ECO 201 Final
Angelina Jolie's economic rent from starring in a movie is equal to the difference between...
her final salary and the least she would be willing to accept to star in the movie
Natural monopolies are most likely to arise when firms have...
high start-up costs and low marginal costs
An example of implicit cost is...
the value of a spare bedroom turned into a home office
If a natural monopoly decreases the quantity of output it produces, then...
its average cost will increase
To sell an extra unit of output, a perfectly competitive firm ___, and an imperfectly competitive firm ___.
need not alter its price; must lower its price
A prisoner's dilemma illustrates situations in which...
resources with the lowest opportunity cost should be used first
Suppose all firms in a perfectly competitive industry are earning an economic profit. One would expect that, over time, the number of firms in the industry will ___ and the market price will A ____.
rise; fall
Long run
a period of time sufficiently long that all factors of production are variable
A pure monopoly exists when...
a single firm produces a good with no close substitutes
Implicit cost
any cost that has already occurred but not necessarily shown or reported as a separate expense
Both a perfectly competitive firm and a monopolist find that...
it is best to expand production until the marginal benefit and the marginal cost of the last produced are equal
De Beers accounts for approximately 80% of diamond sales worldwide. The source of its market power is...
its exclusive ownership of South African diamond mines
Consider a monopolist who charges a single price to all of its customers. If this monopolist starts price discriminating, its output will ___ and its profit will ___.
rise; rise
In a decreasing cost industry, the average cost of firms would be expected to fall when industry output...
rises
Monopolists use the hurdle method of price discrimination in order to...
separate consumers on the basis of their reservation prices
If all firms in a perfectly competitive industry are experiencing economic losses, then...
some firms will exit the industry until economic profit equals zero
When a pharmaceutical company introduces a new drug, its research and development costs are ___, and the cost of the chemicals used in manufacturing the drug are ___.
start-up costs; variable costs
If the firms in a market are earning an economic profit, then, in the long run, the market ____ curve will shift to the ____.
supply; right
Economic rent is...
the difference between the payment made to the owner of a factor of production and the owners reservation price
If a firm is earning zero economic profit, then...
the firm's accounting profit is equal to the firm's implicit costs
If firm faces a downward-sloping demand curve, then...
the firm's marginal revenue from selling an additional unit of output is less than price
When more firms enter an industry...
the industry supply curve will shift right
Suppose a perfectly competitive firm and a monopolist are both charging $5 for their respective products. From this, one can infer that...
the marginal benefit from selling an additional unit of output is $5 for the competitive firm and less than $5 for the monopolist
A prisoner's dilemma is a game in which...
the players' payoffs are smaller when both play their dominant strategy compared to when both play a dominated strategy
Given the total cost function TC = 2000 + 2Q, when output is 1000 units average total cost is ___ and total fixed cost is ___.
$4; $2000
The profit maximizing rule MR = MC applies to...
all firms
A good characterized by network economies if it...
becomes more valuable as more people own it
As price increases, firms in a perfectly competitive market find that it is...
beneficial to produce more units of output
In a repeated prisoner's dilemma, players...
can sustain cooperation by employing a tit-for-tat strategy
In an industry with free entry and exit, positive economic profit...
cannot be sustained indefinitely
Imagine that you are an entrepreneur, making designer t-shirts in your garage. Your total cost (in dollars) is given by the equation TC = 300 + 10Q, where Q represents the number of t-shirts you make. As you increase your production of t-shirts, your average fixed cost ___ and your marginal cost ___.
decreases; stays the same
A firm whose production process exhibits constant returns to scale would find that if it doubled all of its inputs, its output would ___.
double
An imperfectly competitive firm faces a demand curve that is...
downward-sloping
An imperfectly competitive firm faces a demand curve that is ____, while a perfectly competitive firm faces a demand curve that is ___
downward-sloping; perfectly elastic
If the owners of a business are receiving total revenues just sufficient to cover all of their explicit and implicit costs, then they are...
earning a normal profit
Accounting profit minus implicit costs equals...
