ECON 102 Midterm 3

highly elastic demand curve.

A monopolistically competitive firm has a

explicit costs.

Accounting profit equals total revenue minus

$35.

Answer the next question based on the following demand and cost data for a specific firm. Suppose that entry of firms into the industry changes this firm's demand schedule from columns 1 and 3 to columns 2 and 3. Maximum economic profit will decrease to

$8.00.

Answer the next question on the basis of the following data. The average fixed cost of producing 3 units of output is

Baking supplies (flour, salt, etc.)

Assume that you are the owner of a small bakery in your home town. Which of the following would be a variable cost of production in the short run?

licenses

In many large U.S. cities, taxicab companies operate as near monopolies because of_____.

behavior is affected by other firms' actions.

Mutual interdependence means that a firm's

increasing price and decreasing output

Suppose that a pure monopoly calculates that at its present output level, marginal revenue is $1 and marginal cost is $2. The monopoly could maximize profits or minimize losses by ____.

price less of a factor and product differences more of a factor in consumer purchases.

The goal of product differentiation and advertising in monopolistic competition is to make

more difficult than under pure competition but not nearly as difficult as under pure monopoly.

Under monopolistic competition, entry to the industry is

total fixed cost.

Use the following figure to answer the next question. If the firm is producing at Q1, the area BADE represents the

not allocatively efficient; allocatively efficient

With a natural monopoly, the normal profit price is _________________ and the competitive price is _________________.

$160,000

Harvey quit his job at State University where he earned $45,000 a year. He figures his entrepreneurial talent or foregone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10% interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 each. Of the $75, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building. What is the economic profit generated by Extreme Gaming in the first year?

$94.

If average variable cost is $74 and total fixed cost is $100 at 5 units of output, then average total cost at this output level is

P = $14; Q = 4

The data below relates to a pure monopoly and the product it produces. What is the profit-maximizing output and price for this firm?

downward sloping

The demand curve faced by a pure monopoly is _____.

differences among buyers' elasticities of demand

The economic incentive for third-degree price discrimination is based upon _____.

$112.

The following table shows cost data for a perfectly competitive firm. If the product price is $283, the per-unit economic profit at the profit-maximizing output is

make deceptive practices illegal.

The main goal of the Fair Trade Commissions Act was to

it is not allocatively efficient

The problem with adopting a normal profit pricing policy for a natural monopoly is that _____.

P1.

Use the following graph showing the demand and marginal revenue curves faced by a pure monopoly to answer the next question. If the pure monopoly wants to sell quantity Q1, it should charge

Productivity gains from more specialized labor

Which factor could contribute to a firm experiencing economies of scale?

Federal Trade Commission Act

A medical researcher suggests that the new flu shot will prevent all forms of the flu, but it was never tested or proved to be true. Which of the following antitrust acts are being violated?

with a loss.

A monopolistically competitive firm is producing at an output level in the short run where average total cost is $4.50, price is $4, marginal revenue is $2.50, and marginal cost is $2.50. This firm is operating

is downward-sloping and lies below the demand curve.

A monopolistically competitive firm's marginal revenue curve

as long as marginal revenue is greater than marginal cost.

A perfectly competitive firm trying to maximize profits in the short run will expand output

of barriers to entry

A pure monopoly may generate economic profits because _____.

$9.33.

Answer the next question on the basis of the following data. The average variable cost of producing 3 units of output is

will be the same as the initial price, and the output will be less.

Assume a perfectly competitive constant-cost industry is initially at long-run equilibrium. Now suppose that a decrease in market demand occurs. After all the long-run adjustments have been completed, the new equilibrium price

extensive economies of scale in production

Natural monopolies result from ____.

X3, since any increase in output beyond that point will reduce profits

Use the following graph to answer the next question. Given the graph above, which level of output should the perfectly competitive firm choose?

C.

Use the following graph to answer the next question. To maximize profits, the perfectly competitive firm should produce output at

P3 and Q2

Use the following graph to answer the next question. If the government regulated the pure monopoly and made it set a normal profit price, what price and quantity of output levels would we observe in the short run?

The firm is generating a loss.

Use the following graphs for a perfectly competitive market in the short run to answer the next question. Which of the following statements is true?

Graph 2

Use the following graphs to answer the next question. For which graph are there economies of scale throughout the entire range of output of cars?

Graph 2

Use the following graphs to answer the next question. Which of the above shows the correct relationship between demand and marginal revenue for a pure monopoly?

4,000 to 4,500 units

Use the following table to answer the next question. Plant sizes get larger as you move from Plant 1 to Plant 4. In the long run, the firm should use Plant 3's size for what level of output?

$10.

