Econ 1030 Final

Suppose Carl's Candies sells 100 boxes of candy for $4 each. The total fixed cost of the 100 boxes is $100, and the average variable cost of the 100 boxes is $1.50 per box. Carl's makes a total profit of:

$150

Suppose Carl's Candies sell 100 boxes of candy for $5 each. The total fixed cost of the 100 boxes is $100, and the average variable cost of the 100 boxes is $1.50 per box. Carl's makes a profit per unit of:

$2.50

Suppose Carl's Candies sells 100 boxes of candy for $5 each. The total fixed cost of the 100 boxes is $100 and the average variable cost of the 100 boxes is $1.50 per box. Carl's makes a total profit of:

$250

To calculate profit, which three pieces of information must be indentified?

-Price -Quantity of output -Average total cost

For a perfectly competitive firm, the market price is equal to:

-average revenue -marginal revenue -demand

The two conditions the guarantee consumers will enjoy the lowest prices possible are:

-every firm producing the exact same product -individual firms being price takers

When there is productive efficiency:

-output is produced using the fewest resources possible to produce a good or a service -output is produced at the lowest possible total cost per unit of production

A number of entry barriers are present in oligopolistic markets, including:

-patents -pricing strategies -signifivant costs of capital -economies of scale that may allow only a small number of firms to operate in a market -control of the resources needed to produce output

An argument can be made that the economic profits generated by pure monopolies have two positive impacts on dynamic growth:

-potential economic profits give firms and entrepreneurs incentives to develop new production processes and products -When a monopoly earns an economic profit, it has the financial capital to develop more innovations

producing the goods and services so that their marginal benefit equals their marginal cost

Allocative efficiency is:

amount of revenue per unit of a product sold

Average revenue is the:

Allocative efficiency occurs when:

MB=MC

additional revenue associated with the sale of an additional unit

Marginal revenue is the:

extra or additional revenue associated with the production of an additional unit of output

Marginal revenue is the:

combine characteristics of competitive markets and characteristics of pure monopolies

Monopolistically competitive markets:

A firm should shutdown if:

P<AVC

using the fewest resources possible to produce a good or service

Productive efficiency is:

extra or additional cost associated with the production of an additional unit of output

The marginal cost is the:

(T/F): Natural monopolies are rare and tend to be regulated by the government.

True

(T/F): There are a few important exceptions in which monopolies are actually encouraged to incentivize positive outcomes

True

An outcome in which, unless the players can collude, neither player has a incentive to change his or her strategy is:

a Nash equilibrium

A situation in which a particular strategy yields the highest payoff, regardless of the other player's strategy is:

a dominant strategy: a situation in which a particular strategy yields the highest payoff, regardless of the other players strategy

A table showing the potential outcomes arising from the choices made by decision makers is:

a payoff matrix: is a table showing the potential outcomes arising from the choices made by decision makers

Monopolistic competition is a market characterized by:

a relatively large number of sellers producing a differentiated product, for which they have some control over the price they change, in a market with relatively easy market entry and exit

For each of the markets listed below, determine whether the market can reasonably be described as oligopolistic. a. Satellite television b. hotels c. tomatoes d. oil

a. oligopolistic b. not c. not d. oligopolistic

Pure monopolies do not achieve _________ efficiency, meaning that they do not produce the amount of output that maximizes the sum of producer and consumer surplus

allocative

The amount of revenue produced per unit of an output sold is the ________ revenue

average

Impediments that prevent firms from entering a market or industry are known as:

barriers to entry

For a monopoly, the marginal revenues per unit fall ______ the price per unit, because when the price _________, the monopoly gives up some revenue on units it could have sold at higher prices.

below, decreases

Allocative efficinecy occurs when the goods and services that are most wanted by consumers are produced in such a way that their marginal ________ equals their marginal _______

benefit, cost

Monopolies do not achieve allocative efficiency because they do not produce in such a way that their price or marginal __________ equals their marginal _________

benefit, cost

When firms, individuals or any group of economic actors engage in _________ they coordinate their actions to achieve a desired outcome

collusion

A situation in which individuals, firms or any group of actors coordinate their actions to achieve a desired outcome is:

collusion; a situation in which individuals, firms or and group of actors coordinate their actions to achieve a desired outcome.

