Combo with "ECON 103: Midterm Exam #3" and 8 others

Price leadership oligopoly

- dominant firm initiates a price change and other firms follow the leader

In the game in Scenario 13.6,

"Dump" is a dominant strategy for Lawrence LLP.

Ehrlich

"The Population Bomb" in the 1970's -1980's hundreds of millions die from starvation

Energy use has become more efficient in the last 50 years. BECAUSE........

- GDP per million - BTUs has increased

When considering a Noncollusive Oligopoly, firms are able to...

- Ignore price changes of other firms - Match price changes of other firm

Dilemma of Regulation - Socially Optimal Price

- Is the best option for society but causes a loss for monopolists - P=MC

Monopolistic Competition

- Large number of sellers (25-75) - Easy enry and exit from the market - Each firm has a small market share

Pure Monopoly

- No close substitutes = only one - Single seller (only 1)

Common misconceptions about monopolies

- Not just charging the highest price - Concerned with total profit, not just unit profit

Productive Efficiency

- Producing a good in a least costly way - Occurs when P=minimum ATC

Dilemma of Regulation - Fair-Return Price

- Provides a "normal profit" for monopolists but doesn't completely fix the inefficiency - P=ATC

Obstactles to cartel

- different demands/cost - recession - entry by new firms - number of firms (more firms leads to more difficulty) - cheating

Catch Size Policy (2): Number of Boats Allowed to Fish in an Area

- doesn't work - fishers just used larger boats - drives costs UP

Godrickporter and Star Connections are the only two airport shuttle and limousine rental service companies in the mid-sized town of Godrick Hollow. Each firm must decide on whether to increase its advertising spending to compete for customers. Table 14-1 shows the payoff matrix for this advertising game. Refer to Table 14-1. What is the Nash equilibrium in this game?

Godrickporter increases its advertising budget, but Star Connections does not.

Firms will make a profit in the long run or short run if price is: A. equal to marginal revenue. B. greater than ATC. C. less than MC. D. greater than AVC.

B. greater than ATC.

Price is $1 and total revenue is $200. If price increases to $2 and total revenue increases to $400, you know that the demand for the product is:

?

T2:24. (Table: Utility from Milk and Honey) Maxs marginal utilities for milk and honey are given in the table. The price of milk is $2 and the price of honey is $4. If Max's income is $16, how much milk and how much honey does he buy (o maximize his utility? A) 6 milks and 0 honeys B) 1 milk and 1 honey C) 4 milks and 2 honeys D) 5 milks and 4 honeys

C) 4 milks and 2 honeys

T1:14. (Table: Supply of Lemonade) If the price of lemonade is $1 per cup. total quantity of lemonade supplied will be: A) 25 cups. B) 50 cups. C) 90 cups. D) 80 cups.

C) 90 cups.

T2:5. (Figure: Tax Incidence) All other things unchanged, when a good or service is characterized by a relatively inelastic demand, as shown in panel ______, the greater share of the burden of an excise tax imposed on it is borne by ________ A) C; sellers B) D: sellers C) D; buyers D) C; buyers

C) D; buyers

T1:21. (Figure: Producer Surplus Il) Ata price of P1, producer surplus equals the area: A) P2M0 B) P2P1KM C) P1K0 D) LMK.

C) P1K0

T2:15. 2009 data on international trade in the US Golf Clubs industry indicates: A) The U.S. is an exporter of Golf Clubs. B) The U.S. is both an importer and an exporter of Golf Clubs: it exclusively export Golf Clubs to Canada and exclusively import them from Mexico. C) The U.S. is both an importer and an exporter of Golf Clubs: it imports them from 25 different countries and exports them to 83 different countries. D) The U.S. is an importer of Golf Clubs.

C) The U.S. is both an importer and an exporter of Golf Clubs: it imports them from 25 different countries and exports them to 83 different countries.

T3:17. A monopoly is a market structure characterized by: A) a large number of small firms. B) a single buyer and several sellers. C) barriers to entry and exit. D) a product with many close substitutes.

C) barriers to entry and exit.

Forestry: Strong property rights

Commercially harvested forests

Refer to the above figure. The figure gives the payoff matrix for two individuals who are being accused of robbing a bank together. If Bob confesses, what is the best strategy for Harry?

Confess.

Refer to the above figure. The figure gives the payoff matrix for two individuals who are being accused of robbing a bank together. What is dominant strategy for Bob?

Confess.

The present value of a future possibility is usually _________ than the future value

Less

Refer to the above figure. Ajax and Greenco are oligopolists. Above you are given the payoff matrix for the two firms giving the payoff associated with different pricing strategies. What is the best strategy for Greenco if Ajax decides on charging a low price?

Low price.

Refer to the above figure. Ajax and Greenco are oligopolists. Above you are given the payoff matrix for the two firms giving the payoff associated with different pricing strategies. What is the dominant strategy for Greenco?

Low price.

When Total Cost (EC+UC) is taken into account, quantity produced is ________ when only Extraction Cost is taken into account.

Lower than

In an industry, the top 4 firms control 60% of the market. There is no dominant firm.

Oligopoly

Kellogg, General Mills, Post and Quaker Oats dominate the ready-to-eat cereal market. This industry has consistently showed profits in the long run, and is difficult to enter due to brand proliferation. The ready-to-eat cereal industry is an example of what type of market structure?

Oligopoly

The presence of property rights in the forestry industry fosters...

Preservation

Which of the following is true?

The profit-maximizing solution occurs where MR= MC.

Cartels are illegal in the United States.

True

Cartels are legal in some parts of the world.

True

Each firm in a cartel has an incentive to break its word and produce more than the agreed quantity.

True

The pricing in monopoly prevents some mutually beneficial trades. The value of these unrealized mutually beneficial trades is called:

a deadweight loss.

Both monopolists and cartel members will find that a drop in price leads to:

a price effect that negatively affects total revenue.

Antitrust policy refers to government:

attempts to prevent the acquisition of monopoly power.

Conditions that prevent the entry of new firms in a monopoly market are:

barriers to entry.

If there is free entry and exit in a perfectly competitive industry, the long-run equilibrium will:

be at the level of zero economic profit for each firm.

Zoe's Bakery operates in a perfectly competitive industry. The variable costs at Zoe's Bakery increase, so all of the cost curves (with the exception of fixed cost) shift leftward. The demand for Zoe's pastries does not change, nor does the firm shut down. To maximize profits after the variable cost increase, Zoe's Bakery will ________ its price and ________ its level of production.

do nothing to; decrease

In the game in Scenario 13.4, the equilibrium outcome:

does not exist.

In the short run, if P < AVC, a perfectly competitive firm:

does not produce output and incurs an economic loss.

Gary's Gas and Frank's Fuel are the only two providers of gasoline in Smalltown. Gary and Frank decide to form a cartel. Later, Gary summarizes his pricing strategy as, "I'll cheat on the cartel because regardless of what Frank does, cheating gives me the best payoff." This is an example of:

dominant strategy.

The demand curve facing a monopolist is:

downward sloping

The demand curve facing a monopolist is:

downward sloping, like the industry demand curve in perfect competition.

In a perfectly competitive industry, the market demand curve is usually:

downward sloping.

The demand curve facing a monopolist is:

downward-sloping, unlike the horizontal demand curve facing a perfectly competitive firm.

A market comprised of only two firms is called a

duopoly.

Economic profits in a perfectly competitive industry encourage firms to ________ the industry, and losses encourage firms to ________the industry.

enter; exit

conomic profits in a perfectly competitive industry induce ________, and losses induce ________.

entry; exit

When government attempts to reduce the global warming effects caused by the burning of fossil fuels such as oil, coal, and natural gas by establishing a minimum level of fuel efficiency on new cars, it is using a(n):

environmental standard.

Marginal revenue:

equals the market price in perfect competition.

The failure to produce enough to minimize ATC is termed?

excess capacity

Hank operates a perfectly competitive firm in the long run. For several periods the market price has been $20, and he knows his break-even price is $22. Hank should:

exit the industry, since he is making losses.

A natural monopoly exists whenever a single firm:

experiences economies of scale over the entire range of production that is relevant to its market.

Charges that must be paid for the use of factors of production such as labor and capital are: A. explicit costs. B. accounting profits. C. implicit costs. D. economic profits

explicit costs.

In 1999, a judge declared that Microsoft was a monopolist. Assuming that it is maximizing its profits at its current level of output, we may conclude that if Microsoft were to increase its price, its total revenue would:

fall.

If firms are experiencing economic losses in the short run, firms will leave the industry, industry output will ________, and economic losses will ________ in the long run.

fall; fall

For every restaurant in Cleveland, the average total cost curve ________ at ________ levels of output, then ________ at ________ levels. A. falls; low; rises; higher B. rises; low; falls; higher C. rises; higher; rises; low D. falls; higher; falls; low

falls; low; rises; higher

When economic profits in an industry are zero:

firms are doing as well as they could do in other markets.

The marginal benefit received from pollution is less than its marginal cost in the market for highly polished glass. In this situation:

firms in the market produce too much pollution.

Suppose that the market for candy canes operates under conditions of perfect competition, that it is initially in long-run equilibrium, and that the price of each candy cane is $0.10. Now suppose that the price of sugar rises, increasing the marginal and average total cost of producing candy canes by $0.05; there are no other changes in production costs. Based on the information given, we can conclude that in the long run we will observe:

firms leaving the industry.

If firms are making positive economic profits in the short run, then in the long run:

firms will enter the industry.

A cost that does not depend on the quantity of output produced is called a: A. marginal cost. B. fixed cost. C. variable cost. D. average cost.

fixed cost.

An input whose quantity cannot be changed during a particular period is a(n):

fixed input.

The profit-maximizing rule MR = MC is:

followed by all types of firms.

Market power in the United States was often gained in the latter part of the nineteenth century by:

forming trusts

Market power in the United States was often gained in the latter part of the nineteenth century by:

forming trusts.

The study of behavior in situations of interdependence is known as:

game theory

The study of behavior in situations of interdependence is called:

game theory.

If the state government gives you the exclusive right to sell cement to municipalities, your monopoly would result from:

government restrictions.

Firms will make a profit in the long run or short run if the price is:

greater than ATC.

A perfectly competitive firm will earn a profit and will continue producing the profit-maximizing quantity of output in the short run if the price is:

greater than average total cost.

A perfectly competitive firm will incur an economic loss but will continue producing output in the short run if price is:

greater than average variable cost but less than average total cost.

A perfectly competitive firm will incur an economic loss but will continue producing output in the short run if the price is:

greater than average variable cost but less than average total cost.

Price for a firm under monopolistic competition is?

greater than marginal revenue

Cartels made up of a large number of firms are unstable because each firm in the cartel:

has a great incentive to cheat.

If there are no obstacles to new firms entering the pet-sitting industry, then we can say that this industry:

has free entry.

A natural monopoly is one that:

has increasing returns to scale over the entire relevant range of output.

Price-takers are individuals in a market who:

have no ability to affect the price of a good in a market

Price-takers are individuals in a market who:

have no ability to affect the price of a good in a market.

Because of monopoly, consumers experience ________ than with perfect competition.

higher prices

Suppose the price elasticity of demand for coffee at the CoffeeBarn equals 1.71 for women and 0.55 for men. A successful price discrimination strategy would lead to:

higher prices for men and lower prices for women as long as the CoffeeBarn could prevent women from reselling drinks to men.

Because of monopoly, consumers typically have:

higher prices.

In order to maximize profits, an airline will offer ________ prices to customers with ________ demand.

higher; inelastic

Price discrimination leads to a ________ price for consumers with a ________ demand.

higher; less elastic

Game theory is commonly used to explain behavior in oligopolies, because oligopolies are characterized by:

interdependence.

In oligopoly, a firm must realize that

it is in an industry in which another major firm may dominate, and the firm will need to judge its actions accordingly.

In oligopoly, a firm must realize that:

it is in an industry in which another major firm may dominate, and the firm will need to judge its actions accordingly.

A firm's decision about whether or not to stay in business should be based on:

its economic profit.

When diseconomies of scale outweigh economies of scale, the:

long-run average cost curve rises.

Economies and diseconomies of scale are associated with the:

long-run average total cost curve and the long run.

If the current price is $36 and this is a perfectly competitive industry,

losses in the short run would induce some firms to leave the industry.

The ability of a monopolist to raise the price of a product above the competitive level by reducing the output is known as:

market power.

A firm that is a natural monopoly will:

maximize profit by producing where MR = MC.

In contrast with perfect competition, a monopolist:

may have economic profits in the long run.

When a perfectly competitive firm is in long-run equilibrium, the firm is producing at:

minimum long-run average total cost.

Firms in which of the following market structures have the most market power?

monopoly

The market structure called ________ is described as having a single producer selling a single, undifferentiated product.

monopoly

Compared to perfect competition:

monopoly may have economic profits in the long run, but in perfect competition in the long run economic profits are zero

In contrast to perfect competition, a:

monopoly produces less at a higher price.

An industry with a single producer that sells a single product with no substitutes is a:

monopoly.

In which type of market structure does the firm have no close substitutes for its product?

monopoly.

The city bus system charges lower fares to senior citizens than to other passengers. Assuming that this pricing strategy increases the profits of the bus system, we can conclude that senior citizens must have a ________ for bus service than other passengers.

more elastic demand

Gary's Gas and Frank's Fuel are the only two providers of gasoline in Smalltown. Gary believes he faces a kinked demand curve. This means Gary thinks the demand curve above the kink is:

more elastic than the demand curve below the kink.

Amtrak charges lower fares to students than to its other passengers. This pricing strategy increases Amtrak's profits. From this information, we can conclude that students must have a ________ for Amtrak train service than other passengers.

more price-elastic demand

If a good is a necessity with few substitutes, then the price elasticity of demand will tend to be:

more price-inelastic.

Which of the following is an example of an artificially scarce good?

music that is downloadable from the Internet for a fee

Most electric, gas, and water companies are examples of:

natural monopolies.

Suppose that the market for candy canes operates under conditions of perfect competition, that it is initially in long-run equilibrium, and that the price of each candy cane is $0.10. Now suppose that the price of sugar rises, increasing the marginal and average total costs of producing candy canes by $0.05. Based on the information given, we can conclude that in the short run a typical producer of candy canes will be making:

negative economic profits.

If there are two gas stations in the town of Smalltown, then the gasoline industry in Smalltown is probably best characterized as:

oligopolistic.

Government may choose to impose a price floor if:

suppliers can make strong moral or political arguments for higher prices.

The demand curve for a monopoly is:

the industry demand curve.

Suppose that some firms in a perfectly competitive industry earn negative economic profits. In the long run:

the industry supply curve will shift to the left.

Tacit collusion in practice is made more difficult to achieve:

the larger the number of firms in the industry

The resources needed for growing cucumbers are relatively abundant. Many new firms could enter this industry and not change costs. If that happens,

the long-run industry supply curve will be horizontal.

Consider the corn industry (a perfectly competitive industry). The price per bushel is $2 and there are constant returns to scale. If the long-run, minimum ATC is $1.50 per bushel, it should follow that (ceteris paribus):

the long-run price will be $1.50 per bushel.

The short-run supply curve for a perfectly competitive firm is:

the marginal cost curve above the shut-down price.

The socially optimal amount of pollution occurs where:

the marginal social benefit of pollution is equal to the marginal social cost of pollution.

The shut-down price is:

the minimum of the AVC curve.

In comparing monopoly and perfect competition, we see that:

the monopolist will produce a smaller quantity and charge a higher price.

Market structures are categorized by the following two criteria:

the number of firms and whether or not products are differentiated

Network externalities exist when a good's value to the consumer rises as:

the number of people who use the good increases.

Profit is the difference between ________ and ________. A. total sales; total revenues B. total profits; total costs C. total revenues; total costs D. marginal costs; marginal revenues

total revenues; total costs

Assume the federal government determines the total level of pollutants that can be discharged by city industries. A city is able to exchange the rights to this total discharge level with other cities. This is an example of:

tradable emissions permits.

Oligopoly is a market structure characterized by:

uncertainty about the behavior of rival firms.

Oligopoly is a market structure characterized by

uncertainty about the behavoir of rival firms

The short-run average total cost curve is U-shaped because at low output levels the spreading effect of falling average fixed costs dominates the diminishing returns effect, while at high output levels the reverse is true.

True

Suppose that the market for candy canes operates under conditions of perfect competition, that it is initially in long-run equilibrium, and that the price of each candy cane is $0.10. Now suppose that the price of sugar rises, increasing the marginal and average total cost of producing candy canes by $0.05; there are no other changes in production costs. Based on the information given, we can conclude that once all of the adjustments to long-run equilibrium have been made, the price of candy canes will equal:

$0.15.

If a perfectly competitive firm sells 300 units of output at a market price of $1 per unit, its marginal revenue is:

$1.

Quantity of cherries (in pounds) Price per pound of cherries Total cost 1 $6 $6 2 $6 $11 3 $6 $13 4 $6 $16 5 $6 $20 6 $6 $28 7 $6 $38 The table above gives the total cost information for Hank and Helen's cherry farm. They sell their cherries in a perfectly competitive market, where the price is $6.00 per pound. If Hank and Helen produce and sell 5 pounds of cherries, what is their profit?

$10

If a perfectly competitive firm sells 30 units of output at a price of $10 per unit, its marginal revenue is:

$10.

Wendy has a monopoly in the retailing of motor homes. She can sell five per week at $21,000 each. If she wants to sell six, she must charge $20,000 each. The quantity effect of selling the sixth motor home is:

$20,000.