Use the following table to answer the next question. The total fixed cost of production is

15; 10

Use the table below to answer this question, which provides information on the production of a product that requires one variable input. With the addition of the second unit of input, the marginal product is __________ and the average product is __________. rev: 06_26_2018

average product of labor.

When a bakery manager reports that productivity of the 15 workers at her bakery last month was 1,800 loaves per worker, she is referring to the

Marginal revenue minus marginal cost equals zero.

Which is necessarily true for a perfectly competitive firm in short-run equilibrium?

The only bank in a small town

Which of the following best approximates a pure monopoly?

Infrastructure costs

Which of the following is a barrier to entry?

relatively easy entry

Which of the following is a characteristic of monopolistic competition?

Fuel and power payments

Which of the following is most likely to be a variable cost of production in the short run?

No single firm can influence the market price.

Which of the following is true under conditions of perfect competition?

In the long run, the entry and exit of firms will generate normal profits for firms.

Which of the following statements about perfect competition is true?

A pure monopoly fails to expand output to the level where the price of an additional unit is just equal to its marginal cost.

Which of the following statements is a major criticism of a pure monopoly as a source of allocative inefficiency?

single seller

Which phrase would be most characteristic of pure monopoly?

800 units.

With total fixed cost of $400, a firm incurs an average total cost of $3 and average variable cost of $2.50. The amount of output produced by the firm must be

excess capacity.

in the long run, the representative firm in monopolistic competition tends to have

explicit costs.

Monetary payments a firm makes to pay for resources are called

an economic profit

Use the following graph to answer the next question. At its short-run equilibrium, this pure monopoly generates ____

4 units

Given the data in the table below, what is the short-run profit-maximizing level of output for the perfectly competitive firm?

$60,000.

Harvey quit his job at State University where he earned $45,000 a year. He figures his entrepreneurial talent or forgone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10% interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 each. Of the $75, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building. The implicit costs of Harvey's firm in the first year were

The firm is generating a loss, and if things are not expected to improve the firm will leave the industry.

If a perfectly competitive firm is facing a situation where the price of its product is lower than the average total cost, which of the following statements is true?

diseconomies of scale.

If the total cost of production increases by 10% and output increases by less than 5%, then the firm is experiencing

price is greater than MC.

In monopolistic competition there is an under-allocation of resources at the profit-maximizing level of output, which means that

equal to price.

In perfect competition, each additional unit of output that a firm sells will yield a marginal revenue that is

elastic, because many other firms produce the same standardized product.

In perfect competition, the demand faced by a single firm is perfectly

Clayton Act

Pepsi Co. and Coca Cola decide to merge. Which of the following antitrust acts are being violated?

cost minimization, where P = minimum ATC.

Productive efficiency refers to

price is greater than marginal cost

Pure monopolies are said to be allocatively inefficient because ____.

a single firm producing a product for which there are no close substitutes

Pure monopoly refers to_____.

diminishing marginal returns.

The reason the marginal cost curve eventually increases as output increases for the typical firm is because of

segment of the MC curve lying at and above the AVC curve.

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

MC curve.

The short-run supply curve of a perfectly competitive firm is based primarily on its

$21,000

The sole proprietor of the Milwaukee Machine Company generates an annual accounting profit of $78,000. She has a standing salary offer of $35,000 a year to work for a large corporation. If she had invested her capital outside her own company, she estimates it would have returned $22,000 this year. What is the sole proprietor's economic profit?

in short-run equilibrium, but not long-run equilibrium.

Use the following graph for a monopolistically competitive firm in a constant-cost industry to answer the next question. This firm is

a.

Use the following graph for a monopolistically competitive firm to answer the next question. Marginal revenue and marginal cost intersect at point

E - D.

Use the following graph for a monopolistically competitive firm to answer the next question. Excess capacity for this firm would be illustrated by the quantity

A and D.

Use the following graph for a monopolistically competitive firm to answer the next question. The long-run equilibrium price and output for this firm will be

EH.

Use the following graph for a perfectly competitive firm to answer the next question. If the firm is maximizing profits in the short run, the amount of economic profit per unit is

generates a loss per unit equal to DE

Use the following graph for a pure monopoly operating in the short run to answer the next question. At the profit-maximizing level of output, this firm ___.

P4

Use the following graph showing short-run cost curves for a perfectly competitive firm to answer the next question. At what price would the firm earn a normal profit and break even?

P3

Use the following graph showing short-run cost curves for a perfectly competitive firm to answer the next question. At what price would the firm generate the same profit or loss whether it chooses to produce or not?

is $400.

Use the following graph showing the average total cost curve for a perfectly competitive firm to answer the next question. At the long-run equilibrium level of output, this firm's total cost