1) Explain the concepts of explicit costs and implicit costs. Why do economists include implicit costs in

their calculation of profits?

2) Compare production costs in the short run with production costs in the long run.

3) Explain how firms' production functions and cost curves will change as science and technology

advance and as the knowledge of how to organize and manage resources improves.

4) Discuss the characteristics of a perfect competitive industry and which real-life industries come

closest to this type of market structure.

5) Explain how a firm's cost curves and optimal rate of output are affected by (a) property taxes; (b)

payroll taxes; and (c) taxes on profits.

6) Explain why a firm maximizes its total profits by producing where MC = MR. To answer this question

completely, you should explain why output levels greater than and less than the level where MC = MR do not maximize profits.

7) Explain why a perfectly competitive firm has no incentive to charge a higher or lower price than the

market price.

8) Explain why economic profits in all perfectly competitive markets will tend toward zero in the long

run.

9) Diagram a model of a perfectly competitive market and a separate model of a firm experiencing

economic profits. Explain and illustrate on your models the changes that take place in the long run. Be sure to explain why any changes take place.

10) Explain how a perfectly competitive market promotes productive efficiency (minimum average costs).

11) Explain the concept of market power. Why does a monopolist have market power while a perfectly

competitive firm does not?

12) Explain why a perfectly competitive firm can sell as much as it wants at the market price but a

monopolist must lower its price to sell more.

13) Describe how monopolists use barriers to entry to maintain their pricing power.

14) State and evaluate the arguments made for concentration of market power.