Econ 202 Exam 3

Sue owns a baking company. The company's total revenue for a month is $4000. The monthly costs of resources bought in the market and of resources owned by the firm are $2000 and monthly costs of resources supplied by the owner are $1000. Sue's economic profit for the month is equal to

$1000

Assume it takes 10 units of labor to produce 4 units of output. When the price of labor is $6 per unit and fixed costs equal $60, what is the total cost of those 4 units of output?

$120

Suppose your donut shop earns $25,000 in total revenues per month with explicit costs of $12,000 and opportunity costs of $8,000. Your accounting profit is

$13000- P= rev-cost (accounting prof is only explicit costs) 25000-12000=13000

example of implicit cost

(opportunity costs) Interest that could have been earned on retained earnings used by the firm to finance expansion

In the prisoners' dilemma game, when each player takes the best possible action given the action of the other player

A Nash equilibrium is reached

oligopoly

A market structure in which a small number of independent firms compete

Scenario: Phillip and Joseph are two classmates who represented their college in a quiz competition as a team and won $500. However, the winning amount was handed over by the organizers to their professor who had accompanied them. The professor gave the money to Phillip and asked him to offer any amount he wants to Joseph. If Joseph accepts the offer, the money would be split in the decided proportion between them. However, if Joseph rejects the offer, the money would go to their college fund. Refer to the scenario above. If Joseph prefers fairness to money, ________.

He will accept the offer if offered an equal share of the money

You have been hired by the No Hassle Collection Agency to provide economic advice. The owner of the agency tells you that No Hassle's only variable input is the number of collection agents. The hourly wage for collection agents is $40.00. The marginal revenue product curve for collection agents reaches its maximum at five workers with a marginal revenue product of $34.00. What advice would you give this firm?

Shut down immediately, as the firm is not able to cover its variable costs.

If a firm changes from perfectly competitive to a monopoly what happens to economic efficiency

Under perfectly competitive conditions, economic surplus is maximized. Under monopoly conditions, economic surplus is less than under perfect competition and there is a deadweight loss.

An insurance company is likely to attract customers like Clancy who want to purchase insurance because he knows better than the company that he is more likely to make a claim on a policy. What is the term used to describe the situation above?

adverse selection

Which of the following is an example of a way in which an oligopolistic firm can escape the prisoner's dilemma?

advertising that it will match its rival's price

An increase in technology that enhances labor productivity will likely result in

an increase in labor employment and an increase in the wage rate

short run

at least one input is fixed

A duopolists' dilemma occurs when two firms in a market would be better off if

both choose the high price but instead each chooses the low price

If the painting firms in a city sign a contract outlining a pricing plan, they are involved in

collusion

the dollar value of the marginal product of labor is the

contribution of an additional unit of labor to a firm's revenue

fixed costs are

costs that a firm incurs even when output is zero

Compared to a similar perfectly competitive industry, a monopoly

creates a deadweight loss and decreases consumer surplus

Suppose that a perfectly competitive firm's marginal revenue equals $12 when it sells 10 units of output. If the marginal cost of producing the 10th unit is $14, to maximize its profit the firm should

decrease its production

example of a long run adjustment

directly related to the sales volume of your business. such as hiring more workers, advertisements, building another store

The word "monopolistic" in the label "monopolistic competition" refers to the fact that:

each firm produces a slightly different version of the product

Assume health insurance is provided universally by the government. This would

eliminate the problems of adverse selection

Assume a perfectly competitive firm is in long-run equilibrium and there is a decrease in market demand for the firm's output. Which of the following will occur?

existing firms will reduce output in the short run

If marginal cost is above the average variable cost, then average variable cost is decreasing.

false

If price is equal to average variable cost, then a perfectly competitive firm breaks even

false. average total cost

In long-run perfectly competitive equilibrium, which of the following is false?

firms earn Economic profit

The study of how people make decisions in situations where attaining their goals depends on their interactions with others is called

game theory

A perfectly competitive firm will maximize profits (or minimize losses) so long as price (marginal revenue) is:

greater than average variable cost

What is the difference between perfect competition and monopolistic competition?

in perfect competition, firms produce identical goods while in monopolistic competition, firms produce slightly different goods

Christine works as a receptionist in an office. She is not supposed to use the Wi-Fi connection provided by the company to access social-networking Web sites. However, she often uses the Wi-Fi to access these Web sites because her browsing activities are not monitored by her employer. This is an example of ________.

moral hazard

Marginal Revenue is equal to

the change PxQ due to a one unit change in output

What is likely to happen in a used-car market if the buyers feel that the best they can do is to buy a lemon?

the entire market shuts down

Which of the following will happen if a firm in a duopoly with homogeneous products increases its price above its marginal cost once a Nash equilibrium is reached?

the firm will loose all its customers to its rival

a payoff matrix shows

the return from each action that players can take in a game

The minimum point on the average variable cost curve is called

the shutdown point

In the long run..

there are no fixed costs. all costs are variable

In a Nash Equilibrium do players have a dominant strategy

they may or may not

An increase in a firm's fixed cost will not change the firm's profit-maximizing output in the short run.

true

economies of scale

when a firms long-run average cost falls as it increases output