A situation in which individuals, firms or any groups of actors coordinate their actions to achieve a desired outcomes is:

collusion`

A market structure characterized by a relatively large number of sellers producing a differentiated product, for which they have some control over the price they change, in a market with relatively easy market entry and exit is known as monopolistic ___________

competition

______________ markets maximize the availability of goods and services and the consumer's ability to buy them.

competitive

A perfectly ________ market is characterized by a large number of __________ producing a ____________ product and taking the market __________ as given, with easy entry and exit into the market.

competitive, sellers, standardized, price

In a perfectly competitive market, we assume the product is identical in the minds of ____________.

consumers

Economic profits generated by pure monopolies have two positive impacts on ________ growth

dynamic

__________ efficiency refers to the development of new products and processes, reducing costs and improving existing products

dynamic

Total revenue minus the implicit and explicit costs of production is ___________ profit

economic

Total revenue minus the implicit costs and explicit costs of production is _________ profit

economic

The monopoly will charge a higher price in the market with the relatively more __________ demand curve

elastic

When consumers are relativly sensitive to changes in price, demand is considered relatively __________

elastic

If the marginal revenue associated with selling one more unit of output is positive, the demand is:

elastic, because this would increase total revenue

The marginal revenue is the:

extra or additional revenue associated with the production of an additional unit of output.

A perfectly competitive firm will incur its total ______ cost of production when it shuts down temporarily in the short run.

fixed

When a firm shuts down in the short run, it must still pay the ______ costs

fixed

producers may or may not earn economic profits

in an oligopoly:

As the market price __________, all else held constant, a profit-maximizing firm can afford to expand its production

increases

The output level for a monopolistically competitive firm is lower than the output level that achieves the minimum average total cost for the firm and as such:

is not productivity efficient in the long run

When the total revenue is _______ than the total cost, the level of profit that occurs is a loss.

less

At the shutdown point, the price is ______ the average variable cost

less than

The level of profit that occurs when the total revenue is less than the total cost is a _______

loss

The level of profit that occurs when the total revenue is less than the total cost is known as a ________

loss

Extra or additional revenue associated with the production of an additional unit of output is the ________ revenue

marginal

The extra or additional revenue associated with the production of an additional unit of output is the ______ revenue

marginal

Because monopolistically competitive firms face a downward-sloping demand curve, their _________ revenue curve lies below the ________ curve

marginal, demand

For a monopoly, the ________ revenue curve is located below the _________ curve

marginal, demand

In a perfectly competitive market, a single firm is a price taker, and therefore, can only charge the ________ price

market

Because ___________ competitive firms have some control over prices, the firm will charge consumers the price they are willing and able to pay for the available output, which is found by projecting the profit-maximizing output level onto the _______ curve

monopolistic, demand

Through advertising and branding, _________ competitive firms increase the demand for their products and make those demand relatively _________ inelastic, allowing them to change _________ prices and generate larger economic profits

monopolistic, more, higher

For _____________, competitive firms, branding is important because many consumers do not like taking risks

monopolistically

In the short run, as the ______ rises, so does the level of output supplied

price

Monopolistically competitive firms are able to have some control over the _______ of their products

price

The demand for a perfectly competitive firm's product is a horizontal line originating at the market ________

price

The practice of selling the same good or service to different consumers at different prices is known as:

price discrimination

Firms that take or accept the market price and have no ability to influence that price are known as ________

price takers

Tax revenue equals:

price times quantity

For a monopoly the marginal revenue is below the demand curve, because the monopoly has to lower the ________ on _______ units to sell more

price, all

Firms use price discrimination to increase their ________

profit

If you live in a town or a city that has a single provider of electricity or natural gas, that natural monopoly provider is most likely a __________ monopoly

regulated

If you live in a town or a city that has a single provider of electricity or natural gas, then that natural monopoly provider is most likely subject to price ________

regulation

For the profit-maximizing level of output, the price charged by a monopoly is not just different but greater than marginal _________

revenue

Profit equals total ________ minus total cost

revenue

Total ________ equals price times quantity

revenue

When a firm has a loss, the total _______ is less than the total cost

revenue

A monopolistically competitive firm should produce output until the marginal ________ equals the marginal ________

revenue, cost

Profit equals (average ________ revenue minus average total _______) multiplied by output

revenue, cost

The decision to shut down temporarily is a __________ decision, while the decision to exit an industry can be made only in the __________

short-run, long run

Game theory is the study of the _________ behavior of decision markers

strategic

In a perfectly competitive market, the price the firm should charge is the market price beacuase the firm is a price _______

taker

The allocatively efficient price can create a dilemma for regulators when:

the average total cost associated with the competitive quantity is higher than the price the natural monopoly is able to charge for it.