If a perfectly competitive firm increases production from 10 units to 11 units and the market price is $20 per unit, total revenue for 11 units is:

$220.

The market for beef is in long-run equilibrium at a price of $3.25 per pound. The announcement that mad cow disease has been discovered in the United States reduces the demand for beef sharply, and the price falls to $2.00 per pound. If the long-run supply curve is horizontal, then when the long-run equilibrium is reestablished, the price will be:

$3.25 per pound.

Quantity of cherries (in pounds) Price per pound of cherries Total cost 1 $6 $6 2 $6 $11 3 $6 $13 4 $6 $16 5 $6 $20 6 $6 $28 7 $6 $38 The table above gives the total cost information for Hank and Helen's cherry farm. They sell their cherries in a perfectly competitive market, where the price is $6.00 per pound. If Hank and Helen produce and sell 5 pounds of cherries, what is their total revenue?

$30

A firm in a perfectly competitive industry is maximizing its profits at 400 units. If the marginal revenue and marginal cost are both $35 and the firm's average total cost is $25, this firm's profit is

$4,000

If a perfectly competitive firm has total revenue equal to $400 when it produces 100 units, and if its total revenue rises to $404 when it produces 101 units, the marginal revenue of the 101st unit is:

$4.

A perfectly competitive firm is selling a product at the market price of $11. It produces and sells the profit-maximizing quantity of 50 units, and at this level of output, its average total cost is $10 and its average variable cost is $8. What is the firm's level of profit?

$50

A perfectly competitive firm is selling a product at the market price of $11. It produces and sells the profit-maximizing quantity of 50 units, and at this level of output, its average total cost is $10 and its average variable cost is $8. What is the firm's level of profit?

$50.

Suppose Intel and AMD can each charge either $300 or $200 for a CPU (the computing unit of a computer). The above table illustrates the payoffs, in millions of dollars, from each of the four possible outcomes that could occur in their duopoly setting. If Intel charges $200 and AMD charges $300, then Intel's profit will be ________ million and AMD's profit will be ________ million.

$500; $100

Zoe's Bakery operates in a perfectly competitive industry. When the market price of iced cupcakes is $5, the profit-maximizing output level is 150 cupcakes. Her average total cost is $4, and her average variable cost is $3. Zoe's marginal cost is ________, and her short-run profits are:

$5; $150

Mikail's perfectly competitive camera memory card-producing factory is making positive economic profits. If the price of memory cards is $9, Mikail's output is 3,000 cards a month, and his monthly average total cost is $7, what are his monthly profits?

$6,000. profit=(P-ATC)*Q

Scenario: Accounting and Economic Profit Rather than put the $100,000 that his grandmother left him in a mutual fund and earn 5% each year, Tommy Wang quit his job that paid $60,000 per year and used the $100,000 to start Wang's Wicker Furniture Store. He rented a showroom for $15,000 for the year, purchased $100,000 in capital equipment (an amount that depreciates $5,000 each year), purchased $60,000 in wicker furniture, and incurred costs of $40,000 for sales help and advertising. In his first year, his revenue was approximately $150,000. Reference: Ref 16-01 (Scenario: Accounting and Economic Profit) What are the implicit costs of Wang's Wicker Furniture Store? A. $7,000 B. $60,000 C. $65,000 D. $69,000

$65,000

Allocative Efficiency

- Distributing resources to produce goods most wanted by consumers - Occurs when P=MC

Ahmed is willing to mow lawns for $10 each, Boris is willing to mow lawns for $20 each, and Chelsea is willing to mow lawns for $30 each. If the going rate for lawn mowing is $18, what is the total producer surplus received by the three of them?

$8

Refer to above figure, which represents a duopoly industry. What would be the likely total industry payoff or profit?

$8 million

To pursue a goal of being a business owner, Mary left a job that paid $40,000 per year. At the end of her first year in business, her cash revenues summed up to $90,000 and her explicit costs were $50,000. Also, in order to fund her business startup, Mary cashed in a $20,000 certificate of deposit that was providing a yield of 5%. Ceteris paribus, Mary's economic profit is:

-$1,000.

Scenario: Accounting and Economic Profit Rather than put the $100,000 that his grandmother left him in a mutual fund and earn 5% each year, Tommy Wang quit his job that paid $60,000 per year and used the $100,000 to start Wang's Wicker Furniture Store. He rented a showroom for $15,000 for the year, purchased $100,000 in capital equipment (an amount that depreciates $5,000 each year), purchased $60,000 in wicker furniture, and incurred costs of $40,000 for sales help and advertising. In his first year, his revenue was approximately $150,000. Reference: Ref 16-01 (Scenario: Accounting and Economic Profit) The economic profit of Wang's Wicker Furniture Store is: A. $67,000. B. $0. C. -$20,000. D. -$35,000.

-$35,000.

Wendy has a monopoly in the retailing of motor homes. She can sell five per week at $21,000 each. If she wants to sell six, she must charge $20,000 each. The price effect of selling the sixth motor home is:

-$5,000

Quantity Price Total Cost 1 $1 $6 2 $1 $11 3 $1 $13 4 $1 $16 5 $1 $20 6 $1 $28 7 $1 $38 The table above gives the total cost information for a perfectly competitive firm. What is the profit-maximizing quantity of output?

1

During its only year of operation, a firm collected $175,000 in revenue and spent $50,000 on raw materials, labor, and utilities. The owners of the firm spent $100,000 of their own money to build the firm's factory (instead of buying bonds and earning a 10% rate of return), which they sold at the end of the year for $100,000. The firm's economic profit is: A. $35,000. B. $125,000. C. $115,000. D. $25,000.

115,000

A major application of the Sherman Antitrust Act was in ________ against ________.

1911; Standard Oil

Population will plateau in the year....

2050

Adie wants to take some online classes this semester. She is willing to pay $1,000 for the first class, $800 for the second, $700 for the third, and $500 for the fourth. If online classes cost $750, Adie will take ________ online classes and her consumer surplus will equal ________.

2; $300

Scenario: Accounting and Economic Profit Rather than put the $100,000 that his grandmother left him in a mutual fund and earn 5% each year, Tommy Wang quit his job that paid $60,000 per year and used the $100,000 to start Wang's Wicker Furniture Store. He rented a showroom for $15,000 for the year, purchased $100,000 in capital equipment (an amount that depreciates $5,000 each year), purchased $60,000 in wicker furniture, and incurred costs of $40,000 for sales help and advertising. In his first year, his revenue was approximately $150,000. Reference: Ref 16-01 (Scenario: Accounting and Economic Profit) The accounting profit of Wang's Wicker Furniture Store is: A. $200,000. B. $60,000. C. $30,000. D. $0.

30,000

A farm can produce 1,000 bushels of wheat per year with two workers and 1,300 bushels of wheat per year with three workers. The marginal product of the third worker is:

300 bushels

Krista sets up a business selling coffee from a coffee cart. She earns $10,000 in revenue a month. She incurs $2,000 per month in supplies (coffee cups, creamer, sugar, pastries, napkins and so on). Her cart and coffee makers depreciate at a rate of $1,200 annually. She used to earn $3,000 per month as a barista. The coffee cart is very specialized and has no other uses. What is Krista's economic profit per month? A. $3,800 B. $4,900 C. $6,800 D. $7,900

4,900

Quantity Price Total Cost 1 $6.50 $6 2 $6.50 $11 3 $6.50 $13 4 $6.50 $16 5 $6.50 $20 6 $6.50 $28 7 $6.50 $38 The table above gives the total cost information for a perfectly competitive firm. What is the profit-maximizing quantity of output?

5

Scenario: Accounting and Economic Profit Rather than put the $100,000 that his grandmother left him in a mutual fund and earn 5% each year, Tommy Wang quit his job that paid $60,000 per year and used the $100,000 to start Wang's Wicker Furniture Store. He rented a showroom for $15,000 for the year, purchased $100,000 in capital equipment (an amount that depreciates $5,000 each year), purchased $60,000 in wicker furniture, and incurred costs of $40,000 for sales help and advertising. In his first year, his revenue was approximately $150,000. Reference: Ref 16-01 (Scenario: Accounting and Economic Profit) What is the opportunity cost of Wang's $100,000 inheritance? A. $0 B. $5,000 C. $10,000 D. $100,000

5,000

VC = 0 TC = 50 Reference: Ref 19-01 (Table: Cost Data) The table shows some cost data for a firm currently operating in the short run. What is the value of the total fixed cost for this firm? A. $40 B. $50 C. $100 D. $70

50

Which of the following factors increases the likelihood that oligopolists collude?

A firm and its rivals are currently operating at maximum productive capacity.

Tacit collusion in practice is made more difficult to achieve: A. the larger the number of firms in the industry. B. the fewer the number of products being sold. C. the more similar the marginal costs of each firm. D. if customers have little or no bargaining power.

A. the larger the number of firms in the industry.

Which of the following statements concerning monopoly is true?

A monopoly has no rivals.

Oligopoly is a market structure characterized by

A small number of interdependent firms producing identical or differentiated products

T3:24. (Figure: Profit-Maximizing Output and Price) Assume there are no fixed costs and AC = MC. In the figure, at the profit-maximizing quantity of production for the monopolist, total revenue is ______, total cost is _______, and profit is _______. A) $4.800; $1,600: $3,200 B) $600: $200; $400 C) $1,600: $3,200: S 1.600 D) $4,800: $3,200; S 1,600

A) $4.800; $1,600: $3,200

T3:25. (Table: Total Product of Labor at Debbie's Bakery) Debbie owns a bakery and can hire workers to produce cakes selling in a competitive output market at $10 each. The table shows the relationship between the number of workers and the number of cakes produced. What is the value of the marginal product for the fourth worker? A) $50 B) $210 C) 21 cakes D) five cakes

A) $50

T1:27. If the price of tacos increases from $1 to $3, and customers decrease their consumption from 12 tacos to 8 tacos. What is the price elasticity of demand. using the midpoint method? A) 4/10 B) 1/2 C) 1 D) 3/2

A) 4/10

T2:29. (Figure and Table: Indifference Curve Map) Which of the following statements is true regarding the accompanying figure? A) Combination B is preferred to combination C B) Combination A is preferred to combination if C) Combination B is preferred to combination D. D) Combination C is preferred to combination A.

A) Combination B is preferred to combination C

T1:7. In a single day, George can bake lO cakes while Greta can bake 5 cakes. We then know that: A) George has an absolute advantage in baking cakes. B) Greta has an absolute advantage in baking cakes. C) George has a comparative advantage in baking cakes D) Greta has a comparative advantage in baking cakes.

A) George has an absolute advantage in baking cakes.

T3:29. Suppose the competitive labor market for plumbers is currently in equilibrium. Which of the following might decrease the wage for plumbers? A) Unemployed manufacturing workers attend technical schools to learn the plumbing trade. B) A minimum wage is imposed on the market for plumbers. C) The plumbers union creates a rigorous certification test that is difficult for aspiring plumbers to pass. D) An economic boom increases the demand for new homes.

A) Unemployed manufacturing workers attend technical schools to learn the plumbing trade.

T2:10. (Figure: Market for Roses) In the figure, consumer surplus with international trade would he area(s): A) W + X + Z B) W. C) Z. D) W + X + Y

A) W + X + Z

T3:13. (Figure: Prices, Cost Curves, and Profits) In the figure, if the price is P,, then the firm earns: A) a loss equal to (bc) x Q1. B) zero. C) a loss equal to (ca) x Q1. D) a loss equal to (ba) x Q1

A) a loss equal to (bc) x Q1.

T3:12. Firms in the model of perfect competition will: A) continue to increase output as long as the marginal benefit oían additional unit of output is greater than the marginal cost. B) minimize average variable cost. C) continue to increase output as long as the marginal benefit of an additional unit of output is less than the marginal cost. D) maximize total revenue.

A) continue to increase output as long as the marginal benefit oían additional unit of output is greater than the marginal cost.

T1:16. Consider the supply curve of cotton shirts. An increase in the price of cotton will: A) decrease the supply of cotton shirts. B) not shift the supply curve for cotton shirts. C) decrease the demand for cotton shirts. D) increase the supply of cotton shirts.

A) decrease the supply of cotton shirts.

T1:26. The price elasticity of demand is measured by: A) dividing the percentage change in quantity demanded by the percentage change in price. B) subtracting the percentage change in price from the percentage in quantity demanded. C) adding the percentage change in price to the percentage change in quantity demanded. D) dividing the percentage change in price by the percentage change in quantity demanded.

A) dividing the percentage change in quantity demanded by the percentage change in price.

T2:7. Goods and services purchased from abroad are ______, while goods and services sold abroad are ______. A) imports; exports B) exports: quotas C) quotas: factors D) exports: imports

A) imports; exports

T3:21. Most electric, gas, and water companies are examples oÍ A) natural monopolies. B) sunk-cost monopolies. C) unregulated monopolies. D) restricted-input monopolies.

A) natural monopolies.

T1:22. Rent controls set a price ceiling below the equilibrium price and therefore: A) quantity demanded exceeds the quantity supplied. B) poor people will obviously be helped. C) quantity supplied exceeds the quantity demanded. D) a surplus of rental units will result.

A) quantity demanded exceeds the quantity supplied.

T1:5. Technological improvements will: A) shift the production possibility frontier outward. B) necessarily lead to increased unemployment. C) shift the production possibility frontier inward. D) leave the production possibility frontier unchanged.

A) shift the production possibility frontier outward.

T3:1. In the short run: A) some inputs are fixed and some inputs are variable. B) all costs are variable. C) all inputs arc variable. D) all inputs arc fixed.

A) some inputs are fixed and some inputs are variable.

T1:8. To achieve the gains from trade, each nation should specialize in the production of a good or service if: A) the country can make the product while forgoing fewer alternative products than any other country. B) its production possibility frontier is larger than that of any other country. C) its production possibility frontier is smaller than that of any other country. D) the country can make the product using fewer resources than any other country.

A) the country can make the product while forgoing fewer alternative products than any other country.

T1:29. If an increase in the price of a good leads to an increase in total revenue, then: A) the demand curve must be price inelastic. B) the supply curve is price elastic. C) the demand curve must be price elastic. E) the demand curve must be perfectly elastic.

A) the demand curve must be price inelastic.

T2:6. The ability-to-pay principle says that: A) those with greater ability to pay should pay more tax. B) those that benefit from the tax should pay the same percentage of the tax hase as those who do not benefit. C) those that benefit from public spending should bear the burden of the tax that pays for that spending. D) the amount of tax paid depends on the gender of the tax payer.

A) those with greater ability to pay should pay more tax.

T1:11. A good is inferior if: A) when income increases, the demand decreases. B) income and the demand are unrelated. C) when income increases, the demand remains unchanged. D) when income increases, the demand increases.

A) when income increases, the demand decreases.

T2:27. An indifference curve is a line that shows all the consumption bundles that: A) yield the same total utility for an individual. B) yield the same marginal utility. C) have the same marginal rate of substitution. D) an individual can purchase with a given income.

A) yield the same total utility for an individual.

If a perfectly competitive firm sells 30 units of output at a price of $10 per unit, its marginal revenue is: A. $10. B. more than $10. C. less than $10. D. $300.

A. $10.

If a firm produces 10 units of output and incurs $35 in average total cost, and $5 in average fixed cost, average variable cost is: A. $30. B. $35. C. $50. D. $300.

A. $30.

Consider the following data for a perfectly competitive firm: price is $9, output is 30 units, and average total cost is $7. The firm's profits are equal to: A. $60. B. $270. C. $2. D. $210.

A. $60.

(Figure: Marginal Product of Labor) Using the marginal product of labor curve in the figure, the total product of labor for three workers is: A. 51 bushels. B. 45 bushels. C. 39 bushels. D. 15 bushels.

A. 51 bushels.

Which of the following is true? A. A monopoly firm is a price-maker. B. MR = P if the demand curve is downward-sloping. C. MR = MC is a profit-maximizing rule for firms in perfect competition only. D. Monopolies tend to charge lower prices than perfectly competitive firms.

A. A monopoly firm is a price-maker.

In the short run, a perfectly competitive firm produces output and earns an economic profit if: A. P > ATC. B. P < AVC. C. AVC > P > ATC. D. P = ATC.

A. P > ATC.

(Figure: Monopolistic Competition I) Which of the panels in the figure shows a monopolistic competitor earning a profit in the short run? A. Panel a B. Panel b C. Panel c D. Panels a and c

A. Panel a

Gary's Gas and Frank's Fuel are the only two providers of gasoline in Smalltown. Gary and Frank decide to form a cartel. Later, Gary summarizes his pricing strategy as, "I'll cheat on the cartel because regardless of what Frank does, cheating gives me the best payoff." This is an example of: A. a dominant strategy. B. a tit-for-tat strategy. C. an irrational strategy. D. product differentiation.

A. a dominant strategy.

In perfect competition: A. a firm's total revenue is found by multiplying market price by the firm's quantity of output. B. the firm's total revenue curve is a linear, downward-sloping line. C. at any price, the greater the quantity sold, the greater is a firm's marginal revenue. D. the firm's total revenue curve is nonlinear.

A. a firm's total revenue is found by multiplying market price by the firm's quantity of output.

A monopoly is best characterized by which of the following? A. a product with no close substitutes B. a single buyer and several sellers C. a large number of small firms D. a small number of large firms.

A. a product with no close substitutes

The demand curve for a monopoly is: A. above the marginal revenue curve. B. below the marginal revenue curve. C. horizontal due to economics of scale. D. infinitely elastic.

