Economics 202 Study questions Unit # 3

Chapters 20-23

1) What is the difference between accounting costs and economic costs?

2) How is the concept of opportunity costs important to the distinction between accounting and economic costs? Explain.

3) What is the difference between accounting and economic profits?

4) Explain why it is acceptable for business firms to earn zero economic profits.

5) What is the difference between the long run and the short run?

6) Describe the following short run cost concepts: FC, AFC, VC, AVC, TC, ATC, and MC.

7) What is the law of diminishing returns?

8) Explain why increasing, diminishing, and negative returns might arise in the short run and how they affect MP and AP and TP.

9) Describe the relationship between MP and MC, AP and ATC, and TP and TC.

10) What might cause short run cost curves to shift?

11) What is meant by economies and diseconomies of scale? What causes each and how do they affect the shape of the long run average total cost curve?

12) Describe the characteristics the firm and industry in perfect competition. (pure price taker markets)

13) Why are firms in perfect competition pure price takers?

14) Describe two approaches firms can use to determine the level of production to maximize profits in the short run. (TR, TC approach and the MR, MC approach)

15) Use graphs to explain how firms and the industry in perfect competition adjusts in the long run to an increase in the demand for their product that increases short run profits.

16) Same as the above, for a decrease in demand.

17) Explain how long run equilibrium in perfect competition establishes economic efficiency standards.

18) Describe the characteristics of a monopoly and distinguish between a perfect and an imperfect monopoly.

19) Describe and explain the barriers to entry that might produce a monopoly.

20) Describe and explain the relationship between the monopolist’s demand and marginal revenue functions.

21) With graphs, show a monopolist earning positive, zero and negative profits.

22) What might cause a firm to earn negative profits? Explain.

23) Compare the characteristics of perfect competition (pure price takers) to monopolistic competition (competitive price taker)

24) Explain what is meant by product differentiation and what competitive price takers hope to gain from that practice.

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