Changes in the variable costs of resources will affect:

the marginal costs faced by firms

A clear benefit to monopolistic competition for consumers is product ________

variety

A clear benefit to monopolistic competition for consumers is product _________

variety

A company can break even and meet operating costs without a loss whit it earns _____ economic profit

zero

Normal profit is also known as _____ economic profit

zero

A number of _______ barriers are present in oligopolistic markets

entry

Characteristics of perfect competition:

-standardized products -easy entry and exit -large number of buyers and sellers

When regulators require a monopoly to charge the normal profit price:

-the monopoly has little incentive to reduce the costs of production -the monopoly has zero economic profit

In a perfectly competitive market, homogeneity means that firms must charge the market price for the goods or the services they produce because...

-there are hundreds of other perfectly good substitutes -the market is competitive

The four characteristics of a perfectly competitive market are:

1. a large number of buyers and sellers 2. easy entry and exit 3. a standardized product 4. producers who a price takers

The difference between the economic surplus when the market is at is competitive equilibrium and the economic surplus when the market is not in equilibrium is the:

deadweight loss

Monopolistic competition and perfect competition have one main characteristic in common: realtively easy market ______ and ______

entry, exit

The level of profit that occurs when total revenue is _____ to total cost is known as normal profit

equal

Profit maximization implies that perfectly competitive firms should expand production up to the point where marginal revenue ________ marginal cost

equals

The level of profit that occurs when the total revenue is ________ to the total cost is known as normal profit

equals

Total revenue minus the ________ and ________ costs of production is economic profit

explicit, implicit

Price discrimination is only possible when a firm is a price ______

maker

Because monopolies have ________ power and can influence the price of the goods they sell, they tend to produce ______ output and charge a _________ price than would prevail in a __________ equilibrium

market, lower, higher, competitive

Because monopolies have market power and can influence the price of the goods they sell, they tend to restrict ______ and charge a higher ________ than would prevail in a competitive equilibrium

output, price

A _________ matrix is a table showing the potential outcomes arising from the choices made by decision markets

payoff

A market structure characterized by the interaction of large numbers of buyers and sellers, in which the sellers produce a standardized, or homogeneous, product, is known as:

perfect competition

If selling another unit of output increases revenue, marginal revenue is _________

positive

The behavior followed by oligopolistic firms needs to be ___________, given that they face other competitors in their markets.

strategic

A dominant _____ is a situation in which a particular strategy yields the highest payoff, regardless of the other players strategy.

strategy

The efficiency loss resulting from a monopolistically competitive market is called:

deadweight loss

Profit ___________ implies that monopolistically competitive firms should expand production up to the point where the marginal revenue equals marginal cost

maximization

Monopolistically competitive firms are unable to produce enough output to reach the minimum average total cost because of the:

presence of other monopolistically competitive firms in the industry

A __________ dilemma is a term used to describe a situation in which the Nash equilibrium is not the outcome the maximizes the payoffs to both players

prisoner's

A __________ produces less output than a competitive firm, and therefore, is likely to hire less labor

monopoly

For monopolistically competitive firms, __________ their products is important because many consumers do not like taking risks and this way they can learn about products before buying them.

branding

When firms, individuals or any group of economic actors engage in __________, they coordinate their actions to achieve a desired outcomes

collusion

In economics, we refer to a situation in which there is only one firm but no real barriers to entry as a __________ market

contestable

The difference between the economic surplus when the market is at its competitive equilibrium and the economic surplus when the market is not in equilibrium is the:

deadweight loss

A pure monopoly has the overall market ______ to itself, because it is the only seller in a market

demand

Price ___________ is the practice of selling the same good or services to different consumers at different prices

discrimination

A pure ________ has the overall demand to itself because it is the only seller in a market

monopoly

A pure ________ is the only seller in a market

monopoly

It is unlikely for a pure __________ to be productively efficient

monopoly

_________ profit is also known as zero economic profit

normal

Determine how each of the events below would affect the demand curve for food at Steve's Shrimp Shack, a seafood restaurant operating in a monopolistically competitive restaurant market. The demand could increase (rightward shift) or decrease (leftward shift) and it also could become more or less elastic. 1. The number of other restaurants in the area increase: 2. Steve institutes a frequent-diner program whereby a customer who visits five times receives a sixth meal free 3. The number of consumers in the area increases