A. above the marginal revenue curve.

An oligopoly knows that its ________ affect its ________ and that the ________ of its rivals will affect it. A. actions; rivals; reactions B. price changes; total revenue in a positive way; reactions C. actions rarely; rivals; actions D. price increases; total revenue in the long run only; large but not small price changes

A. actions; rivals; reactions

Sunk costs: A. affect economic profit. B. are the losses associated with failed business ventures. C. are an important component of marginal analysis. D. are the same as fixed costs.

A. affect economic profit.

Antitrust policy refers to government: A. attempts to prevent the acquisition of monopoly power. B. attempts to encourage the exercise of monopoly power. C. encouragement of collusion in the marketplace. D. attempts to limit private enterprise.

A. attempts to prevent the acquisition of monopoly power.

(Figure: Short-Run Costs) B is the ________ cost curve. A. average total B. average variable C. marginal D. total

A. average total

When an increase in the firm's output reduces its long-run average total cost, it experiences: A. economies of scale. B. diseconomies of scale. C. constant returns to scale. D. variable returns to scale.

A. economies of scale.

If firms are experiencing economic losses in the short run, firms will leave the industry and industry output will ________ and economic losses will ________ in the long run. A. fall; fall B. rise; fall C. rise; rise D. fall; rise

A. fall; fall

Price discrimination leads to a ________ price in the market with a ________ demand. A. higher; less elastic B. higher; more elastic C. higher; perfectly elastic D. lower; less elastic

A. higher; less elastic

A monopolist or an imperfectly competitive firm practices price discrimination primarily to: A. increase profits. B. expand plant size. C. lower total costs. D. reduce marginal costs.

A. increase profits.

monopolist or an imperfectly competitive firm practices price discrimination primarily to: A. increase profits. B. expand plant size. C. lower total costs. D. reduce marginal costs.

A. increase profits.

(Figure: Marginal Revenue, Costs, and Profits) In the figure, if market price increases to $20, marginal revenue ________ and profit-maximizing output ________. A. increases; increases B. increases; decreases C. decreases; increases D. decreases; decreases

A. increases; increases

If a firm experiences lower costs per unit as it increases production in the long run, this is an example of: A. increasing returns to scale. B. decreasing returns to scale. C. increasing opportunity costs. D. scale reduction.

A. increasing returns to scale.

When an increase in the firm's output reduces its long-run average total cost, it experiences: A. increasing returns to scale. B. decreasing returns to scale. C. constant returns to scale. D. variable returns to scale.

A. increasing returns to scale.

An externality is said to exist when: A. individuals impose costs or benefits on others but have no incentive to take these costs and benefits into account. B. individuals impose costs or benefits on others, and the market provides incentives to take these costs and benefits into account. C. individual actions are affected by external forces; for example, the loss of U.S. jobs due to competition from abroad is an externality. D. individual actions are affected by government policies (such as taxes) that are externally imposed on the market.

A. individuals impose costs or benefits on others but have no incentive to take these costs and benefits into account.

Lilly is the price-taking owner of an apple orchard. Currently the price of apples is high enough that Lilly is earning positive economic profits. In the long run, Lilly should expect: A. lower apple prices due to entry of new firms. B. higher apple prices due to exit of existing firms. C. lower apple prices due to exit of existing firms. D. higher apple prices due to entry of new firms.

A. lower apple prices due to entry of new firms.

If it produces, a perfectly competitive firm will maximize profits at which: A. marginal revenue equals marginal cost. B. marginal revenue equals price. C. price equals average total cost. D. price exceeds marginal cost.

A. marginal revenue equals marginal cost.

To maximize profit, a monopolistically competitive firm should produce the level of output at which: A. marginal revenue equals marginal cost. B. price equals marginal cost. C. price equals total cost. D. marginal revenue equals price.

A. marginal revenue equals marginal cost.

When firms openly agree on price, output, and other decisions aimed at achieving monopoly profits, those firms are practicing: A. overt collusion. B. tacit collusion. C. leadership price. D. competitive game.

A. overt collusion.

The practice of selling the same product at different prices in different markets, without corresponding differences in costs, is: A. price discrimination. B. privatizing. C. monopolizing D. output prioritizing.

A. price discrimination.

Suppose a monopolistically competitive firm is in long-run equilibrium. Then: A. price equals average total cost. B. price equals marginal cost. C. marginal revenue equals price. D. price is greater than average total cost.

A. price equals average total cost.

A perfectly competitive firm is a: A. price-taker. B. price-searcher. C. cost-maximizer. D. quantity-taker.

A. price-taker.

A(n) ________ is excludable and rival in consumption. A. private good B. artificially scarce good C. public good D. common resource

A. private good

An action is a dominant strategy when it is a player's best action: A. regardless of the actions by other players. B. given certain profit-maximizing actions of other players. C. assuming the other players do not correctly anticipate the action. D. if there is only one other competitor.

A. regardless of the actions by other players.

Price leadership occurs if: A. smaller firms in an industry silently agree to charge the same price as the largest firm. B. two or more firms in an industry agree to fix the price at a given level. C. competition among a large number of small firms generates a stable market price. D. competition among a large number of small firms generates similar, but slightly different, prices.

A. smaller firms in an industry silently agree to charge the same price as the largest firm.

The free-rider problem is a direct result of: A. the inability to exclude nonpayers. B. marginal-cost pricing. C. full-cost pricing. D. horizontally summed supply curves.

A. the inability to exclude nonpayers.

The efficient level of pollution is: A. the quantity at which its total benefits exceed its total costs by the greatest possible amount. B. the quantity at which its total benefits equal its total costs. C. where the marginal social benefit of an additional unit of pollution emission is greater than the marginal social cost of the additional unit of pollution. D. where the marginal social benefit of an additional unit of pollution emission is less than the marginal social cost of the additional unit of pollution.

A. the quantity at which its total benefits exceed its total costs by the greatest possible amount.

A firm's marginal cost is: A. the ratio of the change in total cost to the change in the quantity of output. B. the change in total cost divided by the change in labor input. C. the slope of the average fixed cost curve. D. total cost divided by output.

A. the ratio of the change in total cost to the change in the quantity of output.

Clean water in a river is nonexcludable in that: A. the supplier cannot prevent consumption by people who do not pay for it. B. more than one person can consume the same unit of the good at the same time. C. individuals ignore the effect their use has on the amount of the resource remaining for others. D. the market suffers from inefficiently low consumption.

A. the supplier cannot prevent consumption by people who do not pay for it.

Because monopoly firms are price-setters: A. they can only sell more by lowering price. B. they sell more at higher prices than at lower prices. C. they take the market-determined price as given and sell all they can at that price. D. they sell less at lower prices

A. they can only sell more by lowering price.

There are benefits resulting indirectly from pollution, because: A. we obtain goods and services we enjoy even though, in the process, we create pollution. B. firms pollute the environment only if it allows them to provide people with goods and services they desire at a higher cost. C. businesses and consumers receive a perverse satisfaction from polluting. D. it can often be beneficial to wildlife.

A. we obtain goods and services we enjoy even though, in the process, we create pollution.

An externality is said to be internalized: A. when individuals take external costs and benefits into account in their decision making. B. in situations in which the Coase theorem is irrelevant or cannot be applied. C. when individuals successfully petition the government to ban or restrict activities that generate negative externalities. D. when individuals learn to adapt to negative externalities through introspection or internal acceptance of what are viewed as unchangeable facts of life.

A. when individuals take external costs and benefits into account in their decision making.

The lowest point on a perfectly competitive firm's short-run supply curve corresponds to the minimum point on the ________ curve.

AVC.

A firm produces at the output level at which its average total costs are minimized. At this output level, its average total costs are equal to all of the following except:

AVC. (MC, MR, price)

In a Nash equilibrium

All the alternatives are correct

T2:1. An excise tax collected from the producers of a good: A) shifts the supply curve downward (or to the right). B) shifts the supply curve upward (or to the left). C) creates a loss of tax revenue for the government. D) has a similar effect as a tax subsidy.

B) shifts the supply curve upward (or to the left).

T3:22. A monopoly can be temporary because o1 A) a lack of substitutes for the monopolist's product. B) technological change. C) high barriers to entry. D) economies of scale.

B) technological change.

Which of the following industries is most likely to be monopolistically competitive? A. automobiles B. fresh bagel shops C. corn D. an electric utility

B. fresh bagel shops

T1:19. (Figure: Consumer Surplus U) At a price of P2, consumer surplus equals the area: A) AQ30 B) ABP2. C) P1P2BF D) AFP1

B) ABP2.

T2:9. (Figure: Market for Roses) In the figure, consumer surplus without international trade would he area(s): A) Z. B) W. C) W + X + Y D) W + X + Z

B) W.

T1:1. Scarcity exists when: A) individuals can have more of any good. B) a choice must be made among two or more alternatives and when individuals can have more of one good but only at the expense of another. C) a choice must be made among two or more alternatives. D) individuals can have more of one good but only at the expense of another.

B) a choice must be made among two or more alternatives and when individuals can have more of one good but only at the expense of another.

T1:17. A newspaper story recently reported that the price of new cars has decreased, and the quantity of new cars sold has dropped. The price and quantity changes were probably caused by: A) a decrease in production costs. B) a decrease in buyers' incomes. C) an increase in buyers' incomes. D) an increase in production costs.

B) a decrease in buyers' incomes.

T2:19. Sunk costs: A) are the losses associated with failed business ventures. B) are not considered in marginal analysis. C) arc avoidable costs. D) can dramatically increase marginal costs.

B) are not considered in marginal analysis.

T2:25. An increase in the consumer's income will do all of the following, except: A) increase the horizontal intercept. B) change the slope of the budget line. C) shift the budget line away from the origin. D) increase the vertical intercept.

B) change the slope of the budget line.

T1:10. If goods A and B are substitutes, a decrease in the price of good B will: A) increase the demand for good B and decrease the demand for good A. B) decrease the demand for good A. C) increase the demand for good A. D) increase the demand for good B.

B) decrease the demand for good A.

T2:17. Accounting profit di tiers from economic profit because: A) economic costs include depreciation, while accounting costs do not. B) economic costs are generally higher than accounting costs because economic costs include all opportunity costs, while accounting costs include explicit costs only. C) of differences in the manner in which revenue is calculated. D) accounting costs are generally higher than economic costs because accounting costs include explicit and implicit costs, while economic costs include only explicit costs.

B) economic costs are generally higher than accounting costs because economic costs include all opportunity costs, while accounting costs include explicit costs only.

T3:8. When an increase in the firm's output reduces its long-run average total cost, it experiences: A) variable returns to scale. B) economies of scale. C) diseconomies of scale. D) constant returns to scale.

B) economies of scale.

T1:23. (Figure: Price Control) In this graph. a price floor has been imposed at the price shown as point b. The area of deadweight loss can be found at: A) fgi B) egh C) efg D) ghi

B) egh

T3:16. Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium. Subsequently, a decrease in population decreases the demand for haircuts. In the short run, we expect that the market price will _________ and the output of a typical firm will ________ . A) fall: rise B) fall: fall C) rise; fall D) rise; rise

B) fall: fall

T1:12. A decrease in the price of eggs will result in a(n): A) increase in the supply of eggs. B) greater amount of eggs demanded. C) increase in the demand for eggs. D) greater amount of eggs supplied.

B) greater amount of eggs demanded.

T3:26. Sarah owns a small flower shop and the industry is perfectly Competitive. She is considering whether or not to hire an additional worker. The wage rdte for the worker is $500 per week: the marginal product of the additional worker would be 100 units per week; and the price of the units produced is $10 per unit. What should Sarah do? A) raise the price of the flower arrangements that she sells B) hire the additional worker C) Not enough information is given to answer the question. D) not hire the additional worker

B) hire the additional worker

T2:18. Whenever MB <MC, the decision maker should do of the activity. A) none B) less C) the same amount D) more

B) less

T3:14. The short-run supply curve for a perfectly competitive firm is its: A) marginal revenue curve to the right of its marginal cost curve. B) marginal cost curve above its average variable cost curve. C) average total cost curve below its marginal cost curve. D) demand curve above its marginal revenue curve.

B) marginal cost curve above its average variable cost curve.

T1:18. The total consumer surplus for Good X can he calculated in all cxcept one of the following ways. Which is the exception? A) the sum, for all buyers of X. of the difference between what each buyer is willing to pay for X and the amount actually paid B) the area bounded by the demand curve for X and the two axes C) the sum of the individual consumer surpluses for all buyers of X D) the area below the demand curve for X and above the price of X

B) the area bounded by the demand curve for X and the two axes

T2:30. Suppose Good A is a normal good and the price of Good A decreases. Then: A) the income effect of the price change will cause a decrease in the consumption of Good A. B) the income effect of the price change will cause an increase in the consumption of Good A. C) the substitution effect of the price change will cause a decrease in the consumption of Good A and the income effect of the price change will cause a decrease in the consumption of Good A. D) the substitution effect of the price change will cause a decrease in the consumption of Good A.

B) the income effect of the price change will cause an increase in the consumption of Good A.

T1:28. The price elasticity of a good will tend to be greater: A) if the share of income spent on the good is small. B) the longer the relevant time period. C) the fewer the number of substitute goods available. D) if it is a staple or necessity with few substitutes.

B) the longer the relevant time period.

T1:4. The production possibility frontier illustrates: A) that opportunity costs are zero. B) the maximum quantity of one good that can be produced given the quantity of the other good produced. C) that markets never allocate resources efficiently. D) the inverse relationship between price and quantity of a particular good.

B) the maximum quantity of one good that can be produced given the quantity of the other good produced.

T1:20. The total producer surplus in the Wisconsin milk market represents: A) the total revenue of the milk producers in Wisconsin. B) the sum of the individual producer surpluses in this market C) the total cost of selling milk in Wisconsin. D) the price of milk multiplied by the number of gallons of milk sold.

B) the sum of the individual producer surpluses in this market

T3:30. According to the U.S. Bureau of Labor Statistics, "women's earnings is 80% of men's". Specifically, women's average weekly earnings is 80% of men's average weekly earnings or the ratio of women's average weekly earnings over mens average weekly earnings is 0.80. From this statistic: A) we can infer that women have lower levels of education than men. B) we cannot infer whether women are discriminated against in the labor market. C) we can infer women get paid less than men to do the same jobs. D) we can infer that women are discriminated against in the labor market.

B) we cannot infer whether women are discriminated against in the labor market.

If a firm produces 10 units of output and incurs $30 in average variable cost and $5 in average fixed cost, average total cost is: A. $30. B. $35. C. $50. D. $300.

B. $35.

A farm can produce 1,000 bushels of wheat per year with two workers and 1,300 bushels of wheat per year with three workers. The marginal product of the third worker is: A. 100 bushels. B. 300 bushels. C. 1,300 bushels. D. 2,300 bushels.

B. 300 bushels.

Which of the following statements is true? A. It is possible to observe how much people pay for an additional unit of a public good. B. It is difficult for governments to get an accurate estimate of the marginal social benefits of public goods, because individuals have an incentive to distort the truth about their willingness to pay. C. Individuals tend to underestimate the amount of a public good that they desire. D. It is straightforward to estimate the marginal social benefits of public goods.

B. It is difficult for governments to get an accurate estimate of the marginal social benefits of public goods, because individuals have an incentive to distort the truth about their willingness to pay.

If a monopolistically competitive firm is in long-run equilibrium, we can assume that price ________. A. equals marginal revenue. B. equals average total cost. C. is greater than average total cost. D. equals marginal cost.

B. equals average total cost.

A perfectly competitive firm maximizes profit by producing the quantity at which: A. P > AVC. B. MR = MC. C. Q × (P - ATC) = 0. D. TR = TC.

B. MR = MC.

A perfectly competitive industry is in a state of long-run equilibrium. Which of the following must be true? A. P = MR = MC > ATC. B. P = MR = MC = ATC. C. P = MR = MC = AVC. D. P > MR = MC = AVC.

B. P = MR = MC = ATC.

(Figure: Monopolistic Competition I) Which of the panels in the figure shows a monopolistic competitor earning a loss in the short run? A. Panel a B. Panel b C. Panel c D. None of the panels show a loss in the short run.

B. Panel b

Which of the following is true? A. If price falls below average total cost, the firm will stop producing in the short run. B. Price and marginal revenue are the same in perfect competition. C. Economic profit per unit is found by subtracting AVC from price. D. Economic profit is always positive in the short run.

B. Price and marginal revenue are the same in perfect competition.

Marginal revenue: A. is the slope of the average revenue curve. B. equals the market price in perfect competition. C. is the change in quantity divided by the change in total revenue. D. is the price divided by the change in quantity.

B. equals the market price in perfect competition.

Which of the following scenarios best describes an oligopolistic industry?

Coca-Cola and Pepsi sell most of the soft drinks consumed around the world.

Which of the following is true? A. Additional units of a good should be produced as long as MR < MC. B. The profit-maximizing solution occurs where MR = MC. C. Profit-maximizing behavior occurs only in perfectly competitive markets. D. The profit-maximizing solution occurs where MR > MC.

B. The profit-maximizing solution occurs where MR = MC.

Which of the following would make it difficult for oligopolists to collude? A. There are few firms in the market. B. There are few buyers in the market. C. The oligopolists have similar costs of production. D. Oligopolists usually produce a homogeneous product.

B. There are few buyers in the market.

Perfect competition is a model of the market that assumes all of the following except: A. a large number of firms. B. firms face downward-sloping demand curves. C. firms produce identical goods. D. many buyers.