economic profit
Entry into a perfectly competitive industry occurs whenever...
economic profit is greater than zero
A firm earns a normal profit when its...
economic profit is zero
Generally ____ motivates firms to enter an industry, while ____ motivates firms to exit an industry
economic profit; economic loss
Patents, which confer market power, are intended to...
encourage innovation by helping firms recoup the costs of research and development
For perfectly competitive firms, marginal revenue ___ price; for monopolists marginal revenue ___ price.
equals; is less than
A perfectly price discriminating monopolist charges each buyer...
exactly his or her reservation price
The essential feature that differentiates imperfectly competitive firms from perfectly competitive firms is that an imperfectly competitive firm...
faces a downward-sloping demand curve
In an increasing cost industry, as industry output falls, the average cost of production for firms in the industry will...
fall
If a firm is experiencing economies of scale, then as the firm's output rises, its average total cost...
falls
In a decreasing cost industry, the average cost of firms would be expected to rise when industry output...
falls
One difference between the long run and the short run in a perfectly competitive industry is that...
firms necessarily earn zero economic profit in the long run but may earn positive or negative economic profit in the short run
In perfectly competitive markets, an implication of entry and exit in response to economic profit and loss is that...
firms will produce the quantity that minimizes average total costs in the long run
Accounting profit is ___ to economic profit
greater than or equal
In an increasing cost industry, as industry output rises, the average cost of production for firms in the industry will...
increase
Relative to a monopoly charging a single price to all consumers, perfect price discrimination ___ producer surplus and ___ consumer surplus.
increases; decreases
The long run supply in a competitive market...
is negatively sloped in a decreasing cost industry
A firm is most likely to experience economies of scale if its start-up costs are high and its marginal cost is ___.
low
Given the demand curve it faces, if an imperfectly competitive firm wants to sell another unit of output it must...
lower its price
For all firms, the additional revenue collected from the sale of one additional unit of output is termed...
marginal revenue
Unlike economic profit, economic rent...
may not be driven to zero by competition
If a firm collects $90 in revenue when it sells 4 units, $100 in revenue when it sells 5 units, and $105 in revenue when it sells 6 units, then one can infer the firm is a...
monopolist
Relative to a single price monopolist, a price discriminating monopolist generates...
more total surplus
A monopoly that results from economies of scale is call a(n)...
natural monopoly
A monopolistically competitive firm is one...
of many firms that sell products that are close but not perfect substitutes
If a firm functions in an oligopoly, it is...
one of a small number of firms that produce goods that are either close of perfect substitutes
If you were to start your own business, your implicit costs would include the...
opportunity cost of the time you spend working at the business
If a firm collects $80 in revenue when it sells 4 units, $100 in revenue when it sells 5 units, and $120 in revenue when it sells 6 units, then one can infer the firm is a(n)...
perfect competitor
In a constant cost industry, we expect the long run supply curve to be...
perfectly elastic at the price at which firms in the industry earn profit = 0
The demand curve for a perfectly competitive firm is ___, while the demand curve for a monopolist is ___.
perfectly elastic; downward-sloping
One assumption of the perfectly competitive model is free entry and exit. This assumption most directly leads to the implication that...
positive economic profit is only possible in the short run
Airlines that charge higher prices for customers who purchase their tickets at the last minute are...
price discriminating by identifying passengers with higher reservation prices
Because monopolists charge a price in excess of marginal cost, it must be the case that monopolists...
produce less than the socially optimal level of output
The reason economists consider monopoly to be socially undesirable is that monopolists...
produce less than the socially optimal level of output
In the Nash equilibrium of a prisoner's dilemma...
there is unrealized opportunity for both to gain
Superstar professional athletes can sustain their economic rents because...
they have unique talents that they can sell to the highest bidder
Economic profit is equal to...
total revenue - (explicit costs + implicit costs)
When a perfectly competitive firm sells additional unit of output, ___, and when a monopolist sells additional units of output, ____
total revenue always rises; total revenue could rise, fall, or remain unchanged
When marginal revenue is zero...
total revenue is maximized