Profit and Economic Efficiency Quiz

Profit is the difference between the revenue generated and the cost incurred by a business.

Opportunity cost is the value of the best alternative foregone when a decision is made.

Implicit costs are non-explicit, such as the opportunity cost of the owner's salary in a business.

Accounting profit considers only explicit costs, while economic profit considers both explicit and implicit costs.

When marginal cost is below average total cost, it pulls down the average, making MC less than ATC.

A monopoly is a market structure where a single firm is the exclusive seller of a product with no close substitutes.

Marginal utility is the extra satisfaction a consumer derives from consuming an additional unit of a good or service.

A price ceiling sets a maximum price for a good, often leading to increased demand and a shortage of the product in the market.

PPF illustrates the trade-offs in production between two goods, indicating the maximum output achievable.

The law of diminishing returns states that adding more of a variable input to a fixed input leads to a decline in the marginal product of the variable input.

Pareto efficiency asserts that an allocation is efficient if no one can be made better off without making someone else worse off.

Price elasticity of demand measures the responsiveness of quantity demanded to changes in price.

Allocative efficiency in perfect competition occurs when production is at a point where price equals marginal cost.

The long-run goal of a firm in economics is to maximize economic profit.

Deadweight loss represents the economic inefficiency resulting in a market when it operates below the level of perfect competition.