econ ecam #2 review

Which of the following industries does not fit the natural monopoly model?

Fast food restaurants

Imperfect price discrimination occurs when a monopolist:

price discriminates but some buyers pay less than their reservation price

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 role that prices play in distributing scarce goods and services to those consumers who value them the most highly is known as the ________ function of price.

rationing

If a perfectly competitive firm produces an output level at which price is less than marginal costs, then the firm should:

reduce output to earn greater profits or smaller losses.

Subsidies are most likely to:

reduce total economic surplus

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

Game theory provides tools that are used to model:

strategic interdependencies.

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

Suppose farmers in a given market can either grow soy beans or corn on their land. In addition, suppose an increase in the demand for corn causes the price of corn to increase. All else equal, an increase in the price of corn creates an incentive for farmers to:

switch away from growing soy beans and into growing corn.

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.

Which of the following is NOT a characteristic of a perfectly competitive market?

Each firm in the market sells a somewhat different variant of the good.

Which of the following is a characteristic of economic rent?

It can never be negative.

The statement, "If a deal is too good to be true, then it probably is not true," is most closely related to which core economic principle?

The No-Cash-on-the-Table Principle

Suppose a firm produces the level of output at which the marginal cost of the last unit produced equals the price of the good. Which of the following statements is always true?

The firm should shutdown if its total revenue is less than its variable cost.

Which of the following is the most likely to be a variable factor of production at a university?

The number of librarians

Which of the following is the most likely to be a fixed factor of production at a pizza restaurant?

The size of the seating area

The short run is best defined as:

a period of time sufficiently short that at least one factor of production is fixed.

A price ceiling that is set below the equilibrium price will result in:

a shortage of the good

A pure monopoly exists when:

a single firm produces a good with no close substitutes.

According to the theory of the invisible hand, if buyers and sellers are free to pursue their own self-interest, the result often will be:

an efficient allocation of resources.

A good is characterized by network economies if it:

becomes more valuable as more people own it.

In an industry with free entry and exit, positive economic profit:

cannot be sustained indefinitely.

Adam Smith coined the term "invisible hand" to describe the process by which the actions of independent, self-interested buyers and sellers will:

centralized economies

A firm whose production process exhibits constant returns to scale would find that if it doubled all of its inputs, its output would ________.

double

According to the textbook, the most important and enduring source of market power is:

economies of scale.

For perfectly competitive firms, marginal revenue ________ price; for monopolists marginal revenue ________ price.

equals; is less than

A perfectly price discriminating monopolist's profit is ________ the profit of a monopolist who charges the same price to all of its customers.

higher than

If it is possible to make a change that will help some people without harming others, then the situation is:

inefficient

Both a perfectly competitive firm and a monopolist find that:

it is best to expand production until the benefit and the cost of the last unit produced are equal.

Cartel agreements are difficult to sustain because:

it's a dominant strategy for each cartel member to cheat on the cartel agreement

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.

In general, when the price of a variable factor of production increases:

marginal cost rises

If a production process exhibits diminishing returns, then as output rises:

marginal cost will eventually increase

Explicit costs:

measure the payments made to the firm's factors of production.

As the market price of a service increases, more potential sellers will decide to perform that service because:

more potential sellers will find that the market price exceeds their reservation price.

Airlines that charge higher prices for seats in the first class cabin are:

not price discriminating because the product is not the same

The profit maximizing rule P = MC applies to:

perfectly competitive firms only

Free entry and exit of firms is a characteristic of:

perfectly competitive industries.

Your neighbors have offered to pay you to look after their dog while they are on vacation. It will take you one hour per day to feed, walk, and care for the dog, which you can do either before or after you go to work. Your regular job pays $10 per hour, and you can work up to eight hours per day. The smallest amount of money you would accept to look after your neighbor's dog each day is equal to:

the value you place on one hour of leisure.

Average total cost is defined as:

total cost divided by total output

Economic profit is equal to:

total revenue minus the sum of explicit and implicit costs.

The sum of producer surplus and consumer surplus is:

total surplus.

Individual supply curves generally slope ________ because ________.

upward; of increasing opportunity costs.

Even when a firm produces the level of output at which price equals marginal cost, it should shut down if its total revenue is less than its:

variable cost.