1 If firms are making economic losses, then in the long run the short run industry supply curve will shift rightward new firms will enter the industry industry output will rise, and the price will rise firms will leave the industry 2 When new sellers enter a market, existing sellers will face upward shifts in their average cost curves face reductions in average cost see average revenue rise have less market power 3 When sellers exit a market in which the average seller has losses, the remaining sellers will each experience a steady price, lower sales, and decreased market power a rising price, lower sales, and increased market power a rising price, higher sales, and increased market power a steady price, higher sales, and decreased market power 4 In the long run, each firm in an industry will earn only enough to cover the opportunity costs of all resources used in production produce where MR is less than MC offer more than one variation of the same good set price in coordination with other producers in the market 5 Total revenue divided by quantity is called or average revenue profit price profit average revenue price price marginal revenue 6 How long does it take for a company to be in the long run It is any time period longer than two years It takes as long as is needed for the number of sellers in the company's market to increase or decrease It is any time period longer than one year It takes as long as is needed for the prices of inputs to vary 7 In the short run, companies face , and in the long run, a changing number of competitors the number of competitors is fixed variation in all costs all costs are fixed only fixed costs all costs vary a fixed set of competitors the number of competitors can change 8 (Scenario Accounting and Economic Profit) Use Scenario Accounting and Economic Profit Scenario Accounting and Economic Profit Casey recently inherited $100,000 from her grandmother Rather than invest the money in a mutual fund that earns 5 per year, she quit her job as a translator for the United Nations, which paid $60,000 per year, and started Casey's Coffee Crush, a small caf in Tribeca The location she rented cost $20,000 for the year The equipment, caf furniture, and coffee machines cost another $60,000 Staff, sales help, and advertising cost yet another $40,000 In her first year, her revenue was $150,000 Her accounting profit is $200,000 $60,000 $30,000 $0 9 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 explicit financial accounting implicit economic 10 Creating to is key to a company's ability to earn profits in the long run barriers to entry deter new entrants marginal revenue increase demand reduced barriers to entry raise profit margins network effects reduce costs 11 exist(s) when the value of a good or service to an individual increases as the number of other people using the same good or service increases Dependence on a scarce resource or input Returns to scale Government created barriers Network externalities 12 A company produces a particular cell phone that requires accessories (such as chargers, cases, and ear plugs) that are specific to that phone and cannot be used with phones manufactured by other companies The company that produces this cell phone is using what strategy to have the barrier to entry Intimidating rivals Increasing switching costs to ensure demand for its product Creating cost advantages Controlling the markets for key inputs needed by all firms in the product market 13 The shampoo aisle at a large store that sells personal care products contains many versions of shampoo produced by a small number of companies This indicates that shampoo producers are engaging in to government policy support create cost advantages brand proliferation deter new entrants product differentiation stimulate market demand cost switching limit market supply 14 Which factor is NOT a barrier to entry control of an input essential to production government mandated limits on the number of sellers of a good a ban on certain kinds of advertising network effects 15 Which of the following is NOT a government action that results in a barrier to entry in a product market requiring that advertising not make false claims issuing compulsory licenses to produce the product imposing regulations that increase start up costs for new companies granting a patent on a product 16 Suppose you were the only firm that has an official license to sell corn dogs in your community Your monopoly would result from control of a scarce resource or input technological superiority excess capacity government created barriers 17 If a seller can develop large enough compared to other sellers in the market, this will deter the entry of new sellers cost advantages costs competitive forces marginal costs 18 You own an orange juice stand in a competitive market, and so you are a price taking firm Which event would MOST likely increase your market power The government abolishes the system of patents and copyrights A booming economy increases the demand for orange juice and attracts entry into the market The average total cost curve for firms in the industry becomes horizontal You acquire exclusive rights to harvest oranges from all domestic citrus orchards

