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What is the difference between accounting profit and economic profit?
Accounting profit only considers explicit costs, while economic profit considers both explicit and implicit costs (opportunity costs).
Differentiate between short-run and long-run profit maximization.
In the short run, some costs are fixed. In the long run, all costs are variable, allowing for adjustments in plant size and other factors.
What is the difference between average revenue and marginal revenue?
Average revenue is total revenue divided by quantity, while marginal revenue is the additional revenue from selling one more unit.
How does profit maximization differ in perfect competition vs. monopoly?
In perfect competition, firms are price takers. In a monopoly, the firm has market power and can influence price.
What is the difference between increasing returns to scale and decreasing returns to scale?
Increasing returns to scale mean output increases more than proportionally to input increases. Decreasing returns to scale mean output increases less than proportionally.
What is the difference between fixed costs and variable costs?
Fixed costs do not vary with the level of output, while variable costs do.
Differentiate between economies of scale and diseconomies of scale.
Economies of scale occur when long-run average costs decrease as output increases. Diseconomies of scale occur when long-run average costs increase as output increases.
What is the difference between normal profit and economic profit?
Normal profit is the minimum level of profit needed to keep a firm in business, while economic profit is any profit above normal profit.
Compare and contrast explicit costs and implicit costs.
Explicit costs are direct, out-of-pocket payments. Implicit costs are opportunity costs of using resources already owned by the firm.
Differentiate between productive efficiency and allocative efficiency.
Productive efficiency is producing at the lowest possible cost. Allocative efficiency is producing the optimal mix of goods and services from society's point of view.
How does a tax on output affect a firm's profit-maximizing quantity?
It increases the firm's marginal cost, leading to a decrease in the profit-maximizing quantity.
How does a subsidy on output affect a firm's profit-maximizing quantity?
It decreases the firm's marginal cost, leading to an increase in the profit-maximizing quantity.
How might government regulation impacting production processes affect a firm's MC?
It could increase MC if it requires costly changes, or decrease MC if it streamlines operations.
How does price control affect the profit-maximizing quantity?
If the price ceiling is below the original equilibrium, the firm will produce less. If the price floor is above the original equilibrium, the firm will produce more.
How can antitrust laws impact a firm's ability to maximize profits?
Antitrust laws prevent firms from engaging in monopolistic practices that could lead to higher profits at the expense of consumer welfare.
How does a minimum wage affect a firm's marginal cost?
It increases the firm's marginal cost, particularly for labor-intensive industries.
How does environmental regulation affect a firm's marginal cost?
It typically increases the firm's marginal cost due to the cost of compliance.
How does a tariff on imported inputs affect a firm's marginal cost?
It increases the firm's marginal cost by making inputs more expensive.
How does investment in worker training affect a firm's marginal cost?
It can decrease the firm's marginal cost by increasing worker productivity.
How does a change in interest rates affect a firm's investment decisions and potentially its profit-maximizing output?
Higher interest rates make investment more expensive, potentially decreasing investment and future output. Lower interest rates have the opposite effect.
On a graph with MR and MC curves, what does the intersection point represent?
The profit-maximizing quantity of output.
How is marginal cost represented on a total cost curve?
Marginal cost is the slope of the total cost curve.
How is marginal revenue represented on a total revenue curve?
Marginal revenue is the slope of the total revenue curve.
On a graph, what does the area between the MR and MC curves represent when MR > MC?
Potential additional profit from increasing production.
On a graph, what does the area between the MC and MR curves represent when MC > MR?
The loss incurred from producing those units.
Explain how to find the profit-maximizing quantity using total revenue and total cost curves.
The profit-maximizing quantity is where the vertical distance between the total revenue and total cost curves is greatest.
What does a shift in the MC curve to the right indicate?
An increase in marginal cost at each level of output.
What does a shift in the MR curve to the left indicate?
A decrease in marginal revenue at each level of output.
How can you identify the break-even point on a graph of total cost and total revenue?
The break-even point is where the total cost and total revenue curves intersect.
What does the shape of the marginal cost curve typically look like, and why?
Typically U-shaped, reflecting decreasing marginal returns followed by increasing marginal returns.