ECON 206: Final Exam Review

Jones owns a barber shop and charges $6 per haircut. By hiring one barber at $10 per hour the shop can provide 24 haircuts per 8 hour day. By taking a second barber at the same wage rate the shop can no provide a total of 42 haircuts per day. The MRP of the second barber is

$108

a profit maximizing firm employs resources to the point where

MRP = MRC

Inverted U theory

R&D expenditures first arise as a percentage of firms' sales as industry concentration increases, but then fall as higher industry concentration occurs

the outcome in a purely competitive labor market is shown by:

W = MRP, W = MRC

which of the following is a unique feature of oligopoly? a. mutual interdependence b. non-price competition c. advertising expenditures d. product differentiation

a. mutual interdependence

in the long-run, a profit-maximizing monopolistically competitive firm sets its price

above marginal cost

which of the following is not a basic monopolistic competition? a. the use of trademarks and brand names b. a relatively large number of sellers c. product differentiation d. recognized mutual interdependence

d. recognized mutual interdependence

The wide imitation and spread of an innovation is called:

diffusion

the spread of innovation through imitation refers to

diffusion

for a new product to be profitable, it must

enable customers to obtain greater total utility from their money income

in the long-run, economic theory predicts that a monopolistically competitive firm will

have excess production capacity

in the short-run, a monopolistically competitive firm's economic profit

may be positive, negative, or zero

prices are likely to be least flexible:

oligopoly

Resource pricing is important because

1. resource prices are a major determinant of money incomes. 2. resource prices allocate scarce resources among alternative uses. 3. resource prices, along with resource productivity, are important to firms in minimizing their costs.

the herfindahi index for a pure monopolist is

10,000

Jones owns a barber shop and charges $6 per haircut. By hiring one barber at $10 per hour the shop can provide 24 haircuts per 8 hour day. By taking a second barber at the same wage rate the shop can no provide a total of 42 haircuts per day. The MP of the second barber is

18

in the United States, research and development spending as a percentage of GDP is

2.5% to 3.0%, which is higher than that of most industrial countries

Oligopolistic industries are characterized by:

a few dominant firms and substantial entry barriers.

the mutual interdependence that characterizes oligopoly arises because

a small number of firms produce a large proportion of industry output

which of the following statements is true? a. innovation normally follows invention and precedes diffusion b. diffusion normally follows invention and precedes innovation c. innovation usually follows diffusion and precedes invention d. invention normally follows diffussion and precedes innovation

a. innovation normally follows invention and precedes diffusion

in the short-run, a profit-maximizing monopolistically competitive firm sets its price

above marginal cost

nonprice competition refers to

advertising, product promotion, and changes in the real or perceived characteristics of a product.

the supply of land is

almost perfectly inelastic

Marginal revenue product measures the

amount by which the extra production of one more worker increases a firm's total revenue.

in the market for loanable funds

an increase in borrowing for investment will increase the interest rate.

OPEC provides an example of:

an international cartel

process innovation can be depicted as

an upward shift in a firm's total product curve.

economic rent refers to the price paid for land and other natural resources that

are fixed in total supply

when economists view technological change as internal to the economy, they mean that it:

arises deliberately from the profit motive and competition

a union may increase the demand for the services of its constituents by all of the tactics below except a. successfully advertising the product it is producing to private consumers b. increasing the price of products that are compliments for the one it is producing c. lobbying for increases in public expenditures on the product its producing d. successfully increasing labor productivity

b. increasing the price of products that are compliments for the one it is producing

which of the following is correct for a monopolistically competitive firm in the long-run equilibrium? a. p = mc b. p exceeds minimum atc c. mc =atc d. mc exceeds mr

b. p exceeds minimum atc

which of the following is an illustration of differentiated oligopoly a. the aluminum industry b. the soft drink industry c. the steel industry d. retail stores in large cities

b. the soft drink industry

monopolistic competition resembles pure competition because

barriers to entry are either weak or nonexistent

Entrepreneurship

can be carried out either by individuals or teams of individuals

broadly defined, technological advance

comprises new and improved goods and services and new and improved ways of producing or distributing them

the demand for labor is derived from

consumer demand for the product or service it is helping to produce

in the United States professional football players can earn much higher incomes than professional soccer players. this occurs because

consumers have a greater demand for football games than for soccer games

Secret conspiracies to fix prices are examples of:

covert collusion

the process by which new firms and new products replace existing dominant firms and products is called

