Question 1

Why will an industry naturally move to zero economic profits in the long run if it has free entry and exit of firms?

Accepted Answer

The answer of Why will an industry naturally move to...

Question 2

A company engaged in brand proliferation is _____ to _____.

Accepted Answer

A) encouraging product differentiation across producers; encourage the market to satisfy as many customer desires as possible 
B) encouraging market entry; give customers maximum choice 
C) producing many versions of its product; reduce profitable opportunities for new entrants 
D) changing the company name; make customers think the product is different 
A) encouraging product differentiation across producers; encourage the market to satisfy as many customer desires as possible 
B) encouraging market entry; give customers maximum choice 
C) producing many versions of its product; reduce profitable opportunities for new entrants 
D) changing the company name; make customers think the product is different

Question 3

"Learning by doing" can result in _____ for a company.

Accepted Answer

A) unique cost advantages 
B) increased product demand 
C) higher switching costs 
D) lobbying gains 
A) unique cost advantages 
B) increased product demand 
C) higher switching costs 
D) lobbying gains

Question 4

When a firm makes a capital acquisition, the implicit cost of capital is:

Accepted Answer

A) the expense of leasing machines. 
B) the expense of buying machines. 
C) the opportunity cost of capital. 
D) irrelevant for determining economic profit. 
A) the expense of leasing machines. 
B) the expense of buying machines. 
C) the opportunity cost of capital. 
D) irrelevant for determining economic profit.

Question 5

Suppose that the market for cab rides is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for cab rides. In the short run, the typical cab driver is likely to:

Accepted Answer

A) earn an economic profit. 
B) incur an economic loss. 
C) have no change in its economic profit. 
D) have neither an economic profit nor an economic loss. 
A) earn an economic profit. 
B) incur an economic loss. 
C) have no change in its economic profit. 
D) have neither an economic profit nor an economic loss.

Question 6

(Figure: Profit Margin 2) What is the profit margin for this firm at a quantity of eight?

Accepted Answer

A) $6.00 - $3.00 = $3.00 
B) $6.00 - $3.50 = $2.50 
C) $3.50 - $3.00 = $.50 
D) $3.50 - $6.00 = $2.50 
A) $6.00 - $3.00 = $3.00 
B) $6.00 - $3.50 = $2.50 
C) $3.50 - $3.00 = $.50 
D) $3.50 - $6.00 = $2.50

Question 7

When sellers exit a market due to losses, the:

Accepted Answer

A) remaining sellers face reduced demand. 
B) amount of market power in the market rises. 
C) market demand holds steady. 
D) market price falls. 
A) remaining sellers face reduced demand. 
B) amount of market power in the market rises. 
C) market demand holds steady. 
D) market price falls.

Question 8

When a government is concerned about the safety of the product for sale in a given market, often the government:

Accepted Answer

A) taxes producers. 
B) creates networks of consumers. 
C) imposes regulations on the product or providers. 
D) raises the switching costs for consumers of the product. 
A) taxes producers. 
B) creates networks of consumers. 
C) imposes regulations on the product or providers. 
D) raises the switching costs for consumers of the product.

Question 9

A firm's average revenue curve is:

Accepted Answer

A) horizontal. 
B) above the firm's demand curve. 
C) below the firm's demand curve. 
D) the same as the firm's demand curve. 
A) horizontal. 
B) above the firm's demand curve. 
C) below the firm's demand curve. 
D) the same as the firm's demand curve.

Question 10

Suppose that the market for ride-sharing services is initially in long-run equilibrium. Subsequently, a decrease in population decreases the demand for rides. In the short run, the price of rides will _____, and the number of rides offered by a typical ride-sharing firm will _____.

Accepted Answer

A) rise; rise 
B) rise; fall 
C) fall; rise 
D) fall; fall 
A) rise; rise 
B) rise; fall 
C) fall; rise 
D) fall; fall

Question 11

If Giordano's pizza in Chicago computed its profits without taking into account its implicit opportunity costs, it would then only be considering its _____ profit.

Accepted Answer

A) explicit financial 
B) accounting 
C) implicit 
D) economic 
A) explicit financial 
B) accounting 
C) implicit 
D) economic

Question 12

David's financial planner tells him that he made a profit of $31,300 running a ballroom dance studio in Sacramento. David's wife, an actuary, claims David lost $31,300 running his ballroom dance studio. This means his wife is claiming that he incurred _____ in _____ costs.

Accepted Answer

A) $62,600; implicit opportunity 
B) $31,300; implicit opportunity 
C) $31,300; explicit financial 
D) $62,600; explicit financial 
A) $62,600; implicit opportunity 
B) $31,300; implicit opportunity 
C) $31,300; explicit financial 
D) $62,600; explicit financial

Question 13

When the government requires a license or government approval for a company to produce and sell a product, then in the market for that product:

Accepted Answer

A) the price will be lower. 
B) demand must be strong. 
C) companies are using a supply-side strategy. 
D) there will be fewer sellers. 
A) the price will be lower. 
B) demand must be strong. 
C) companies are using a supply-side strategy. 
D) there will be fewer sellers.

Question 14

In what two ways can a company's reputation be a barrier to other companies entering its market?

Accepted Answer

A) It can keep customers loyal and reduce the cost of production. 
B) It can create network effects and enhance efficiency gains. 
C) It can keep customers loyal and intimidate rivals with the threat of being crushed. 
D) It can enhance efficiency gains and trigger research and development. 
A) It can keep customers loyal and reduce the cost of production. 
B) It can create network effects and enhance efficiency gains. 
C) It can keep customers loyal and intimidate rivals with the threat of being crushed. 
D) It can enhance efficiency gains and trigger research and development.