B. firms face downward-sloping demand curves.

Which of the following best describes a negative externality? A. Your neighbor loves to bake bread and always brings you a loaf fresh and hot from the oven. B. Your neighbor has an ornamental pond that breeds mosquitoes. C. Your neighbor has invested in beautiful landscaping, increasing the value of all houses on the block. D. Your neighbor has a pool and has given you an open invitation to come over and swim.

B. Your neighbor has an ornamental pond that breeds mosquitoes.

Which of the following goods is most likely a common resource? A. the Internet B. a public park C. a pair of pants D. the fire department

B. a public park

In the classic prisoners' dilemma with two accomplices in crime, the Nash equilibrium is for: A. both individuals to not confess. B. both individuals to confess. C. one to confess and the other not confess. D. This game does not have a Nash equilibrium.

B. both individuals to confess.

On Saturday night you plan to attend a movie. You buy a ticket for $7 and then lose it. According to marginal analysis, you should: A. go home. B. buy another ticket and attend the movie. C. buy another ticket and attend the movie only if your marginal benefit of seeing the movie is greater than $14. D. look for the lost ticket.

B. buy another ticket and attend the movie.

An extreme case of oligopoly in which firms collude to raise joint profits is known as a: A. duopoly. B. cartel. C. dominant producer. D. price war.

B. cartel.

A Pigouvian subsidy is: A. designed to discourage activities generating externalities. B. designed to encourage activities generating external benefits. C. appropriate when the marginal social cost curve is above the marginal cost of production curve. D. appropriate when the marginal social cost curve and the marginal social benefit curve intersect at an inefficient level.

B. designed to encourage activities generating external benefits.

In monopolistic competition, each firm: A. is a price-taker. B. has some ability to set the price of its differentiated good. C. will set price equal to marginal cost. D. has marginal revenue that is greater than price.

B. has some ability to set the price of its differentiated good.

Suppose the production of DVDs generates sulfur dioxide, an air pollutant. Then the equilibrium market quantity of DVDs produced and consumed: A. is less than the socially optimal quantity. B. is more than the socially optimal quantity. C. equals the socially optimal quantity. D. may be more than, less than, or equal to the socially optimal quantity.

B. is more than the socially optimal quantity.

When economic profits in an industry are zero: A. firms are really doing badly. B. it means that firms are doing as well as they could do in other markets. C. firms should exit, so they can make an economic profit in some other market. D. the industry is not in long-run equilibrium.

B. it means that firms are doing as well as they could do in other markets.

In many cities you can stay at a Holiday Inn in the downtown area, in a suburban community, or near the airport. These Holiday Inn establishments are examples of product differentiation by: A. type. B. location. C. quality. D. style.

B. location.

Which of the following is an example of a nonexcludable good? A. health care B. national defense C. education D. ice cream

B. national defense

Most electric, gas, and water companies are examples of: A. unregulated monopolies. B. natural monopolies. C. restricted-input monopolies. D. sunk-cost monopolies.

B. natural monopolies.

An individual is more likely to free ride when a good is: A. private. B. nonexcludable. C. nonrival. D. artificially scarce.

B. nonexcludable

A public good is ________ and ________ in consumption. A. excludable; rival B. nonexcludable; nonrival C. excludable; nonrival D. nonexcludable; rival

B. nonexcludable; nonrival

Assume an industry is dominated by a few firms. Each of these firms acknowledges that its own choices affect the choices of its rivals. Each firm also recognizes that its rivals' choices affect the decisions it makes. This industry is an example of a(n): A. monopoly. B. oligopoly. C. monopolistic competition. D. perfect competition.

B. oligopoly.

A firm that experiences economies of scale: A. at lower levels of output and then encounters diseconomies of scale at higher levels of output is a natural monopoly. B. over the entire range of outputs demanded is called a natural monopoly. C. at any particular level of output is called a natural monopoly. D. has a continually rising long-run average cost curve.

B. over the entire range of outputs demanded is called a natural monopoly.

A wheat farmer operating in the short run produces 100 bushels of wheat. Her average total cost per bushel is $1.75, total revenue is $450, and (total) fixed costs are equal to $100. Then: A. average fixed cost is equal to $1.50. B. profit per bushel is equal to $2.75. C. average variable cost is equal to $1.25. D. economic profit is equal to $250.

B. profit per bushel is equal to $2.75.

Public policies toward monopoly in the United States consist of: A. laws outlawing all of them. B. regulation of natural monopolies. C. government takeover if monopoly profit exceeds a certain level. D. forcing monopoly industries to become perfectly competitive.

B. regulation of natural monopolies.

The kinked demand curve model assumes that: A. rivals will follow a price increase but not a price decrease. B. rivals will follow a price decrease but not a price increase. C. the firm with the kinked demand curve will always behave noncooperatively. D. the firm with the kinked demand curve will always adopt a tit-for-tat strategy.

B. rivals will follow a price decrease but not a price increase.

If a Florida strawberry wholesaler is in a perfectly competitive market, that wholesaler will have a ________ share of the market, and consumers will consider her strawberries to be ________. Therefore, ________ advertising will take place in this market. A. large; standardized; no B. small; standardized; little, if any C. small; differentiated; no D. large; differentiated; extensive

B. small; standardized; little, if any

In the short run, a perfectly competitive firm produces output and breaks even if: A. the firm produces a quantity at which P < ATC. B. the firm produces a quantity at which P = ATC. C. the firm produces a quantity at which P > ATC. D. the firm produces a quantity at which P = (TR/Q + TC/Q) * Q.

B. the firm produces a quantity at which P = ATC.

The demand curve for a monopoly is: A. the sum of the supply curves of all the firms in the monopoly's industry. B. the industry demand curve. C. horizontal because no one can enter. D. perfectly elastic.

B. the industry demand curve.

(Figure: Perfect Competition) In the figure, a perfect competitor will produce at: A. the intersection of marginal revenue and marginal cost. B. the intersection of demand and marginal cost. C. the intersection of demand and average total cost. D. the intersection of marginal revenue and average total cost.

B. the intersection of demand and marginal cost.

A market economy, without any government regulation, will produce: A. too little pollution. B. too much pollution. C. the socially optimal quantity of pollution. D. the amount of pollution that maximizes total surplus.

B. too much pollution.

Average total cost is: A. the change in cost divided by the change in output. B. total cost divided by output. C. the change in output divided by the change in costs. D. total cost times output.

B. total cost divided by output.

The marginal product of labor is the change in: A. labor divided by the change in total product. B. total output divided by the change in the quantity of labor. C. average output divided by the change in the quantity of labor. D. total costs divided by the change in the quantity of labor.

B. total output divided by the change in the quantity of labor.

A duopoly is an industry that consists of: A. a single firm. B. two firms. C. three or more firms. D. a large number of small firms.

B. two firms.

The total product curve: A. shows the relation between output and the quantity of a variable input for varying levels of the fixed input. B. will become flatter as output increases, if there are diminishing returns to the variable input. C. will be downward-sloping, if there are diminishing returns to the variable input. D. will become horizontal, when the marginal product of the variable input is constant.

B. will become flatter as output increases, if there are diminishing returns to the variable input.

Which of the following is true about the game in Scenario 13.2?

Both ABC and XYZ offer a rebate as a dominant strategy.

Refer to the above figure. The figure gives the payoff matrix for two individuals who are being accused of robbing a bank together. Which of the following is the outcome with cooperation?

Both don't confess.

Refer to the above payoff matrix for the profits (in $ millions) of two firms (A and B) making a decision to advertise or not. Which of the following is the outcome of the dominant strategy without cooperation?

Both firm A and firm B choose to advertise.

Refer to Figure 12.7. The numerical data show daily profits for each of the two firms when they choose a specific pricing strategy. If both firms follow their individual dominant strategy:

Both will earn $150 daily profit.

T2:11. When an economy moves from autarky to free international trade, in the import sector: A) the decrease in either consumer surplus or producer surplus is sufficiently large to cause net losses for the economy. B) consumer and producer surplus both rise, and the economy as a whole gains. C) consumer surplus rises, producer surplus falls, and the economy as a whole gains. D) consumer surplus falls, producer surplus rises, and the economy as a whole gains.

C) consumer surplus rises, producer surplus falls, and the economy as a whole gains.

T1:15. Which of the following is not a determinant of supply? A) the technology of production B) the cost of production C) consumer tastes D) expectations regarding future prices

C) consumer tastes

T2:3. An excise tax creates inefficiency in that the number of transactions in a market is reduced. Because the tax discourages mutually beneficial transactions, there is from a tax. A) increase in welfare B) wealth creation C) deadweight loss D) quota rent

C) deadweight loss

T2:20. The present value of a future payment: A) decreases when the interest rate falls. B) never changes regardless of the interest rates. C) decreases when the interest rate rises. D) decreases when the interest rate stays the same.

C) decreases when the interest rate rises.

T1:9. A negative relationship between the quantity demanded and price is called the law of: A) increasing returns. B) supply. C) demand. D) market clearing.

C) demand.

T2:8. The term autarky refers to a situation in which a country: A) trades goods and services based upon the principle of Ricardian advantage. B) trades goods and services based upon the princIple of comparative advantage. C) does not trade with other countries. D) trades goods and services based upon the principle of absolute advantage.

C) does not trade with other countries.

T3:11. Marginal revenue: A) is the change in quantity divided by the change in total revenue. B) is the price divided by the change in quantity. C) equals the market price in perfect competition. D) is the slope of the average revenue curve.

C) equals the market price in perfect competition.

T3:15. In perfect competition, the assumption of easy entry and exit implies that: A) in the long run all firms in the industry will earn zero economic profits and in the short run all firms in the industry will earn positive economic profits. B) in the short run all firms in the industry will earn zero economic profits and goods will be produced at the lowest possible cost. C) in the long run all firms in the industry will earn zero economic profits and goods will be produced at the lowest possible cost. D) in the short run all firms in the industry will earn positive economic profits.

C) in the long run all firms in the industry will earn zero economic profits and goods will be produced at the lowest possible cost.

T2:22. Xavier notices that the marginal utility of working with a tutor seems to fall with each hour the tutor helps him study. If Xavier keeps the tutor until his grade actually begins to Fall. his marginal utility will be: A) immeasurable. B) zero. C) negative. D) positive, but rising more slowly.

C) negative.

T2:28. The assumption that "more is better than Iess" explains why indifference curves: A) slope upward and away from the origin. B) that lie closer to the origin represent higher levels of utility. C) that lie farther away from the origin represent higher levels of utility. D) cross frequently.

C) that lie farther away from the origin represent higher levels of utility.

T3:28. An increase in the market demand for electricians might occur if: A) the wage for electricians falls. B) the price of copper electrical wiring increases. C) the price of electrical repair and installation services rises. D) the demand for new houses falls.

C) the price of electrical repair and installation services rises.

T3:6. The costs associated with variable inputs are _________ costs and the costs associated with _________ inputs are _____costs. A) fixed: fixed; fixed B) variable; fixed; variable C) variable; fixed; fixed D) fixed: fixed; variable

C) variable; fixed; fixed

T1:2. The best measure of the opportunity cost of any choice is: A) the cost associated with not taking full advantage of the opportunity offered by that choice. B) your hourly wage. C) whatever you have given up to make that choice, even if no monetary costs areinvolved. D) the monetary cost of that choice.

C) whatever you have given up to make that choice, even if no monetary costs areinvolved.

T3:3. The total product curve: A) will become flatter as output increases, if there are increasing returns to the variable input. B) will become steeper as output increases, if there arc diminishing returns to the variable input. C) will become flatter as output increases, if there are diminishing returns to the variable input. D) will be downward-sloping. if there are diminishing returns to the variable input.

C) will become flatter as output increases, if there are diminishing returns to the variable input.

T1:24. One of the consequences of increasing he minimum wage has been: A) decreased unemployment for younger workers. B) decreased unemployment for low-skill workers. C) workers offering to work "off the books" for less than the minimum wage. D) lower production costs for small businesses.

C) workers offering to work "off the books" for less than the minimum wage.

Austin's total fixed cost is $3,600. Austin employs 20 workers and pays each worker $60. If labor is his only variable cost, what is Austin's total cost? A. $3,600 B. $3,660 C. $4,800 D. $400

C. $4,800

(Table: Variable Costs for Lawns) During the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly competitive industry. His only fixed cost is $1,000 for the mower. His variable costs include fuel and mower parts. He calculates the variable costs per lawn as shown in the table. What is Alex's break-even price? A. $100 B. $10 C. $50 D.$27.50

C. $50

If a firm produces 10 units of output and incurs $30 in average variable cost and $35 in average total cost, total fixed cost is: A. $30. B. $35. C. $50. D. $300.

C. $50.

Which of the following scenarios best describes an oligopolistic industry? A. A single cable company serves customers in a small town. B. Thousands of soybean farmers sell their output in a global commodities market. C. Coca-Cola and Pepsi sell most of the soft drinks consumed around the world. D. A college has one bookstore selling textbooks to students.

C. Coca-Cola and Pepsi sell most of the soft drinks consumed around the world.

________ almost always take the market price as given, or are considered ________, but this is often not true of ________. A. Consumers; quantity-minimizers; producers B. Producers; quantity-takers; consumers C. Consumers and producers; price-takers; firms that produce a differentiated product D. Producers; price-searchers; consumers

C. Consumers and producers; price-takers; firms that produce a differentiated product

The ________ is the increase in output obtained by hiring an additional worker. A. average product B. total product C. marginal product D. marginal cost

C. marginal product

Which of the following is not an assumption that economists make when using the model of perfect competition? A. There is easy entry and exit. B. The products of each firm in a particular market are identical. C. Each firm sets its price equal to its average total cost. Correct D. Firms seek to maximize profits.

C. Each firm sets its price equal to its average total cost.

The principal government agency in the United States responsible for enforcing national environmental policies is the: A. Department of Agriculture. B. Department of the Interior. C. Environmental Protection Agency. D. Department of Justice.

C. Environmental Protection Agency.

Which of the following is a necessary condition for perfect competition? A. A small number of firms control a large share of the total market. B. Entry and exit into the market is limited. C. Firms produce a standardized product. D. Extensive advertising is used to promote the firm's product.

C. Firms produce a standardized product.

The sum of the squared market shares of each firm in an industry is the: A. concentration ratio. B. employment rate. C. Herfindahl-Hirschman Index. D. market number.

C. Herfindahl-Hirschman Index.

Which of the following is true? A. A monopoly firm is a price-taker. B. MR > P if the demand curve is downward-sloping. C. MR = MC is a profit-maximizing rule for any firm. D. In monopoly P = MC when profits are maximized.

C. MR = MC is a profit-maximizing rule for any firm.

In perfect competition, the firm produces the output such that ________, and in monopoly, the firm produces the output such that ________. A. P > MR = MC; P = MR = MC B. P = MR = MC; P < MR = MC C. P = MR = MC; P > MR = MC D. P = MR = MC; P = MR = MC

C. P = MR = MC; P > MR = MC

(Figure: Monopolistic Competition I) Which of the panels in the figure shows a monopolistic competitor in long-run equilibrium? A. Panel a B. Panel b C. Panel c D. Panels a, b, and c

C. Panel c

All except one of the following are characteristics of perfect competition. Which is the exception? A. All firms produce the same standardized product. B. There are many producers and each has only a small market share. C. There are many producers; one firm has a 25% market share, and all the remaining firms have a market share of less than 2% each. D. There are no obstacles to entry into or exit from the industry.

C. There are many producers; one firm has a 25% market share, and all the remaining firms have a market share of less than 2% each.

Which of the following is an example of an activity generating a positive externality? A. You buy a new car and then find $5,000 in the door panel. B. Your next-door neighbor mows the lawn at 6 A.M. C. Your next-door neighbor installs a bat house and the bats eat mosquitoes. D. Joe buys health insurance, but decides not to take the time to get a flu shot.

C. Your next-door neighbor installs a bat house and the bats eat mosquitoes.

The best example of a good whose consumption is exclusive is: A. a park. B. an ocean. C. a bicycle. D. national defense.

C. a bicycle.

The pricing in monopoly prevents some mutually beneficial trades from taking place. The value of these unrealized mutually beneficial trades is called: A. sunk costs. B. opportunity costs. C. a deadweight loss. D. inequities.

C. a deadweight loss.

An industry with two firms producing is generally called: A. a monopoly. B. monopolistic competition. C. a duopoly. D. perfect competition.

C. a duopoly.

Oligopoly is a market structure characterized by: A. independence in decision making. B. a horizontal demand curve. C. a small number of interdependent firms. D. relatively easy entry and exit.

C. a small number of interdependent firms.

If all firms in an industry are price-takers, then: A. each firm can take the price that it wants to charge and sell at this price, provided it is not too different from the prices other firms are charging. B. each firm takes the market price as given for its current output level, recognizing that the price will change if it alters its output significantly. C. an individual firm cannot alter the market price even if it doubles its output. D. the market sets the price, and each firm can take it or leave it (by setting a different price).

C. an individual firm cannot alter the market price even if it doubles its output.

If marginal cost is equal to average total cost, then: A. average total cost is increasing. B. average total cost is at its maximum. C. average total cost is at its minimum. D. marginal cost is increasing.

C. average total cost is at its minimum.

Public goods differ from common resources in that: A. both are nonrival in consumption, but public goods are excludable while common resources are nonexcludable. B. both are excludable, but public goods are nonrival in consumption while common resources are rival in consumption. C. both are nonexcludable, but public goods are nonrival in consumption while common resources are rival in consumption. D. both are rival in consumption, but public goods are nonexcludable while common resources are excludable.