Question

1  If firms are making economic losses, then in the long run  the short run industry supply curve will shift rightward  new firms will enter the industry  industry output will rise, and the price will rise  firms will leave the industry  2  When new sellers enter a market, existing sellers will  face upward shifts in their average cost curves  face reductions in average cost  see average revenue rise  have less market power  3  When sellers exit a market in which the average seller has losses, the remaining sellers will each experience  a steady price, lower sales, and decreased market power  a rising price, lower sales, and increased market power  a rising price, higher sales, and increased market power  a steady price, higher sales, and decreased market power  4  In the long run, each firm in an industry will  earn only enough to cover the opportunity costs of all resources used in production  produce where MR is less than MC  offer more than one variation of the same good  set price in coordination with other producers in the market  5  Total revenue divided by quantity is called       or        average revenue  profit price  profit average revenue  price price  marginal revenue 6  How long does it take for a company to be in the long run  It is any time period longer than two years  It takes as long as is needed for the number of sellers in the company's market to increase or decrease  It is any time period longer than one year  It takes as long as is needed for the prices of inputs to vary  7  In the short run, companies face      , and in the long run,        a changing number of competitors  the number of competitors is fixed variation in all costs  all costs are fixed only fixed costs  all costs vary a fixed set of competitors  the number of competitors can change 8  (Scenario  Accounting and Economic Profit) Use Scenario  Accounting and Economic Profit  Scenario  Accounting and Economic Profit Casey recently inherited $100,000 from her grandmother  Rather than invest the money in a mutual fund that earns 5  per year, she quit her job as a translator for the United Nations, which paid $60,000 per year, and started Casey's Coffee Crush, a small caf in Tribeca  The location she rented cost $20,000 for the year  The equipment, caf furniture, and coffee machines cost another $60,000  Staff, sales help, and advertising cost yet another $40,000  In her first year, her revenue was $150,000  Her accounting profit is  $200,000  $60,000  $30,000  $0  9  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  explicit financial accounting implicit economic 10  Creating       to       is key to a company's ability to earn profits in the long run  barriers to entry  deter new entrants marginal revenue  increase demand reduced barriers to entry  raise profit margins network effects  reduce costs 11        exist(s) when the value of a good or service to an individual increases as the number of other people using the same good or service increases  Dependence on a scarce resource or input Returns to scale Government created barriers Network externalities 12  A company produces a particular cell phone that requires accessories (such as chargers, cases, and ear plugs) that are specific to that phone and cannot be used with phones manufactured by other companies  The company that produces this cell phone is using what strategy to have the barrier to entry  Intimidating rivals  Increasing switching costs to ensure demand for its product  Creating cost advantages  Controlling the markets for key inputs needed by all firms in the product market  13  The shampoo aisle at a large store that sells personal care products contains many versions of shampoo produced by a small number of companies  This indicates that shampoo producers are engaging in       to        government policy support  create cost advantages brand proliferation  deter new entrants product differentiation  stimulate market demand cost switching  limit market supply 14  Which factor is NOT a barrier to entry  control of an input essential to production government mandated limits on the number of sellers of a good a ban on certain kinds of advertising network effects 15  Which of the following is NOT a government action that results in a barrier to entry in a product market  requiring that advertising not make false claims issuing compulsory licenses to produce the product imposing regulations that increase start up costs for new companies granting a patent on a product 16  Suppose you were the only firm that has an official license to sell corn dogs in your community  Your monopoly would result from  control of a scarce resource or input  technological superiority  excess capacity  government created barriers  17  If a seller can develop large enough       compared to other sellers in the market, this will deter the entry of new sellers  cost advantages costs competitive forces marginal costs 18  You own an orange juice stand in a competitive market, and so you are a price taking firm  Which event would MOST likely increase your market power  The government abolishes the system of patents and copyrights  A booming economy increases the demand for orange juice and attracts entry into the market  The average total cost curve for firms in the industry becomes horizontal  You acquire exclusive rights to harvest oranges from all domestic citrus orchards

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