1. Demand will: decrease, Elasticity of demand will: increase 2. Demand will: increase, Elasticity of demand will: decrease 3. Demand will: increase, Elasticity of demand will: not change

To calculate profit, we need to identify three pieces of information:

1. average total cost 2. price 3. quantity of output

Four characteristics of a perfect competitive market?

1. easy entry and exit 2. standardized product 3. producers who are price takers 4. Large number of buyers and sellers

To calculate profit, which three pieces of information need to be identified?

1. price 2. Average total cost 3. Quantity of output

In a __________ competitive market, consumers can usually find exactly what they are looking for based on their preferences and budgets

monopolistic

A business will charge a lower price to the group with the relatively more _____ demand and a higher price to the group with the relatively more _______ demand

elastic, inelastic

The demand for a ____________ competitive firm is more elastic than the demand faced by a pure ________ because of the availability of close substitutes

monopolistically, monopoly

Producing output at the lowest possible total cost per unit of production is:

productive efficiency

Because the products of monopolistically competitive firms are ___________ from other companies in their industry, these firms are able to have some control over the _______ of their products

differentiated, price

Economic profit creates an incentive for other perfectly competitive firms to _______ the market

enter

For ____________ competitive firms, branding serves as a single to consumers about the products they are going to purchase.

monopolistic

______________ competitive firms are able to have some control over the price of their products

monopolistic

A market structure characterized by a single seller is a ____________

monopoly

The demand faced by a pure ________ is downward sloping

monopoly

For the profit-maximizing level of output, the price changed by a monopoly is not just different but ____ than marginal revenue

more

Games can have:

more than one Nash equilibrium

In a monopolistically competitive market, competitors make close substitutes, so demand curves are relatively _____ elastic than those faced by monopolies and _______ elastic than those faced by perfectly competitive firms

more, less

All firms maximize ________ by producing the quantity of output at which the marginal revenue is equal to the marginal cost

profit

__________ interdependence is a situation in which the strategy followed by one producer will likely affect the profits and behavior or another producer

mutual

A manufacturer's profits are determined not only by its decisions but also by the decisions of the other firms in the industry. This is why we say that oligopolistic firms are:

mutually interdependent

A _________ monopoly is an industry in which economics of scale are so extensive that the market is better served by a single firm.

natural

If the government forces the monopoly to sell at a price equal to the average total cost, the natural monopoly would make a ________ profit

normal

The level of profit that occurs when the total revenue is equal to the total cost is known as __________ profit

normal

The price that occurs where the demand and the average total cost curves cross is called the:

normal profit price

Monopolistic competition and a monopoly are:

not the same market structure

______________ efficiency is producing output at the lowest possible average total cost of production

productive

An industry in which economics of scale are so extensive that the market is better served by a single firm is known as a:

natural monopoly

Pure monopolies do not achieve allocative efficiency, meaning that they do not produce the amount of output that maximizes the sum of ________ and __________ surplus.

producer, consumer

The demand for a perfectly competitive firm's product is a __________ line originating at the market price.

horizontal

Total revenue minus the ________ and ________ costs of production is economic profit.

implicit, explicit

Total rrevenue minus the __________ and _________ costs of production is economic profit

implicit, explicit

When the total revenue earned by a firm is less than the total cost of production, the firm faces a _______

loss

Producing output at the lowest possible total cost of production per unit is _________ efficiency

productive

Profit equals the total _________ minus the total ________

revenue, cost

The availability of close ____________ in monopolistically competitive markets allow consumers to be more responsive to ______ changes

substitutes, price

Price takers are firms that take or accept the _______ price and have no ability to influence that price.

market

In a perfectly competitive market, homogeneity means that firms must charge the market price for the goods or the services they produce, because there are hundreds of other perfectly good ___________

substitutes