C. both are nonexcludable, but public goods are nonrival in consumption while common resources are rival in consumption.

If a perfectly competitive firm is producing a quantity that generates MC > MR, then profit: A. is maximized. B. can be increased by increasing production. C. can be increased by decreasing production. D. can be increased by decreasing the price.

C. can be increased by decreasing production.

In the long run, monopolistically competitive firms: A. produce output at the level that minimizes average total cost. B. set marginal revenue equal to price. C. cannot earn an economic profit. D. produce so that marginal cost equals price.

C. cannot earn an economic profit.

The long-run average total cost of producing 100 units of output is $4, while the long-run average cost of producing 110 units of output is $4. These numbers suggest that the firm producing this output is experiencing: A. economies of scale. B. diseconomies of scale. C. constant returns to scale. D. diminishing returns.

C. constant returns to scale.

The idea of diminishing returns to an input in production suggests that if a local college adds more and more custodians, the marginal product of labor for the custodial staff will ________ over time. A. increase at an increasing rate B. increase at a decreasing rate C. decrease D. not change

C. decrease

Monopolistically competitive firms have zero economic profits in the long run because of: A. excess capacity. B. price wars among firms. C. easy entry and exit. D. excessive advertising.

C. easy entry and exit.

In a monopoly in the long run: A. economic profits will be eliminated by the entry of rival firms. B. economic profits will be reduced, but not eliminated entirely, by the entry of rival firms. C. entry will not occur. D. social surplus is maximized.

C. entry will not occur.

Economic profits in a perfectly competitive industry induce ________, and losses induce ________. A. exit; entry B. entry; entry C. entry; exit D. exit; exit

C. entry; exit

Firms in the model of perfect competition will: A. maximize total revenue by using the marginal decision rule. B. increase output up to the point that the marginal benefit of an additional unit of output is greater than the marginal cost. C. increase output up to the point that the marginal benefit of an additional unit of output is equal to the marginal cost. D. always attempt to minimize average variable cost.

C. increase output up to the point that the marginal benefit of an additional unit of output is equal to the marginal cost.

No individual is willing to pay for providing the efficient level of a public good since the: A. marginal cost of production is zero. B. good will be nonrival, and thus underconsumed. C. individual's marginal benefit is less than the marginal social benefit. D. marginal benefit of allowing one more individual to consume the good is zero.

C. individual's marginal benefit is less than the marginal social benefit.

Game theory is commonly used to explain behavior in oligopolies, because oligopolies are characterized by: A. large profits in the long run. B. either homogeneous or heterogeneous products. C. interdependence. D. imperfect competition.

C. interdependence.

The marginal revenue received by a firm in a perfectly competitive market: A. is greater than the market price. B. is less than the market price. C. is equal to its average revenue. D. increases with the quantity of output sold.

C. is equal to its average revenue.

Monopolistic competition is an industry characterized by a: A. small number of firms producing identical products, with barriers to entry for firms. B. small number of firms producing similar products, with relatively easy entry for firms. C. large number of firms producing similar products, with relatively easy entry for firms. D. large number of firms producing identical products, with relatively easy entry for firms.

C. large number of firms producing similar products, with relatively easy entry for firms.

Marginal revenue for a monopolist is: A. equal to price. B. greater than price. C. less than price. D. equal to average revenue.

C. less than price.

Decreasing and increasing returns to scale account for the shape of the: A. short-run average total cost curve. B. short-run average variable cost curve. C. long-run average total cost curve. D. marginal cost curve in both the short run and the long run.

C. long-run average total cost curve.

The airline industry often engages in Bertrand behavior. This means that firms often ________ prices until profits ________. A. raise; are maximized B. lower; are maximized C. lower; approach zero D. raise; approach zero

C. lower; approach zero

(Figure: Short-Run Costs) A is the ________ cost curve. A. average total B. average variable C. marginal D. total

C. marginal

Compared to perfect competition: A. monopoly produces more at a lower price. B. monopoly produces where MR > MC, and a perfectly competitively firm produces where P = MC. C. monopoly may have economic profits in the long run, but in perfect competition in the long run economic profits are zero. D. perfect competition may have economic profits in the long run, but in monopoly the long run economic profits are zero.

C. monopoly may have economic profits in the long run, but in perfect competition in the long run economic profits are zero.

The HHI for ________ where ________ have (has) ________ of the market is ________ . A. monopolistic competition; four firms each; 25%; 10,000 B. oligopoly; three firms each; 50%; 5,000 C. oligopoly; two firms each; 50%; 5,000 D. monopoly; one firm; 100%; 100,000

C. oligopoly; two firms each; 50%; 5,000

A cartel is an example of: A. price extortion. B. price leadership. C. overt collusion. D. tacit collusion.

C. overt collusion.

The short run is defined as a: A. period of time less than 1 year. B. period of time less than 6 months. C. period in which some inputs are considered to be fixed in quantity. D. time period in which some inputs are fixed, but it cannot exceed 1 year.

C. period in which some inputs are considered to be fixed in quantity.

The slope of a long-run average total cost curve exhibiting decreasing returns to scale is: A. zero. B. infinite. C. positive. D. negative.

C. positive.

The Coase theorem states that in the presence of externalities, a market economy will: A. always reach an efficient solution. B. never reach an efficient solution. C. reach an efficient solution if transaction costs are sufficiently low. D. reach an efficient solution only in the case of government regulation.

C. reach an efficient solution if transaction costs are sufficiently low.

If price is consistently below average variable cost, then in the short run a perfectly competitive firm should: A. raise price. B. sell more output. C. shut down. D. lower price to sell more.

C. shut down.

In the short run: A. all inputs are fixed. B. all inputs are variable. C. some inputs are fixed and some inputs are variable. D. all costs are variable.

C. some inputs are fixed and some inputs are variable.

Given that there is general agreement that pollution is undesirable and social welfare is increased by reducing pollution, the optimal level of pollution in a society is: A. zero. B. that level that reduces marginal social costs of pollution to zero. C. the level of pollution at which the marginal social cost of pollution is equal to the marginal social benefit of pollution. D. the level of pollution that minimizes the average total cost of producing the product.

C. the level of pollution at which the marginal social cost of pollution is equal to the marginal social benefit of pollution.

Market structures are categorized by the following two criteria: A. the number of firms and the size of the firms B. whether or not products are differentiated and the extent of advertising C. the number of firms and whether or not products are differentiated D. the size of the firms and the extent of advertising

C. the number of firms and whether or not products are differentiated

For a nonexcludable good like national defense, a market economy will: A. overproduce the good. B. overconsume the good. C. underproduce the good. D. underconsume the good.

C. underproduce the good.

Average variable cost is the ratio of: A. total cost to the marginal cost. B. total cost to the amount of variable input. C. variable cost to the quantity of output. D. marginal cost to the quantity of output.

C. variable cost to the quantity of output.

Which of the following activities is a public good? A. going to school B. getting a flu shot C. voting D. smoking

C. voting

Collusion

Cooperation with rivals

T3:7. (Table: Cost Data) The table shows some cost data for a firm currently operating in the short run. What is the value of the total fixed cost for this firm? A) $70 B) $100 C) $40 D) $50

D) $50

T2:26. (Figure: Kristin's Budget Line) Kristin's budget line for cappuccinos and apples is illustrated in the figure. The price of a cup of cappuccino is $3. and the price of an apple is $1. Kristin's income is equal to: A) $20. B) $50. C) $120. D) $60.

D) $60.

T3:5. (Figure: MarginaI Product of Labor) Using the marginal product of labor curve in the figure, the total product of labor for three workers is: A) 45 bushels. B) 39 bushels. C) 15 bushels. D) 51 bushels.

D) 51 bushels.

T3:4. (Table: Labor and Output) Referring to the table, the average product when four workers are employed is: A) 10. B) 6. C) 36. D) 9.

D) 9.

T3:27. A firm's demand curve for labor in a perfectly competitive market is the downward-sloping portion of its: A) total revenue curve. B) marginal cost curve. C) total cost curve. D) VMPL curve

D) VMPL curve

T3:10. The market for breakfast cereal contains hundreds of similar products, such as Fruit Loops, Corn Flakes, and Rice Krispies, that are considered to be different products by different buyers. This situation violates the perfect competition assumption of: A) ease of entry and exit. B) complete information. C) many buyers and sellers. D) a standardized product.

D) a standardized product.

T2:14. The main difference between a tariff and a quota is: A) a tariff will cause lower prices than a quota. B) a quota reduces imports more sharply than a tariff C) a tariff will cause higher prices than a quota. D) a tariff generates tax revenue for the government, while a quota generates rents to the license-holders.

D) a tariff generates tax revenue for the government, while a quota generates rents to the license-holders.

T1:3. Brazil makes 40 Coffee and 20 salmon. Alaska makes 20 coffee and 20 salmon. This table shows the maximum amounts of coffee and salmon that Brazil and Alaska can produce if they just produce one good. Brazil has a comparative advantage in producing: A) both coffee and salmon. B) neither coffee nor salmon C) salmon only. D) coffee only.

D) coffee only.

T2:13. When an economy moves from free international trade to levying import tariffs, in the import sector: A) consumer surplus rises, producer surplus falls, tax revenue is collected, and the economy as a whole gains. B) the increase in either consumer surplus or producer surplus, with the tax revenue collected, are sufficiently large to cause net benefits for the economy as a whole. C) consumer and producer surplus both rise, tax revenue is collected, and the economy as a whole gains. D) consumer surplus falls, producer surplus rises, tax revenue is collected, and the economy as a whole loses.

D) consumer surplus falls, producer surplus rises, tax revenue is collected, and the economy as a whole loses.

T1:30. As you move down a linear demand curve, the price elasticity of demand will: A) increase and then decrease. B) increase. C) decrease and then increase. D) decrease.

D) decrease.

T3:20. A natural monopoly exists whenever a single firm: A) is investor-owned but has been granted the exclusive right by the government to operate in a market. B) has gained control over a strategic input of an important production process. C) is owned and operated by the federal or local government. D) experiences economies of scale over the entire range of production that is relevant to its market.

D) experiences economies of scale over the entire range of production that is relevant to its market.

T3:23. If a monopolist can engage in perfect price discrimination, then: A) producer surplus is minimized. B) the government may impose tines on the monopolist. C) consumer surplus is maximized. D) it produces at the socially efficient level.

D) it produces at the socially efficient level.

T3:2. The is the increase in output obtained b hiring an additional worker. A) total product B) marginal cost C) average product D) marginal product

D) marginal product

T2:23. If a consumer buys more of Good X and less of Good Y, the of Good X will, and the __________ of Good Y will __________ . A) marginal utility; rise; marginal utility; fall B) total utility; fall; marginal utility; rise C) marginal utility; rise; total utility; rise D) marginal utility; fall; marginal utility: rise

D) marginal utility; fall; marginal utility: rise

T3:19. The ability of a monopolist to raise the price of a product above the competitive level by reducing the output is known as: A) barrier to entry. B) patents and copyrights. C) product differentiation. D) market power.

D) market power.

T3:9. If a local California avocado stand operates in a perfectly competitive market, that stand owner will be a: A) price—maximizer. B) price-discriminator. C) price-setter. D) price-taker.

D) price-taker.

T3:18. The standard argument against monopolies is that a monopoly is likely to and than a perfectly competitive firm. A) produce more; charge less B) produce more; charge more C) produce less: charge less D) produce less: charge more

D) produce less: charge more

T2:12. In the importing country, the most likely effect of a tariff on a good is to: A) raise the price without affecting the quantity demanded. B) decrease the quantity supplied. C) raise the price and increase the quantity demanded. D) raise the price and decrease the quantity demanded.

D) raise the price and decrease the quantity demanded.

T1:13. (Figure: Demand for DVDs) A decrease in the price of DVD players (a complement) would result in a change illustrated by: A) the move from j to k in panel C. B) the move from f to g in panel A. C) the move from l to m in panel D. D) the move from h to i in panel B.

D) the move from h to i in panel B.

T1:6. If the production possibility frontier were a straight line sloping down from left to right, this would suggest that: A) the two products must have the same price. B) there are no opportunity costs. C) more of both goods could be produced moving along the frontier. D) the opportunity costs of the products are constant.

D) the opportunity costs of the products are constant.

T2:2. Suppose the government imposes a S 10 excise tax on the sale of Sweaters by charging suppliers $10 for each sweater sold. Based on economic analysis, we would predict that: A) consumers of sweaters will bear the entire burden of (he (ax. B) the price of sweaters to consumers will decrease by S 10. C) the price of sweaters to consumers will increase by $10. D) the price of sweaters to consumers will increase by less than $10.

D) the price of sweaters to consumers will increase by less than $10.

T2:16. Jacquelyn is a student at a major state university. Which of the following is not an example of an explicit cost of her attending college? A) textbooks B) computer lab fees C) tuition D) the salary that she could have earned working full-time

D) the salary that she could have earned working full-time

T1:25. Quantity controls set below the equilibrium quantity cause all of the following cept: A) missed opportunities in the form of mutually beneficial transactions that dont occur. B) the demand price of the quantity transacted to exceed the supply price of the quantity transacted. C) incentives for illegal activities. D) the supply price of the quantity transacted to exceed the demand price of the quantity transacted.

D) the supply price of the quantity transacted to exceed the demand price of the quantity transacted.

T2:21. Economists identify the satisfaction a person derives from the consumption of goods and services as: A) pleasure. B) happiness. C) usefulness. D) utility.

D) utility.

T2:4. The economic incidence of a tax refers to: A) the deadweight loss from the tax. B) who is responsible to turn in the tax to the government buyers or sellers;. C) the total revenue that the government collects from the tax. D) who really bears the burden of the tax (buyers and sellers).

D) who really bears the burden of the tax (buyers and sellers).

A monopoly will have a Herfindahl-Hirschman Index (HHI) equal to about: A. 1. B. 100. C. 1,000. D. 10,000.

D. 10,000.

(Figure: Monopolistic Competition I) Which of the panels in the figure shows a monopolistic competitor producing where price is greater than marginal revenue? A. Panel a B. Panel b C. Panel c D. All of the panels show a monopolistic competitor producing where price is greater than marginal revenue.

D. All of the panels show a monopolistic competitor producing where price is greater than marginal revenue.

(Figure: Payoff Matrix for Jake and Zoe) Jake and Zoe are the only producers of slushies in Vacatown. Each week, each firm decides whether to price high or price low for the following week. The figure shows the profit per week earned by the two firms. What is the Nash equilibrium for Jake and Zoe? A. Jake prices high; Zoe prices high B. Jake prices high; Zoe prices low C. Jake prices low; Zoe prices high D. Jake prices low; Zoe prices low

D. Jake prices low; Zoe prices low

The following are four differences between monopoly and perfect competition. Which of these is incorrect? A. A monopolist has market power while a perfect competitor does not. B. Unlike a perfectly competitive firm, a monopoly can make positive economic profits in the long run. C. A monopoly will charge a higher price and produce a smaller quantity than a competitive market with the same demand and cost structure. D. Monopoly profits can continue to exist in the long run, because the monopoly produces more and charges a higher price than a comparable perfectly competitive industry.

D. Monopoly profits can continue to exist in the long run, because the monopoly produces more and charges a higher price than a comparable perfectly competitive industry.

(Figure: Change in Total Product) The figure shows a production function changing from TP1 to TP2. Which of the following choices is a likely cause of this shift? A. Workers in the firm are less productive on average. B. The firm employed more of a variable input in the short run. C. The firm has suffered a decrease in available technology. D. The firm employed more of a fixed input in the long run.

D. The firm employed more of a fixed input in the long run.

Which of the following is not a characteristic of a perfectly competitive industry? A. Firms seek to maximize profits. B. Profits may be positive in the short run. C. There are many firms. D. There are differentiated products.

D. There are differentiated products.

You own a lemonade stand in a very competitive lemonade market, and as such, you are a price-taking firm. Which of the following events would most likely increase your market power? A. The government abolishes the system of patents and copyrights. B. A booming economy increases the demand for lemonade and attracts entry into the market. C. The average total cost curve for firms in the industry is horizontal. D. You own exclusive rights to harvest lemons from all domestic citrus orchards.

D. You own exclusive rights to harvest lemons from all domestic citrus orchards.

You own a lemonade stand in a very competitive lemonade market, and as such, you are a price-taking firm. Which of the following events would most likely increase your market share? A. The government abolishes the system of patents and copyrights. B. A booming economy increases the demand for lemonade and attracts entry into the market. C. The average total cost curve for firms in the industry is horizontal. D. You own exclusive rights to harvest lemons from all domestic citrus orchards.

D. You own exclusive rights to harvest lemons from all domestic citrus orchards.

The term diminishing returns refers to: A. a falling interest rate that can be expected as one's investment in a single asset increases. B. a reduction in profits caused by increasing output beyond the optimal point. C. a decrease in total output due to overcrowding, when too much labor is used with too little land or capital. D. a decrease in the extra output due to the use of an additional unit of a variable input, when more and more of the variable input is used and all other things are held constant.

D. a decrease in the extra output due to the use of an additional unit of a variable input, when more and more of the variable input is used and all other things are held constant.

The demand curve for a monopoly is: A. the MR curve above the AVC curve. B. the MR curve above the horizontal axis. C. the entire MR curve. D. above the MR curve.

