Questions for Review without Answers
Chapter 11. Supply Theory II. Firm Behaviour
I. Preliminary Remarks
1) Name some of the further analogies between the theories of supply and demand.
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2) What is the great advantage of supply theory over demand theory?
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II. Firm Motives
3) How are profits maximised?
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4) How are costs minimised?
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III. Revenues, Profits and Costs
5) Please distinguish implicit and explicit costs.
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6) Distinguish accounting profits and economic profits.
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7) Why do economists classify accounting profits as costs?
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IV. How Firms Maximise Profits
8) What is the rule that a profit maximiser must keep in mind?
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9) Profits per unit are maximised at efficient scale. Can you explain that?
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10) Overall profits are maximised above efficient scale. Please explain that, too.
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V. How Firms Minimise Costs
11) Write down the least-cost rule.
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VI. Advanced Topic. Isoquant Analysis
12) Isoquant analysis is the equivalent of indifference analysis. About what are firms indifferent?
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13) Define the following terms
A. isoquant curve
B. isocost curve
C. isoquant map
D. the MRS
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14) How do you calculate the MRS?
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VII. Why Firms Always End up with Zero Profits
15) What does equilibrium of an industry mean?
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16) Why are there still economic profits before equilibrium has been reached?
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17) Why do they disappear in equilibrium?
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18) There are still accounting profits in equilibrium. What do they consist of?
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19) Why is the market supply curve a horizontal line in equilibrium?
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VIII. An Excursus on the History of Profit Theory
20) How do neo-classical economists manage to explain profits away?
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IX. An Excursus on the History of the Firm
21) How did Ronald Coase explain the existence of firms?
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22) What is the relationship between a principal and an agent?
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23) What is the difference between horizontal and vertical integration?
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24) And what is disintegration?
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