Question 15

Lenore operates a tool rental firm and will incur an economic loss in the short run when she produces the profit-maximizing quantity and the price is:

Accepted Answer

A) greater than marginal cost. 
B) less than marginal cost. 
C) less than variable cost. 
D) less than average cost. 
A) greater than marginal cost. 
B) less than marginal cost. 
C) less than variable cost. 
D) less than average cost.

Question 16

Total revenue minus expenses paid equals:

Accepted Answer

A) economic profit. 
B) cost-adjusted revenue. 
C) accounting profit. 
D) financial revenue. 
A) economic profit. 
B) cost-adjusted revenue. 
C) accounting profit. 
D) financial revenue.

Question 17

Explain how the entry of new sellers into a market decreases the demand faced by incumbent sellers in the market.

Accepted Answer

The answer of Explain how the entry of new sellers...

Question 18

The _____ cost curve continually declines as more quantity is produced in the short run.

Accepted Answer

A) marginal 
B) variable 
C) fixed 
D) average 
A) marginal 
B) variable 
C) fixed 
D) average

Question 19

Price is equal to:

Accepted Answer

A) marginal revenue divided by the quantity sold. 
B) total revenue divided by average revenue. 
C) total revenue divided by the quantity sold. 
D) the quantity sold divided by total revenue. 
A) marginal revenue divided by the quantity sold. 
B) total revenue divided by average revenue. 
C) total revenue divided by the quantity sold. 
D) the quantity sold divided by total revenue.

Question 20

Emilia is a civil rights lawyer with her own firm. She travels the country and provides legal advice to high-profile clients. Last year, she earned $250,000 in revenue for her services. She pays one employee $50,000 to manage her office in Chicago and pays $30,000 for rent and utilities for that office. Her accountant tells her that if she sold all her office equipment, she could put that money in the bank and earn $3,000 in interest next year. Emilia also has received an offer to teach law at the University of Chicago at a salary of $100,000. Emilia's accounting profit is _____, and her economic profit is _____.

Accepted Answer

A) $175,000; $67,000 
B) $170,000; $67,000 
C) $200,000; $72,000 
D) $170,000; $70,000 
A) $175,000; $67,000 
B) $170,000; $67,000 
C) $200,000; $72,000 
D) $170,000; $70,000

Exam 15: Entry, Exit, and Long-Run Profitability

Why will an industry naturally move to zero economic profits in the long run if it has free entry and exit of firms?

A company engaged in brand proliferation is _____ to _____.

"Learning by doing" can result in _____ for a company.

When a firm makes a capital acquisition, the implicit cost of capital is:

Suppose that the market for cab rides is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for cab rides. In the short run, the typical cab driver is likely to:

(Figure: Profit Margin 2) What is the profit margin for this firm at a quantity of eight?

When sellers exit a market due to losses, the:

When a government is concerned about the safety of the product for sale in a given market, often the government:

A firm's average revenue curve is:

Suppose that the market for ride-sharing services is initially in long-run equilibrium. Subsequently, a decrease in population decreases the demand for rides. In the short run, the price of rides will _____, and the number of rides offered by a typical ride-sharing firm will _____.

If Giordano's pizza in Chicago computed its profits without taking into account its implicit opportunity costs, it would then only be considering its _____ profit.

David's financial planner tells him that he made a profit of $31,300 running a ballroom dance studio in Sacramento. David's wife, an actuary, claims David lost $31,300 running his ballroom dance studio. This means his wife is claiming that he incurred _____ in _____ costs.

When the government requires a license or government approval for a company to produce and sell a product, then in the market for that product:

In what two ways can a company's reputation be a barrier to other companies entering its market?

Lenore operates a tool rental firm and will incur an economic loss in the short run when she produces the profit-maximizing quantity and the price is:

Total revenue minus expenses paid equals:

Explain how the entry of new sellers into a market decreases the demand faced by incumbent sellers in the market.

The _____ cost curve continually declines as more quantity is produced in the short run.

Price is equal to:

The Core Principles of Economics

Demand: Thinking Like a Buyer

Supply: Thinking Like a Seller

Equilibrium: Where Supply Meets Demand

Elasticity: Measuring Responsiveness

When Governments Intervene in Markets

Welfare and Efficiency

Gains From Trade

International Trade

Externalities and Public Goods

Labor Demand and Supply

Wages, Workers, and Management

Inequality, Social Insurance, and Redistribution

Market Structure and Market Power

Business Strategy

Sophisticated Pricing Strategies

Game Theory and Strategic Choices

Decisions Involving Uncertainty

Decisions With Private Information

Sizing up the Economy Using Gdp

Economic Growth

Unemployment

Inflation and Money

Consumption and Saving

Investment

The Financial Sector

International Finance and the Exchange Rate

Business Cycles

IS-MP Analysis: Interest Rates and Output

Phillips Curve

The Fed Model: Linking Interest Rates, Output, and Inflation

Aggregate Demand and Aggregate Supply

Monetary Policy

Government Spending, Taxes, and Fiscal Policy

Appendix: Aggregate Expenditure and the Multiplier

Filters

A company engaged in brand proliferation is _ to _.

Suppose that the market for ride-sharing services is initially in long-run equilibrium. Subsequently, a decrease in population decreases the demand for rides. In the short run, the price of rides will _, and the number of rides offered by a typical ride-sharing firm will _.

David's financial planner tells him that he made a profit of $31,300 running a ballroom dance studio in Sacramento. David's wife, an actuary, claims David lost $31,300 running his ballroom dance studio. This means his wife is claiming that he incurred _ in _ costs.