D. above the MR curve.

In the long run: A. all inputs are fixed. B. inputs are neither variable nor fixed. C. at least one input is variable and one input is fixed. D. all inputs are variable.

D. all inputs are variable.

Mr. Porter sells 10 bottles of champagne per week at a price of $50 per bottle. He can sell 11 bottles per week if he lowers the price to $45 per bottle. The quantity and the price effects on total revenue would be, respectively,: A. an increase of $450 and a decrease of $500. B. an increase of $495 and a decrease of $550. C. an increase of $45 and a decrease of $5. D. an increase of $45 and a decrease of $50.

D. an increase of $45 and a decrease of $50.

(Figure: Short-Run Costs) C is the ________ cost curve. A. average total B. total C. marginal D. average variable

D. average variable

A monopoly is a market structure characterized by: A. a single buyer and several sellers. B. a product with many close substitutes. C. a large number of small firms. D. barriers to entry and exit.

D. barriers to entry and exit.

When marginal cost is rising: A. average variable cost must be rising. B. average total cost must be rising. C. average variable cost and average total cost must be falling. D. both average variable cost and average total cost may be rising or falling.

D. both average variable cost and average total cost may be rising or falling.

The profit-maximizing rule MC = MR is followed by firms under: A. monopolistic competition, but not perfect competition. B. perfect competition, but not monopolistic competition. C. either monopolistic competition or perfect competition, depending on the costs of production. D. both monopolistic competition and perfect competition.

D. both monopolistic competition and perfect competition.

Which of the following is a barrier to entry? A. control of scarce resources B. economies of scale C. government-created barriers such as patents and copyrights D. control of scarce resources, economies of scale, and government-created barriers (i.e., patents and copyrights)

D. control of scarce resources, economies of scale, and government-created barriers (i.e., patents and copyrights)

An inefficient allocation of resources will occur when: A. decision makers are faced with the full costs and benefits of their actions. B. there are clearly defined property rights. C. no alternative exists that would increase the welfare of society. D. decision makers are not faced with the full benefits and costs of their choices.

D. decision makers are not faced with the full benefits and costs of their choices.

(Figure: Marginal Revenue, Costs, and Profits) In the figure, if market price decreases to $16, marginal revenue ________ and profit-maximizing output ________. A. increases; decreases B. increases; increases C. decreases; increases D. decreases; decreases

D. decreases; decreases

The average total cost curve in the short run slopes upward due to: A. economies of scale. B. diseconomies of scale. C. increasing returns. D. diminishing returns.

D. diminishing returns.

Monopolistic competition is similar to perfect competition in that firms in both market structures: A. are price-takers. B. produce goods that are perfect substitutes. C. find it beneficial to advertise. D. do not face any barriers to entry into the industry in the long run.

D. do not face any barriers to entry into the industry in the long run.

Laws that require, for example, vehicles to have catalytic converters or that restrict or prohibit leaf burning are all examples of: A. Pigouvian taxes. B. internalization of externalities. C. transaction costs. D. environmental standards.

D. environmental standards.

(Table: Total Cost and Output) The table describes Bart's perfectly competitive ice cream-producing firm. If the market price is $67.50, how many units of output will the firm produce? A. one B. two C. three D. four

D. four

Price-takers are individuals in a market who: A. select a price from a wide range of alternatives. B. select the lowest price available in a competitive market. C. select the average of prices available in a competitive market. D. have no ability to affect the price of a good in a market.

D. have no ability to affect the price of a good in a market.

The marginal revenue received by a firm in a perfectly competitive market: A. is unrelated to the market price. B. is less than the market price. C. is greater than the market price. D. is the change in total revenue divided by the change in output.

D. is the change in total revenue divided by the change in output.

In an oligopolistic market structure, collusion between firms usually leads to higher profits than noncooperative behavior. However, formal, overt collusion doesn't usually occur in the United States because: A. it is illegal. B. there is an incentive for each firm to cheat on a collusive agreement. C. an oligopolistic firm will typically prefer lower profits if the only way to make higher profits is to improve the profit position of its rivals. D. it is illegal and because there is an incentive for each firm to cheat on a collusive agreement.

D. it is illegal and because there is an incentive for each firm to cheat on a collusive agreement.

In an oligopolistic market structure, collusion between firms usually leads to higher profits than noncooperative behavior. However, formal, overt collusion doesn't usually occur in the United States because: A. it is illegal. B. there is an incentive for each firm to cheat on a collusive agreement. C. an oligopolistic firm will typically prefer lower profits if the only way to make higher profits is to improve the profit position of its rivals. D. it is illegal and because there is an incentive for each firm to cheat on a collusive agreement.

D. it is illegal and because there is an incentive for each firm to cheat on a collusive agreement.

The best example of a good whose consumption is nonexclusive is: A. a yard B. a house C. a bicycle D. national defense

D. national defense.

The slope of a long-run average total cost curve exhibiting increasing returns to scale is: A. zero. B. infinite. C. positive. D. negative.

D. negative.

A public good is a good or service for which exclusion is: A. possible and which is rival in consumption. B. possible and which is nonrival in consumption. C. not possible and which is rival in consumption. D. not possible and which is nonrival in consumption.

D. not possible and which is nonrival in consumption.

Tradable pollution permits are a(n): A. tax system for internalizing pollution costs to the market. B. subsidy system for charging consumers for the use of common property resources. C. system of voluntary negotiations between polluters and damaged parties. D. organized exchange of licenses that enable the holder to pollute up to a specified amount during a given time period.

D. organized exchange of licenses that enable the holder to pollute up to a specified amount during a given time period.

The land you own has the only known source of aloe needed to make anti-itch lotion. In this case, your monopoly would result from which of the following? A. government restrictions B. location C. sunk costs D. ownership of inputs

D. ownership of inputs

The practice of charging different prices to different customers for the same good or service even though the cost of supplying those customers is the same is: A. privatization. B. monopolization. C. output competition. D. price discrimination.

D. price discrimination.

The long-run average total cost curve is tangent to an infinite number of: A. short-run total cost curves. B. short-run marginal cost curves. C. short-run average variable cost curves. D. short-run average total cost curves.

D. short-run average total cost curves.

Unwritten or unspoken understandings through which firms collude to restrict competition are called: A. cartelization. B. oligopolization. C. overt collusion. D. tacit collusion.

D. tacit collusion.

Taxes are a more effective method of controlling pollution than environmental standards because: A. standards allow greater flexibility. B. standards require less information. C. standards never require the efficient level of output. D. taxes encourage reducing pollution at minimum cost.

D. taxes encourage reducing pollution at minimum cost.

The perfectly competitive model assumes all of the following except: A. a great number of buyers. B. easy entry into and easy exit from the market. C. complete information on the part of buyers and sellers. D. that firms attempt to maximize their total revenue.

D. that firms attempt to maximize their total revenue.

The break-even price for a perfectly competitive firm is equal to: A. the minimum value of average variable cost. B. the marginal revenue, provided that marginal revenue is equal to marginal cost. C. the average fixed cost at the output level at which the firm is producing. D. the minimum value of average total cost.

D. the minimum value of average total cost.

A monopolistically competitive industry such as baked goods and a perfectly competitive industry like wheat farming are alike in that: A. firms in both types of industries produce identical products. B. firms in both types of industries produce similar but not identical products. C. barriers to entry in both industries are large. D. there are many firms in each industry.

D. there are many firms in each industry.

Total revenue is a firm's: A. change in revenue resulting from a unit change in output. B. ratio of revenue to quantity. C. difference between revenue and cost. D. total output times the price at which it sells that output.

D. total output times the price at which it sells that output.

Average variable cost equals all the following except: A. variable cost divided by output. B. (total cost - fixed cost) divided by output. C. average total cost minus average fixed cost. D. variable cost times output.

D. variable cost times output.

A fixed input is one: A. that exists in nature and there is only so much of it. B. that can be used for one thing only. C. that can never produce more or less in any time period. D. whose quantity cannot be changed in a particular time period.

D. whose quantity cannot be changed in a particular time period.

Diamond rings are relatively scarce because:

De Beers limits the quantity of diamonds supplied to the market.

Which of the following is not an assumption that economists make when using the model of perfect competition?

Each firm sets its price equal to its average total cost.

A monopolists always sets price in the ________ portion of demand

Elastic

Which of the following statements regarding entry barriers is correct?

Entry barriers exist in monopoly and oligopoly markets.

In the U.S. economy, oligopoly is rare.

False

As a result of increasing populations, we are likely to run out of resources.

False.

Consider the following game in which two firms decide how much of a homogeneous good to produce. The annual profit payoffs for each firm are stated in the cell of the game matrix, and Firm A's payoffs appear first in the payoff pairs: What are the dominant strategies in this game?

Firm A's dominant strategy is to produce low levels of output, but Firm B does not have a dominant strategy.

Which of the following is a necessary condition for perfect competition?

Firms produce a standardized product.

in an oligopoly

Firms recognize their independence

The only two firms in a market are trying to decide what price to charge. The payoff matrix for this duopoly game is shown above. The payoffs are thousands of dollars of economic profit. Which of the following statements is correct?

If the firms cooperate, both could make $55,000 in economic profit.

Which of the following is true

In perfect competition P=MC and in monopolistic competition MR=MC But p>MC and there is excess capacity

Suppose OPEC has only two producers, Saudi Arabia and Nigeria. Saudi Arabia has far more oil reserves and is the lower cost producer compared to Nigeria. The payoff matrix in Table 14-3 shows the profits earned per day by each country. "Low output" corresponds to producing the OPEC assigned quota and "high output" corresponds to producing the maximum capacity beyond the assigned quota. Refer to Table 14-3. What is the Nash equilibrium in this game?

In the Nash equilibrium Saudi Arabia produces a low output and earns a profit of $80 million and Nigeria produces a high output and $30 million respectively.

Which of the following statements about monopoly equilibrium and perfectly competitive equilibrium is incorrect?

In the long run, economic profits are driven to zero in both a monopoly and a perfect competitive market.

Which of the following statements about monopoly equilibrium and perfectly competitive equilibrium is incorrect?

In the long run, economic profits are driven to zero in both a monopoly and a perfectly competitive market. (CORRECT: Price is greater than marginal cost in monopoly, and price equals marginal cost in perfect competition; When a monopoly exists, the consumer surplus is less than if the market were perfectly competitive; Monopoly output will be less than the output of a comparable perfectly competitive industry)

In a perfectly competitive market, which of the following statements is true?

In the long run, the price will change to reflect whatever change we observe in production cost.

Refer to Figure d. The payoff matrix below illustrates a game played by Travis and Darren. Travis has two choices, north and south, while Darren's choices are east and west. Travis's payoffs are shown in the lower right-hand corner of each cell and Darren's are in the upper left-hand corner. For Darren, east is

Is weakly dominated

Monopolist is a "price-maker"

It decides at what quantity to produce, and the demand curve is used to determine the corresponding price

Assume that Bethany optimized today's production with today's sale of 100 bushels of corn. If her total variable cost is $200, and her total fixed cost is $100, and her marginal revenue is $3, then:

Jean is earning a normal profit

Assume that Bethany optimized today's production with today's sale of 100 bushels of corn. If her total variable cost is $200, and her total fixed cost is $100, and her marginal revenue is $3, then:

Jean is earning a normal profit.

Which of the following is a characteristic of a perfectly competitive firm? a. Devin's new business software firm is spending a ton of money on research and development. b. People who want to open a bank in Kansas must obtain a charter from the Comptroller of the Currency or the state. New banks are not permitted to enter the market if existing banks will be hurt. c. Donelli's Pizza was voted the best pizza in town by readers of the local newspaper. d. JorDawn cannot tell which farm the peaches came from-they all look alike.

JorDawn cannot tell which farm the peaches came from-they all look alike.

Refer to Figure c. What is the Nash equilibrium in table above (Figure c)?

Kate squeal, Alice squeal

In perfect competition, the profit-maximizing level of output occurs where the:

MR = MC above minimum AVC.

Which of the following is true?

MR = MC is a profit-maximizing rule for any firm.

A perfectly competitive firm maximizes profit by producing the quantity at which:

MR = MC.

Monopolists produce at...

MR=MC

Productive Efficiency

Making goods in the least costly way

To maximize profit a monopolistically competitive firm should produce the level output at which

Marginal Revenue = Marginal Cost

Since a monopolist is the only firm in the market, it faces the entire market demand

Meaning it faces the standard downward-sloping demand curve

Which of the following is(are) true concerning monopoly?

Monopoly is at the opposite end of the spectrum from a perfectly competitive firm.monopoly has no rival. Barriers to entry prevent other firms from entering the industry

Which of the following statements about the differences between monopoly and perfect competition is incorrect?

Monopoly profits can continue to exist in the long run because the monopoly produces more and charges a higher price than a comparable perfectly competitive industry.

Which of the following statements about the differences between monopoly and perfect competition is incorrect?

Monopoly profits can continue to exist in the long run because the monopoly produces more and charges a higher price than a comparable perfectly competitive industry. (CORRECT: A monopoly will charge a higher price and produce a smaller quantity than a competitive market with the same demand and cost structure; A monopolist has market power, while a perfect competitor does not; Unlike a perfectly competitive firm, a monopoly can make positive economic profits in the long run)

A ________ occurs if all players in a game play their best strategies given what their competitors do.

Nash equilibrium

Which of the following is TRUE for the game in Scenario 13.4?

Neither company has a dominant strategy.

Which of the following is true regarding the game in Scenario 13.5?

Neither company has a dominant strategy.

Are cartels legal in the U.S.?

Nope

Which of the following does not describe OPEC?

OPEC is the name of the free-trade zone encompassing the Middle East and other oil-producing nations.

A well-known example of an international cartel is:

OPEC.

Assume that in the short run a perfectly competitive firm does not produce output and has economic losses. This would occur if:

P < AVC and FC > 0.

In the short run, a monopoly will stop producing if:

P < AVC.

In the short run, a perfectly competitive firm produces output and earns zero economic profit if:

P = ATC.

Provided that there are no external benefits or costs, resources are efficiently allocated when:

P = MC.

A perfectly competitive firm is definitely earning an economic profit when:

P > ATC.

A demand curve that is downward-sloping will ensure that:

P > MR.

a monoplositically competitive firm is operatign in the long run at the optimal level of output. Which of the following must be true

P=ATC>MR=MC

Allocative Efficiency occurs...

P=MC

Which of the following is true?

Price and marginal revenue are the same in perfect competition.

John uses funds from a savings account to pay off his equipment loan. The interest rate John pays on the equipment loan is the same as interest rate he can earn on the savings account. John's accounting profit ____ and his economic profit ____.

Rises, stays the same.

The first law designed to curb monopoly power in the United States was the ________ Act

Sherman Antitrust

Refer to Figure d. In the game described in the figure above, Travis's dominant strategy is

South

Refer to Figure d. In the game described in the figure above, Travis's dominant strategy is

South.

This triple equality is our break-even point which means...

THAT ECONOMIC PROFIT IS EQUAL TO ZERO in the long run

Farmer Ted sells winter wheat in a perfectly competitive market. The market price for a bushel of winter wheat is $9. Ted has 270 bushels of wheat to sell. If his total variable cost is $2000 and his total fixed cost is $500, then

Ted is minimizing his losses.

Which of the following is true?

The long-run industry supply curve relates the price of a good or service to the quantity produced after all adjustments to a price change have been made.

In the game in Scenario 13.6, what is the Nash equilibrium?

The strategy pair associated with $2, -$0.5.

Which of the following is not a characteristic of a perfectly competitive industry?

There are differentiated products.

Which of the following would make it difficult for oligopolists to collude?

There are few buyers in the market.

All except one of the following are characteristics of perfect competition. Which is the exception?

There are many producers; one firm has a 25% market share, and all the remaining firms have a market share of less than 2% each.

Refer to Figure a. What is the Nash equilibrium in the figure above?

There is not one

Suppose life is discovered on Mars and that itt urns out to be quite sophisticated. In fact, perfect competition prevails everywhere on the planet. Which of the following characteristics of Martian firms are we likely to observe?

They are all price-takers.

Which of the following is true?

Total economic profit is per-unit profit times quantity.

When a perfectly competitive firm is in long-run equilibrium, the firm is producing at:

When a perfectly competitive firm is in long-run equilibrium, the firm is producing at:

Forestry: Without property rights

Whoever chops down the tree first, gets the profit = no incentive to wait

Suppose OPEC has only two producers, Saudi Arabia and Nigeria. Saudi Arabia has far more oil reserves and is the lower cost producer compared to Nigeria. The payoff matrix in Table 14-3 shows the profits earned per day by each country. "Low output" corresponds to producing the OPEC assigned quota and "high output" corresponds to producing the maximum capacity beyond the assigned quota. Refer to Table 14-3. Is there a dominant strategy for Nigeria and, if so, what is it?

Yes, the dominant strategy is to produce a high output.

Suppose OPEC has only two producers, Saudi Arabia and Nigeria. Saudi Arabia has far more oil reserves and is the lower cost producer compared to Nigeria. The payoff matrix in Table 14-3 shows the profits earned per day by each country. "Low output" corresponds to producing the OPEC assigned quota and "high output" corresponds to producing the maximum capacity beyond the assigned quota. Refer to Table 14-3. Is there a dominant strategy for Saudi Arabia and, if so, what is it?

Yes, the dominant strategy is to produce a low output.

Table 14-2 shows the payoff matrix for Wal-Mart and Target from every combination of pricing strategies for the popular PlayStation 3. At the start of the game each firm charges a low price and each earns a profit of $7,000. Refer to Table 14-2. For each firm, is there a better outcome than the current situation in which each firm charges the low price and earns a profit of $7,000?

