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ECON 1000 Study Guide - Opportunity Cost, W. M. Keck Observatory, Sole Proprietorship

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amberelk420
18 Jun 2014
School
York University
Department
Economics
Course
ECON 1000
Professor
All

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ECON 1000 Full Course Notes
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ECON 1000 Full Course Notes
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Document Summary

Each firm is an institution that hires factors of production and organizes those factors to produce and sell goods and services. Our goal in this chapter is to predict firms" behavior. To do so, we need to know a firms" goal and the constraints it faces. A firm that does not seek to maximize profit either fails or is taken over by a firm that does seek that goal. Accountants measure a firm"s profit to ensure that the firm pays the correct amount of income tax and to show its investors how their funds are being used. Depreciation is the fall in the value of a firm"s capital. An accountant does not include the cost of a firm using its own capital or the cost of resources supplied by the firm"s owner. An accountant includes any costs that require a payment by the firm.

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Related Questions

Chapter 2: The Firms and its Goals

1. Why does a firm perform certain functions internally and others through the market? Provide instances of both functions in your work place.

2. What is profit maximization hypothesis? Is this the goal of the firm you work for?

3. What is the difference between optimizing and satisficing? What firms do in reality?

4. How do we measure risk and how do we calculate stockholder’s wealth?

5. How implicit costs and opportunity costs differentiate financial profits from economic profits?

6. Explain how the Economic Value Added is the closest measure for economic profit?

Indicate whether each of the following statements is true or false and thoroughly explain why.

A. A monopolistically competitive firm that is incurring a loss should immediately cease operations.

B. A monopoly will always earn an economic profit because it is able to set its prices at any level it desires.

C. In the long-run, firms operating in perfect competition and monopolistic competition will tend to earn normal profits.

D. Assuming a linear demand curve, a firm that wants to maximize its revenue will charge a lower price than a firm that wants to maximize its profits.

E. When a firm is able to set its price, its price will always be less than MR.

32. Which of the following is not a difference between monopolies and perfectly competitive markets?

A. Monopolies face downward sloping demand curves while perfectly competitive firms face horizontal demand curves.

B. Monopolies charge a price higher than marginal cost while perfectly competitive firms charge a price equal to marginal cost.

C. Monopolies can earn profits in the long run while perfectly competitive firms break even.

D. Monopolies choose to produce the quantity at which marginal revenue equals marginal cost while perfectly competitive firms do not.

40. Which of the following statements is not correct?

A. Both monopolies and monopolistically competitive firms can earn economic profits in the long run.

B. Both monopolistically competitive and perfectly competitive firms can earn economic profits in the short run.

C. Only competitive firms produce the welfare-maximizing level of output.

D. Firms in perfect competition, monopolistic competition, and monopoly maximize profits by producing where marginal revenue equals marginal cost.

43. A monopolistically competitive firm is currently producing 20 units of output. At this level of output the firm is charging a price equal to $20, has marginal revenue equal to $12, has marginal cost equal to $12, and has average total cost equal to $18. From this information we can infer that

A. the profits of the firm are negative.

B. firms are likely to leave this market in the long run.

C. the firm is currently maximizing its profit.

D. All of the above are correct.