of at least one factor of production is fixed

long run

The time frame in which the quantities of all resources can be varied.

sunk cost

a cost incurred by the firm and cannot be recovered once spent, irrelevant to firm's current decisions, zero opportunity costs.

law of diminishing returns

as a frim uses more variable input with a quantity of fixed inputs, the marginal product of the variable input eventually diminishes.

Why is ATC U-shaped?

As Q rises, initially falling AFC pulls ATC down. Eventually, rising AVC pulls ATC up

long-run average cost curve

relationship between the lowest attainable ATC and output when both the plant size and labor are varied

economies of scale

a firm that enjoys economies scaler when tis long run ATC falls as it produces more. MC < ATC.

diseconomies of scale

ATC increases as firm produces more and constant returns to scale.

minimum efficient scale

firm experiences economies of scale up to some output level, quantity of output at which the long-run ATC is minimum.

possible causes of economies of scale

-volume discounts on purchases of inputs such as raw materials
-manufacturing and promotional economies of scale
-larger firm can borrow at lower interest rates
-large fixed cost

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Which of the following markets will have the largest deadweight loss?

Which of the following statements is most correct deadweight loss is the?

Which of the following creates deadweight loss in a market that is perfectly competitive?

Which of the following markets is most likely to resemble a perfectly competitive market?