Yes, the firms can implicitly collude and agree to charge a higher price.

You own a lemonade stand in a competitive lemonade market, and as such, you are a price-taking firm. Which of the following events would most likely increase your market power?

You own exclusive rights to harvest lemons from all domestic citrus orchards.

You own a lemonade stand in a very competitive lemonade market, and as such, you are a price-taking firm. Which of the following events would most likely increase your market power?

You own exclusive rights to harvest lemons from all domestic citrus orchards.

Incentive to cheat in an oligopoly

You will make more money than the others

Which of the following is an example of an activity generating a negative externality?

Your next-door neighbor mows the lawn at 6 A.M.

Which of the following is true for the game in Scenario 13.3?

Zport's dominant strategy is the low-profile tires.

Which of the following is not a barrier to entry?

a ban on certain kinds of advertising

In monopoly:

a basic condition for efficiency is violated because P > MC.

After the first unit sold, the marginal revenue a monopolist receives from selling one more unit of a good is less than the price at which that unit is sold because of:

a downward-sloping demand curve.

An industry with two firms producing is generally called:

a duopoly.

In perfect competition:

a firm's total revenue is found by multiplying the market price by the firm's quantity of output.

When a good is nonexcludable:

a free-rider problem will exist.

What is a prisoner's dilemma?

a game in which players act in rational, self-interested ways that leave everyone worse off

An industry with a firm that is the only producer of a good or service for which there are no close substitutes and for which entry by potential rivals is prohibitively difficult is:

a monopoly.

An industry with a single producer that sells a single product with no substitutes is:

a monopoly.

A monopoly is an industry structure characterized by:

barriers to entry and exit.

A price ceiling imposed below the equilibrium price of a good will cause:

a supply shortage

A patent gives a firm:

a temporary monopoly.

A total product curve indicates the relationship between:

a variable input and output.

In perfectly competitive long-run equilibrium:

all firms produce at the minimum point of their average total cost curves.

In the long run:

all inputs are fixed. inputs are neither variable nor fixed. at least one input is variable and one input is fixed

Rent controls set a price ceiling below the equilibrium price and therefore:

a. quantity demanded exceeds the quantity supplied.

The demand curve for a monopoly is:

above the MR curve.

Profit computed using explicit costs as the only measure of costs is: A. explicit profit. B. accounting profit. C. implicit profit. D. economic profit

accounting profit.

Which of the following is most likely to be observed when firms engage mainly in non-price competition?

advertising and product differentiation

If both players in a game have dominant strategies, we say that the game has:

an equilibrium in dominant strategies.

In the game in Scenario 13.2, the equilibrium strategies

are for both firms to offer rebates.

When oligopolistic firms face production capacity constraints they

are more likely to engage in price competition

The ________ curve continually declines as more output is produced in the short run

average fixed cost

Which of the following will continually decrease as output increases?

average fixed cost

At 20 units of output, a firm finds that its average variable cost is $5 per unit and its average total cost is $8 per unit. Therefore, its:

average fixed cost is $3 per unit.

Maria has a business printing t-shirts selling 200 t-shirts per month. Her monthly total fixed costs are $400, and her monthly total variable costs are $1,000. If for some reason Maria's fixed cost increased to $1,000, then her:

average fixed costs would increase.

An industry is characterized by increasing returns to scale if:

average total cost falls as output increases.

If marginal cost is equal to average total cost, then:

average total cost is at its minimum.

If marginal cost is greater than average total cost, then:

average total cost is increasing.

If marginal cost is greater than average total cost, then: A. average total cost is increasing. B. average total cost is decreasing. C. average total cost is unchanged. D. marginal cost is decreasing.

average total cost is increasing.

Mark and Rasheed are at the bookstore buying new calculators for the semester. Mark is willing to pay $75 and Rasheed is willing to pay $100 for a graphing calculator. The price for a calculator at the bookstore is $65. How much is Mark's individual consumer surplus?

b. $10

Which of the following is NOT an example of price discrimination? a. a higher price charged for front row seats at a concert than charged for seats at the back b. a special Fourth of July sale c. a coupon in the newspaper offering a 10% discount on a product d. a lower price charged to the grandfather who bought his airline ticket to Chicago 3 weeks in advance and will stay over a Saturday night than to the businesswoman who bought her ticket the day of the flight and will not stay over Saturday night

b. a special Fourth of July sale

A monopoly is a market structure characterized by:

barriers to entry and exit.

Firms will choose a tit-for-tat strategy if they:

believe that the firms in the industry will be competing with each other for a long time.

In the classic prisoners' dilemma with two accomplices in crime, the Nash equilibrium is for:

both individuals to confess.

The profit moximizing rule MC=MR is followed by firms under

both monopolistic competition and perfect competition

Suppose that each of two firms has the independent choice of advertising its product or not advertising. If neither advertises, each gets $10 million in profit; if both advertise, their profits will be $5 million each; and if one advertises while the other does not, the advertiser gets profit of $15 million while the other gets profit of $2 million. According to game theory, the Nash equilibrium is:

both will advertise.

Suppose that each of two firms has the independent choice of advertising its product or not advertising. If neither advertises, each gets $20 million in profit; if both advertise, their profits will be $10 million each; and if one advertises while the other does not, the advertiser gets $25 million profit while the other gets $4 million profit. According to game theory, the likely strategy by the firms is:

both will advertise.

Suppose that each of two prisoners has the independent choice of confessing to a crime or not confessing. Note that they cannot communicate with each other. If neither confesses, they spend 4 years in jail; if both confess, they spend 6 years in jail; and if one confesses while the other does not, the confessor gets off with 2 years in jail while the other gets 10 years in jail. According to game theory, the likely strategy by the prisoners is:

both will confess.

The short run is a period that is:

long enough in which to vary output but not plant capacity.

You are willing to sell your coin collection for a minimum price of $1,000. You find a buyer who offers $2,100. In this transaction, you will receive ________ in producer surplus.

c. $1,100

A firm finds that as it produces more, its long-run average total costs increase. This firm is experiencing:

diseconomies of scale

If a perfectly competitive firm is producing a quantity where P < MC, then profit:

can be increased by decreasing production.

Suppose a monopoly is producing at the level of output where marginal revenue equals marginal cost. If the monopolist reduces output, it:

can charge a higher price.

Gary's Gas and Frank's Fuel are the only two providers of gasoline in Smalltown. The large barriers to entry in the Smalltown gas industry explain why Gary and Frank:

can earn an economic profit in the long run.

A price-taking consumer is one who:

cannot affect the market price of the product.

Quantity competition or Cournot behavior is most likely when oligopolistic firms:

cannot increase their level of output quickly due to limits on their productive capacity.

A whale is a common resource because the private market ________ prevent consumption by people who do not pay for it, and the same unit ________ be consumed by more than one person at the same time.

cannot; cannot

An extreme case of oligopoly in which firms collude to raise joint profits is known as a:

cartel.

Compared to a perfectly competitive industry, a monopolist

charges a higher price.

Price discrimination is the practice of:

charging different prices to buyers of the same good.

Monopolistic competition within an industry results in

chronic excess capacity

The pair of items that is likely to have the highest cross-price elasticity of demand is:

coffee and tea.

If the only two firms in an industry agree to fix the price at a given level, this is an example of:

collusion.

If a good is subject to the free-rider problem and an inefficiently high level of consumption, the good must be a(n):

common resource.

Tony runs Read Economic Reports. If Tony finds that the cost of completing an additional report is $100 and someone offers him $125 to complete this additional report, Tony should:

complete the additional report.

Refer to Table 12.2. Jeri and Tom are arrested for having committed a crime. They are being interrogated individually and need to decide if they should confess or not confess. The police have enough information to put them in jail for 5 years. They also know the pair have committed a more egregious crime but without the help of one of the suspects they will not be able to convict them on this charge. The first number in each cell refers to the number of years of prison time Jeri will receive if she confesses or does not confess and the second number in each cell refers to the number of years of prison time Tom will receive if he confesses or does not confess. The dominant strategy for Jeri is to ________ and the dominant strategy for Tom is to ________.

confess; confess

If the long-run market supply curve for a perfectly competitive market is horizontal, then this industry is one that exhibits:

constant costs.

Zoe's Bakery determines that P < ATC and P > AVC. Zoe should:

continue to operate even though she is experiencing an economic loss.

Critics of the National Collegiate Athletic Association (NCAA) argue that the NCAA monopolizes college athletics and prevents student-athletes from earning money while in college. If this is true, what type of entry barrier does the NCAA have?

control of a scarce resource or input

If your farm had the only known source of a rare cocoa bean needed to make chocolate-covered peanuts, your monopoly would result from:

control of a scarce resource or input.

If your farm has the only known source of a rare cocoa bean needed to make chocolate-covered peanuts, your monopoly would result from:

control of a scarce resource or input.

The percentage change in quantity demanded of one good or service divided by the percentage change in the price of a related good or service is:

cross-price elasticity of demand

If a perfectly competitive firm can sell a bushel of soybeans for $25 and it has an average variable cost of $26 per bushel and the marginal cost is $26 per bushel, the firm should:

cut output to zero.

A firm's profit is equal to:

total revenue minus total cost.

Which of the following scenarios best describes an oligopolistic industry? a. Thousands of soybean farmers sell their output in a global commodities market. b. A single cable company serves customers in a small town. c. A college has one bookstore selling textbooks to students. d. Coca-Cola and Pepsi sell most of the soft drinks consumed around the world.

d. Coca-Cola and Pepsi sell most of the soft drinks consumed around the world.

The idea of diminishing returns to an input in production suggests that if a local college adds more and more custodians, the marginal product of labor for the custodial staff will ________ over time.

decrease

A competitive firm facing a price of $15 decides to produce 100 units. If the marginal cost of producing the last unit is $20, the firm should:

decrease production.

Refer to Table 14.1. Firm Aʹs optimal strategy is

dependent on what Firm B does.

OPEC is:

described by all of these answer choices. (an international cartel made up of oil-producing countries, the cartel that was responsible for the large increases in crude oil prices in the 1970s, the Organization or Petroleum Exporting Countries)

The main characteristic that distinguishes monopolistic competition from perfect competition

differentiated products.

Diminishing marginal returns means that:

each additional unit of an input used will increase output, but by smaller and smaller amounts.

A Nash equilibrium occurs when

each firm is doing the best it can given its opponents' actions.

In the long run, each firm in a perfectly competitive industry will:

earn only enough to cover the opportunity costs of the resources used in production.

Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the short run, we expect that the typical firm is likely to begin:

earning an economic profit.

A decrease in production costs for firms in a perfectly competitive market will cause a(n):

economic profit for firms in the short run.

If the firm produces a quantity at which total cost exceeds total revenue, then:

economic profit is negative.

Suppose that you build a new jumbo jet that can carry five times more passengers than any other competitor. You have high fixed costs due to the quantity of capital used to build the jets. There's decreasing average cost for all levels of demand. In this case, your monopoly would result from which of the following?

economies of scale

Lenoia runs a natural monopoly producing electricity for a small mountain village. The barrier preventing other firms from competing with her is:

economies of scale.

Because tourist demand for airline flights is relatively ________, small ________ in ticket price will result in relatively ________ in additional tourists.

elastic; reductions; large increases

For the same amount of pollution emitted, an emissions tax is said to be more efficient than an environmental standard because all polluters:

emit pollution up to the point at which the marginal benefit of polluting is equal to the emissions tax.

One characteristic of a perfectly competitive market is that there are ________ sellers of the good or service.

hundreds or thousands of

An assumption of the model of perfect competition is:

identical goods.

For a perfectly competitive firm in the short run:

if the firm produces a quantity at which P > ATC, then the firm is profitable.

A firm's total output times the price at which it sells that output is:

total revenue.

Marginal revenue is a firm's:

increase in total revenue when it sells an additional unit of output.

When tradable emissions permits are used, if the demand for goods that produce emissions shifts to the right, the equilibrium price of permits ________, and the equilibrium quantity ________.

increases; stays the same

If Marie Marionettes is operating under conditions of diminishing marginal product, the marginal costs will be: A. equal to ATC. B. decreasing. C. increasing. D. constant.

increasing

Suppose that you build a high-speed, magnetically powered transportation system from New York to Los Angeles. High fixed costs resulting from the enormous quantity of capital used in this system enable decreasing average cost for any conceivable level of demand. Your monopoly would result from:

increasing returns to scale.

A monopolist responds to an increase in marginal cost by ________ price and ________ output.

increasing; decreasing

In the short run, for a perfectly competitive firm, the portion of the MC curve at or above the shut-down price is also its:

individual short-run supply curve.

The assumptions of perfect competition imply that:

individuals in the market accept the market price as given.

If some firms in a perfectly competitive industry are earning positive economic profits, then in the long run, the:

industry supply curve will shift to the right.

A curve that shows the quantity of a good or service supplied at various prices after all long-run adjustments to a price change have been completed is a long-run:

industry supply curve.

Assume the supply curve shifts to the right by a given amount at each price. Price in the market will decline the most if demand is more price:

inelastic and supply is more price-inelastic.

If income decreases and the consumption of a certain good increases, that good is considered a(n):

inferior good.

When perfectly competitive firm X sells three units of product Z, its marginal revenue is $4.67. When it sells 100 units, marginal revenue is $4.67. We can conclude that the price:

is $4.67.

For a monopolist, the market demand curve:

is also the demand for the monopolist's product.

Assume that Bethany optimized today's production with today's sale of 100 bushels of corn. If her total variable cost is $200, and her total fixed cost is $100, and her marginal revenue is $3, then Jean:

is earning a normal profit

Suppose Sarah's pottery studio is currently charging the market price that is just higher than her minimum average total cost. This means that Sarah:

is earning a small economic profit.

The marginal revenue received by a firm in a perfectly competitive market:

is equal to its average revenue.

For a perfectly competitive firm, marginal revenue:

is equal to price.

Heath's company is currently producing 30 units of output. The price of the good is $8 per unit. Total fixed costs are $50 and the average variable cost is $5 at 30 units. This company:

is experiencing an economic profit of $40.

In the game in Scenario 13.3, the equilibrium outcome:

is for Moto to offer a CD changer and Zport to offer low-profile tires.

For the monopolist, marginal revenue:

is less than price.

If a perfectly competitive firm is producing a quantity that generates MC = MR, then profit:

is maximized.

Monopolistic Competition

it faces a downward sloping demand curve and MR curve. and has some market

In an industry characterized by extensive economies of scale:

large companies are more profitable than small companies.

Tacit collusion is limited by which of the following factors?

large numbers of firms and bargaining power of buyers

Suppose the price elasticity of demand for fishing lures equals 1 in South Carolina and 0.63 in Alabama. To increase revenue, fishing lure manufacturers should:

leave prices unchanged in South Carolina and raise prices in Alabama.

Suppose each person in a community had to pay for his or her own education from kindergarten through high school. One would expect that:

less education would be acquired, since society has not considered the positive external benefits of education.

The municipal swimming pool charges lower entrance fees to local residents than to nonresidents. Assuming that this pricing strategy increases the profits of the pool, we can conclude that nonresidents must have a ________ for swimming at the pool than residents.

less elastic demand.

Price-discriminating firms will impose a price structure that offers customers with a ________ demand a ________ price and offers customers with a(n) ________ demand a ________ price.

less elastic; higher; more elastic; lower

Marginal revenue for a monopolist is:

less than price.

Compared to a perfectly competitive market, a monopolist will produce ________ and charge a ________ price.

less; higher

If left to the private market, the amount of police protection provided in a city would be ________ than it is now, and free riders would pay ________ for police protection.

less; nothing

Gary's Gas and Frank's Fuel are the only two providers of gasoline in Smalltown. Gary believes he faces a kinked demand curve. This means Gary thinks if he lowers his price, then Frank will ________, and if he raises his price, Frank will ________.

lower his price; not raise his price

Many furniture stores run "going out of business" sales but never go out of business. In order for the shut-down decision to be the appropriate one, the price of furniture must be ________ than the ________ average variable cost.

lower; minimum

Price discrimination leads to a ________ price for consumers with a ________ demand.

lower; more elastic

Amtrak is a publicly owned company that provides rail service. This means that Amtrak's prices tend to be ________ than if it were a private company, and the quality of service tends to be ________ than if it were a private company.

lower; worse

Oligopolies are industries:

made up of few firms, each with some market power and therefore aware of their interdependence with the other firms.

One characteristic of a perfectly competitive market is that there are ________ sellers of the good or service.

many

A monopolistically competitive industry is made up of:

many firms producing a differentiated product.

The short-run supply curve for a perfectly competitive firm is its:

marginal cost curve above its average variable cost curve.

A perfectly competitive firm's short-run supply curve is its:

marginal cost curve above the average variable cost curve.

Consider a perfectly competitive firm in the short run. Assume that it is sustaining economic losses but continues to produce. At the profit-maximizing (loss-minimizing) output, all of the following statements are correct except:

marginal cost is less than average variable cost.

The ________ is the increase in output obtained by hiring an additional worker.

marginal product

The marginal cost curve is the mirror image of the:

marginal product curve.

If it produces, a perfectly competitive firm will maximize profits at which:

marginal revenue equals marginal cost.

Suppose a monopoly is producing at the profit-maximizing level of output. At that level of output:

marginal revenue equals marginal cost.

For a firm in a perfectly competitive market:

marginal revenue equals market price.