creative destruction

Use your basic knowledge and your understanding of market structures to answer this question. Which of the following companies most closely approximates a monopolistic competitor? a. microsoft b. pittsburgh plate glass c. ford motor company d. subway sandwiches

d. subway sandwiches

Other things equal, an increase in the equilibrium interest rate will

decrease purchases of capital goods and reduce R&D spending

Suppose an oligopolistic producer assumes its rivals will ignore a price increase but match a price cut. In this case the firm perceives its:

demand curve is kinked, being steeper below the going price than above

as pizza is topped with BBQ chicken became popular at speciality restaurants, Pizza Hut introduced a similar pizza. this imitation illustrates

diffusion

the corporate decision on type and level of R&D activity is difficult because

expected returns lie in the future and are highly uncertain

the marginal benefit to a firm from its R&D expenditures is depicted by its

expected-rate-of-return curve

technological advance improves allocative efficiency by

giving society a more preferred mix of goods and services

If you sum the squares of the market shares of each firm in an industry (as measured by percent of industry sales), you are calculating the:

herfindahi index

to say that land rent preforms no incentive function means that

higher rental payments will not bring forth a larger quantity of land

the copper, aluminum, cement, and industrial alcohol industries are examples of

homogeneous oligopoly

process innovation refers to

implementation of better methods of producing products

the United Mine Wokers is a good illistration of

inclusive unionism

the first commercial introduction, as opposed to first discovery, of transparent tape is an example of

innovation

the first successful commercial introduction of a new product refers to

innovation

the successful introduction of a new product, the use of a new method, or the creation of a new form of businesses enterprise is called

innovation

which of the following correctly orders, highest to lowest, the relative magnitudes of the U.S. spending by businesses on components of R&D

innovation, invention, basic research

the first discovery (as distinct from first commercial application) of a product or process is called

invention

technological advance is a three-step process involving

invention, innovation, and diffusion.

the modern view of technological advance is that it

is an internal element of capitalism, occurring in responses to profit incentives

as it relates to the R&D decision, the interest-rate-cost-of-funds curve:

is the marginal cost element in the MB = MC decision framework

Henry George advocated a single tax on:

land

the monopolistically competitive seller's demand curve will become more elastic the

larger the number of competitors

technological advance improves productive efficiency by

lowering average total cost

monopolistic competition means

many firms producing differentiated products

If one worker can pick $30 worth of grapes and two workers together can pick $50 worth of grapes, the:

marginal revenue product of the second worker is $20

the economic term for a sole employer in a nonunion community is

monopolist

economic profit is most closely associated with

monopoly, innovation, and uninsurable risks

When a monopolistically competitive firm is in long-run equilibrium:

mr = mc and p > minimum atc

we would expect a cartel to achieve

neither allocative efficiency nor productive efficiency.

economic analysis of a monopolistically competitive industry is more complicated than that of pure competition because

of product differentiation and consequent product promotion activities

the market supply curve for labor is upsloping because

of the opportunity cost of labor in housekeeping, leisure, or alternative employments

the conclusion that oligopoly is inefficient relative to the competitive ideal must be qualified because

overtime oligopolistic industries may promote more rapid product development and greater improvement of production techniques than if they were purely competitive

Kodak introduced to the marketplace a digital camera which uses no film, but takes photos that can be shown on personal computers. This is an example of:

product innovation

in a oligopolistic market

products may be standardized or differentiated

a monopolist

reduces the number of workers it employs so that it can pay each worker a lower wage rate

fiber-optic telephone lines are rapidly replacing copper telephone cables, this is an example of

technological advance

the demand for farmland will increase if

technological advances make land more productive

Pure or economic profit is:

the amount by which total revenue exceeds total costs

the demand for airline pilots results from the demand for air travel. this fact is an example of

the derived demand for labor

the marginal revenue product schedule is

the firm's resource demand schedule.

If the four-firm concentration ratio for industry X is 80:

the four largest firms account for 80% of sales

Marginal revenue product of labor refers to

the increase in total revenue resulting from the hire of one or more unit of labor

oligopoly is difficult to analyze primarily because

the price and output decisions of any one firm depend on the reactions of its rivals

the equilibrium interest rate equates

the quantities demanded and supplied of loanable funds

the retained earnings that corporations often use to finance R&D are also known as

undistributed corporate profits

the major source of new scientific knowledge in the united states is

university and government research

funds lent to startup firms in return for shares of the profit if the firms succeed are called

venture capital