Gary's Gas and Frank's Fuel are the only two providers of gasoline in Smalltown. Gary and Frank decide to form a cartel to raise the price of gasoline. The total industry profits are highest when ________ and Gary's profits are highest when ________.

neither firm cheats on the agreement; Gary cheats on the agreement and Frank does not cheat.

Suppose that each of two firms has the independent choice of advertising its product or not advertising. If neither advertises, each gets $10 million in profit; if both advertise, their profits will be $5 million each; and if one advertises while the other does not, the advertiser gets profit of $15 million while the other gets profit of $2 million. According to game theory, if the firms could collude to maximize profit:

neither will advertise.

Microsoft and its operating system are often cited as an example of a company that grew into a monopolist through:

network externalities.

In the model of perfect competition:

no individual or firm has enough power to have any impact on price.

In general, economists are critical of monopoly where ________ exist(s).

no natural monopoly

For the Colorado beef industry to be classified as perfectly competitive, ranchers in Colorado must have ________ on prices and beef must be a ________ product.

no noticeable effect; standardized

In a perfectly competitive market:

no one market participant will be able to influence price.

An individual is more likely to be a free rider when a good is:

nonexcludable.

National defense and ebooks are similar in that both are ________, but they differ in that national defense is ________ while ebooks are not.

nonrival in consumption; nonexcludable

Another term for an economic profit of zero is: A. accounting profit B. normal profit C. explicit cost D. variable profit

normal profit

Suppose that a monopoly firm is required to pay a new annual license fee just for the privilege of doing business in its city and that the fee is somewhat less than the economic profit the firm is now earning. In response to the increase in fees, the firm will:

not change its price.

A competitive firm operating in the short run is maximizing profits and just breaking even. Its costs include a monthly license fee of $100 that is imposed by the state and must be paid for as long as the firm is in existence. If the license fee is raised to $150, what should the firm do to maximize profits in the short run?

not change output.

An increase in the fixed costs of a monopoly firm would ________ price and ________ quantity in the short run.

not change; not change

Refer to Table 12.2. Jeri and Tom are arrested for having committed a crime. They are being interrogated individually and need to decide if they should confess or not confess. The police have enough information to put them in jail for 5 years. They also know the pair have committed a more egregious crime but without the help of one of the suspects they will not be able to convict them on this charge. The first number in each cell refers to the number of years of prison time Jeri will receive if she takes that action and the second number in each cell refers to the number of years of prison time Tom will receive if he takes that action. If Jeri and Tom can decide jointly then the best strategy is for Jeri to ________ and Tom to ________.

not confess; not confess

Marginal revenue for a monopolist is:

not equal to price.

A monopolist with a linear demand curve will:

not produce in the inelastic portion of its demand curve.

Given the large amount of interdependence among them, cooperation with one's competitors is the most profitable strategy for:

oligopolists.

Assume an industry is dominated by a few firms. Each of these firms acknowledges that its own choices affect the choices of its rivals. Each firm also recognizes that its rivals' choices affect the decisions it makes. This industry is an example of a(n)

oligopoly.

Assume an industry is dominated by a few firms. Each of these firms acknowledges that its own choices affect the choices of its rivals. Each firm also recognizes that its rivals' choices affect the decisions it makes. This industry is an example of a(n):

oligopoly.

The market structure that is characterized by only a small number of producers is referred to as:

oligopoly.

When a firm produces at an output level at which MR = MC, it is operating at the:

optimal output level.

A cartel is an example of

overt collusion

When firms openly agree on price, output, and other decisions aimed at achieving monopoly profits, those firms are practicing

overt collusion.

The competitive model assumes all of the following except:

patents and copyrights. (easy entry into and easy exit from the market, large number of buyers, standardized product)

The demand curve for a perfectly competitive firm is:

perfectly elastic.

In a Nash equilibrium,

players may or may not have dominant strategies.

The prisoner's dilemma shows that

players would be better off if they cooperated.

The slope of a long-run average total cost curve exhibiting diseconomies of scale is:

positive.

In perfect competition:

price and marginal revenue are the same.

The practice of charging different prices to different customers for the same good or service, even though the cost of supplying those customers is the same, is:

price discrimination.

If the price is consistently below the average variable cost, then in the short run a perfectly competitive firm should:

shut down.

Price discrimination will occur when a firm can segment its existing and potential customers into different groups based on:

price elasticity of demand.

The ratio of the percentage change in the quantity demanded to the percentage change in price is the:

price elasticity of demand.

A firm will be profitable if it produces at a point at which:

price is above average total cost.

Under which condition would the firm be incurring a loss?

price is below average total cost.

Microsoft sets prices for their new line of computers and Dell and HP follow. This practice is known as________.

price leadership.

If a monopoly is producing at the profit-maximizing level of output, then we can assume that at that level of output, demand is:

price-elastic.

A firm that faces a downward-sloping demand curve is a:

price-setter.

If a local California avocado stand operates in a perfectly competitive market, that stand owner will be a:

price-taker.

When a firm cannot affect the market price of the good that it sells, it is said to be a:

price-taker.

According to the kinked demand model of oligopolies, oligopolistic firms often choose not to compete much on:

price.

For a perfectly competitive firm, marginal revenue is equal to:

price.

If the price is greater than average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:

produce at a profit.

Maximizing profits also means that a firm is attempting to:

produce at the output level where the difference between total revenue and total cost is the greatest.

The optimal output rule for a price-taking firm is to:

produce at the point at which price is equal to marginal cost of the last unit produced.

A monopoly is likely to ________ and ________ than a perfectly competitive firm.

produce less; charge more

The equilibrium price of a guidebook is $35 in the perfectly competitive guidebook industry. Our firm produces 10,000 guidebooks for an average total cost of $38, marginal cost of $30, and average variable cost of $30. Our firm should:

produce more guidebooks, because the next guidebook produced increases profit by $5.

In perfect competition, each firm:

produces a standardized product.

In the short run, if P > ATC, a perfectly competitive firm:

produces output and earns an economic profit.

A perfectly competitive firm will maximize profit by:

producing at the point at which marginal revenue equals the marginal cost of the last unit produced.

Collusive agreements are typically difficult for cartels to maintain because each firm can increase profits by:

producing more output than the quantity that maximizes joint cartel profits.

If a good is subject to the free-rider problem and an inefficiently low level of production, the good must be a(n):

public good.

If the price of a good is held above the equilibrium price:

quantity supplied will exceed quantity demanded.

A monopolist's marginal cost curve shifts up, but the firm's demand curve remains the same and the firm does not shut down. Compared to the condition before the increase in marginal costs, the monopolist will ________ its price and ________ its level of production.

raise; decrease

Marginal revenue is a firm's:

ratio of the change in total revenue to the change in output.

A Nash equilibrium is

reached when each player chooses the best strategy for himself, given the other strategies chosen by the other players in the group.

If a competitive firm can sell a bushel of soybeans for $25 and it has an average variable cost of $24 per bushel and the marginal cost is $26 per bushel, the firm should:

reduce output.

If a competitive firm can sell a ton of steel for $500 a ton and it has an average variable cost of $400 a ton, and the marginal cost is $600 a ton, the firm should:

reduce output.

An action is a dominant strategy when it is a player's best action:

regardless of the actions by other players.

In the short run, fixed costs:

remain constant.

If a good that involves external costs is priced to take these costs into account, then its price will:

rise, and output will fall.

Suppose that a profit-maximizing monopoly firm undergoes a substantial technological change that reduces its marginal and average total costs by $40. If in response to its reduction in cost the firm changes its price in a profit-maximizing way, then we can predict that its total economic profit will:

rise.

The kinked demand curve model assumes that

rivals will follow a price decrease but not a price increase

The horizontal sum of individual firms' MC curves at and above the shut-down price is the:

short-run industry supply curve.

The supply curve found by summing up the short-run supply curves of all of the firms in a perfectly competitive industry is called the:

short-run market supply curve.

A perfectly competitive firm operating in the short run producing 100 units of output has ATC = $6 and AFC = $2. The market price is $3 and is equal to MC. In order to maximize profits (or minimize losses), this firm should:

shut down

Oligopoly is a market structure that is characterized by a:

small number of interdependent firms producing identical or differentiated products.

Oligopoly is a market structure that is characterized by a ________ number of ________ firms that produce ________ products.

small; interdependent; identical or differentiated

Price leadership occurs if:

smaller firms in an industry silently agree to charge the same price as the largest firm.

In the short run:

some inputs are fixed and some inputs are variable.

A deadweight loss arises in monopoly because:

some potentially beneficially transactions do not occur.

The market for breakfast cereal contains imilar products, such as FruitLoops, Corn Flakes, and Rice Krispies, that are considered to be different products by different buyers. This situation violates the perfect competition assumption of:

standardized product.

Which of the following industries is likely to be an increasing cost industry?

steel

Which of the following industries is likely to be an increasing cost industry?

steel.

To calculate the Herfindahl-Hirschman Index (HHI), one must:

sum the squared market shares of all firms in the industry.

Unwritten or unspoken understandings through which firms collude to restrict competition are called

tacit collusion

Free entry and exit in an industry guarantees:

that the number of producers will adjust to changing market conditions.

Leroy starts a new business in his garage with Priscilla making scented candles. Which of the following would be considered explicit costs of this new business? A. Leroy's salary as a welder, his former occupation. B. the value of storing Leroy's boat in the garage C. the cost of candle wax D. Priscilla's income from her old job

the cost of candle wax

An oligopoly may result from:

the existence of increasing returns to scale in the industry.

If economic profit for a firm is negative: A. the firm should exit the industry in the long run. B. accounting profit must be negative. C. the firm should stay in business so long as accounting profit is positive. D. the firm will not owe any taxes to the government.

the firm should exit the industry in the long run.

Suppose a monopoly can separate its customers into two groups. If the monopoly practices price discrimination, it will charge the lower price to the group with:

the higher price elasticity of demand.

The implicit cost of capital is: A. the expense associated with leasing machines. B. the expense associated with buying machines. C. the opportunity cost of capital used by a business. D. irrelevant for determining economic profit.

the opportunity cost of capital used by a business.

A firm's marginal cost is

the ratio of the change in total cost to the change in the quantity of output.

Public policies toward monopoly in the United States often consist of:

the regulation of natural monopolies.

Jacquelyn is a student at a major state university. Which of the following is not an example of an explicit cost of her attending college? A. tuition B. textbooks C. the salary that she could have earned working full-time D. computer lab fees

the salary that she could have earned working full-time

Which factor is the most important in determining the price elasticity of supply?

the time period the produce has to adjust inputs and outputs

During the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly competitive industry. In the short run, Alex will shut down his lawn-mowing service rather than continue with it if:

the total revenues can't cover the total variable costs.

When a perfectly competitive industry is in equilibrium:

the value of marginal cost is the same for all firms.

In the game in Scenario 13.5,

there are two equilibria: either can expand in the West, and the other expands in the South.

Suppose government officials have set an emissions tax to reduce pollution. Assume the optimal tax would be $1,500 but government officials have set the tax equal to $500. At the equilibrium with the $500 tax:

there will be too much pollution.

A statement that best reflects an evaluation of monopoly firms is that:

they are economically inefficient.

Because monopoly firms are price-setters:

they can sell more only by lowering price.

When one firm responds to a rival's cheating by cheating and to a rival's cooperation by cooperating, that firm is practicing a:

tit-for-tat strategy.

What is the incentive for a firm to join a cartel?

to be able to earn larger profits than if it was not part of the cartel

Table 14-2 shows the payoff matrix for Wal-Mart and Target from every combination of pricing strategies for the popular PlayStation 3. At the start of the game each firm charges a low price and each earns a profit of $7,000. Refer to Table 14-2. Suppose Wal-Mart and Target both advertise that they will match the lowest price offered by any competitor. What is the purpose of such a strategy?

to signal to each other that they intend to charge the high price

Average total cost is:

total cost divided by output.

The sum of fixed and variable costs is:

total cost.

Total revenue is a firm's:

total output times the price at which it sells that output.

A perfectly competitive firm will continue producing in the short run as long as it can cover its:

variable cost.

An input whose quantity can be changed during a particular period is a(n):

variable input.

The Sherman Antitrust Act:

was aimed at preventing the creation of more monopolies and was the beginning of antitrust policy.

A public good is a good:

whose consumption is nonexcludable and nonrival.

The total product curve:

will become flatter as output increases, if there are diminishing returns to the variable input.

If a frost destroys much of the grapefruit crop, total surplus:

will decrease.

A perfectly competitive firm will produce:

with a loss in the short run if its price is greater than AVC but less than ATC.

What energy source makes up the largest component of electricity?

Coal

Noncullisive Oligopoly

Firms are operating independently

Cullisive Oligopoly

Firms are operating together

Renewable Resources

Forests & Fisheries

Cartel

Group of producers that create a formal written agreement specifying how much each firm will produce and charge

Fishery Collapse

Happens when fishery's population is sent into a rapid decline because fish are harvested faster than they can produce

Characteristic of an Oligopoly

Relatively easy entry and exit from market

Limit pricing....

Sets a lower price to keep new firms out of the market.

Amount of land that is covered by forests

Spain Up 8% Argentina Down 2% USA Up 1% Ghana Down 10%

Fishery

Stock of fish or other marine animal

The assumptions of perfect competition imply that:

firms in the market accept the market price as given.

In perfectly competitive markets, if the price is ________, the firm will________.

greater than ATC; make an economic profit

A perfectly competitive firm will earn a profit in the short run when it produces the profit-maximizing quantity of output and the price is:

greater than average total cost.

A competitive firm operating in the short run is producing at the output level at which ATC is at a minimum. If ATC = $8 and MR = $9, in order to maximize profits (or minimize losses), this firm should:

increase output.

Suppose a combination of population growth and rising incomes increases both the demand for and the price of housing. In response, existing builders and new entrants construct more new housing. As the usage of timber outstrips the ability of forests to regrow, the price of timber rises. Consequently, the price of new housing rises. This scenario describes a(n):

increasing cost industry.

Suppose Sarah's pottery studio is charging the market price, which is just higher than her minimum average total cost. This means that Sarah:

is earning a small economic profit.

The price received by a firm in a perfectly competitive market:

is equal to the market price.

A perfectly competitive firm will not produce any output in the short run and will shut down if the price is:

less than average variable cost.

The short-run supply curve for a perfectly competitive firm has its:

marginal cost curve above its average variable cost curve.

The profit-maximizing level of output for a perfectly competitive firm in the short run occurs where:

marginal cost equals price.

The slope of the total cost curve is:

marginal cost.

Increased GDP per BTU suggests...

more efficient use of energy

A perfectly competitive industry with constant costs initially operates in long-run equilibrium. When demand increases, one will observe that in the long and short runs:

output will increase.

Ashley, who makes knitted caps, determines that her marginal cost of producing one more knitted cap is equal to $10. A consumer offers her $12 if she sells one more knitted cap to her. Ashley will:

sell the additional knitted cap, since the marginal revenue is greater than the marginal cost for the unit.

In a perfectly competitive market:

both producers and consumers are price-takers.

If a perfectly competitive firm is producing a quantity where MC < MR, then profit:

can be increased by increasing production.

If a perfectly competitive firm is producing a quantity where P > MC, then profit:

can be increased by increasing production.

A perfectly competitive firm is producing 100 units (profit maximizing). If the price is $12 marginal cost is $12, and average total cost is $11, this firm's profits are:

$100.

The table above gives the total cost information for Hank and Helen's cherry farm. They sell their cherries in a perfectly competitive market, where the price is $6.00 per pound. If Hank and Helen produce and sell 4 pounds of cherries, what is their total revenue?

$24.

The table above gives the total cost information for Hank and Helen's cherry farm. They sell their cherries in a perfectly competitive market, where the price is $6.00 per pound. If Hank and Helen produce and sell 6 pounds of cherries, what is their total revenue?

$36.

Catch Size Policy (1): Shorten Fishing Season

- doesn't work - people fish the same amount, but faster - drives UP the cost a lot

Catch Size Policy (4): Catch Limiting System (Preferred By Many Economists)

- issue individual transferable quotes - (ITQ's) = individual catch limits - reduces arms race - "tradeable"-fishing is done by the least cost individuals/companies

Property Rights: Forestry

- with property rights = more preservation - without property rights = deforestation

Catch Size Policy (3): Total Allowable Catch (TAC)

- worked! - biologists determined TAC - when TAC is reached, fishing is halted for the year - fishing costs UP leads to arms race

Thomas Malthus

Crash in living standards

Monopolistic Competition creates ________ in the economy

Neither type of efficiency

Monopolies create ________ in the economy

Neither type of effiicieny

Which policy has seen success in limiting catch sizes and keeping fishing costs low?

Individual Transferable Quotas (ITQs)

Loss is much less common than profit for monopoly, but not impossible

Monopolists will not tolerate loss in the long run

Monopolistic Competitors face a Demand Curve that is

More elastic than the demand curve faced by monopolists

Nonrenewable Resources

Oil, coal, metals, etc.

User costs are

Opportunity costs

Long Run Equilibrium occurs at Triple Equality

P=MC=minimum ATC

What types of efficiency are achieved in Pure Competition industries?

Productive & Allocative

Mutual Interdependence

Profits depend on strategy of the other firm

Price is always set in the elastic region of Demand

The portion between the vertical axis and where Marginal Revenue crosses the horizontal axis

When perfect competition prevails, which of the following characteristics of firms are we likely to observe?

They are all price-takers.

If many firms enter the computer software industry and bid up the price of programmers, then

the long-run industry supply curve will slope up.