Econ final
Suppose that a monopoly firm produces tables and can sell 10 tables per month at a price of $400 per table. In order to increase sales by one table per month, the monopolist must lower the price of its tables by $30 to $370 per table. The marginal revenue of the eleventh table is:
$70
A monopolist can sell 3,000 units at a price of $48. Lowering price by $3 raises the quantity demanded by 400 units. What is the change in total revenue that results from this price change?
$9,000
Profit per unit of output equals:
(TR - TC) ÷ Q.
Comparing marginal revenue to marginal cost (i) reveals the contribution of the last unit of production to total profit. (ii) is helpful in making profit-maximizing production decisions. (iii) tells a firm whether its fixed costs are too high.
(i) and (ii) only
Which of the following characterizes a competitive market?
A downward-sloping demand curve for the market. A horizontal demand curve facing each firm in the market. All the firms sell at the equilibrium price for the market. All other choices
In order for a firm to continue producing, price must exceed __________ and total revenue must exceed __________.
AVC; total variable costs
Labor productivity will increase in response to:
An increase in the amount of capital per worker.
Which would not increase the productivity of labor?
An increase in the size of the labor force
Which of the following is a consequence of competition?
An unrelenting squeeze on prices and profit. Zero economic profit in the long run. Elimination of the least efficient firms All of the above
Explicit costs:
Are the sum of actual monetary payments made for resources used to produce a good.
Technical efficiency is achieved when a firm produces:
At the amount indicated by the production function.
Suppose a technological innovation shifts the marginal cost curve downward. Which one of the following cost curves does NOT shift?
Average fixed cost curve
Which of the following is a production decision?
B) What output the firm should produce in the short run.
In a competitive market, economic profits will:
Cause existing firms to expand production.
Economic losses are a signal to producers that:
D) They are not using society's scarce resources in the best way.
Which of the following is not an assumption of the theory of perfect competition?
Each firm produces and sells a differentiated product.
If long-run economic losses are being experienced in a competitive market:
Equilibrium price will rise as firms exit.
Firm X is a single seller of good X. There are, however, two substitutes for good X. Given this,
Firm X can be a monopolist because we do not know if the two substitutes are close substitutes; additionally, it may be that Firm X acts as if the assumption of no close substitutes holds.
Why do firms tend to experience decreasing returns to scale at high levels of output?
Firms face more problems with coordinating tasks and communications among managers and workers at very high levels of output.
Which of the following statements is false?
For a price searcher, price equals marginal revenue for all units except the first.
Greater labor productivity means:
Higher output per worker.
Which of the following is true about the demand curve confronting a competitive firm?
Horizontal, while market demand is downward-sloping.
Consider the following statements when answering this question; I. A firm's marginal cost curve does not depend on the level of fixed costs. II. As output increases the difference between a firm's average total cost and average variable cost curves cannot rise.
I and II are both true.
Consider the following statements when answering this question I. If the marginal product of labor falls whenever more labor is used, and labor is the only factor of production used by the firm, than at every output level the firm's short-run average variable cost exceeds marginal cost. II. If labor obeys the law of diminishing returns, and is the only factor of production used by the firm, then at every output level short-run average variable costs exceed marginal costs.
I is true, and II is false.
Which of the following is characteristic of a perfectly competitive market?
Identical products.
The production-possibilities curve bows outward because:
In order to get more of a particular good, increasing quantities of other goods must be given up.
Which of the following statements is true?
In the short run, changes in output can only be brought about by a change in the quantity of variable inputs.
Which of the following would cause a firm's production function to shift upward?
Increased training for the firm's workers
If the United States decides to convert automobile factories to tank production, as it did during World War II, but finds that some auto manufacturing facilities are not well suited to tank production, then:
Increasing opportunity costs will occur with greater tank production.
Which of the following statement is true?
Increasing returns to scale cause economies of scale.
A production function:
Is a technological relationship between factors of production and output.
If an economy is producing inside the production-possibilities curve, then:
It is using its resources inefficiently.
Economies of scale over the entire range of market output:
Lead to natural monopoly Mean that the long-run average total cost curve is downward-sloping Mean that marginal costs are below average costs. All other choices.
Which of the following contributes to an upward-sloping long-run average total cost curve?
Long-run marginal cost above long-run average total cost law of diminishing returns
For a perfectly competitive firm,
MR=P
When a perfectly competitive firm maximizes profits, it is:
Making a production decision. Maximising the difference between total revenue and total cost. Finding the production level at which its marginal revenue equals its marginal cost above average variable costs All other choices
Suppose your firm operates in a perfectly competitive market and decides to double its output. How does this affect the firm's marginal profit?
Marginal revenue increases but marginal cost remains the same
The most desirable rate of output for a firm is the output that:
Maximizes total profit.
A production-possibilities curve indicates the:
Maximum combinations of goods and services an economy can produce given its available resources and technology.
A production function matches a given combination of factor inputs with the:
Maximum output that can be technologically produced from the inputs.
A production function shows the:
Maximum output we can produce with varying combinations of factor inputs.
If an economy is producing on its production-possibilities curve, then producing:
More of one good implies producing less of another good.
The law of diminishing returns indicates that marginal physical product of a factor declines as:
More of the factor is used, holding other inputs constant.
Because of the relationship between a perfectly competitive firm's demand curve and its marginal revenue curve, the profit maximization condition for the firm can be written as
P=MC
Which of the following statement is FALSE?
Perfectly competitive markets are composed of many buyers and sellers. Some markets may have only a few sellers but exhibit the properties of perfect competition. A market may be composed of only one buyer and one seller. All other choices are correct
When price exceeds average variable cost but not average total cost, the firm should, in the short run:
Produce at the rate of output where MR = MC.
Total revenue for a firm is equal to:
PxQ
The exit of firms from a market:
Reduces the equilibrium output in the market
The entry of firms into a market:
Reduces the equilibrium price; Reduces the profits of existing firms in the market; Shifts the market supply curve to the right. all choices
Technical efficiency:
Requires getting maximum output from the resources used in production.
The entry of additional firms into a market, ceteris paribus:
Shifts the market supply curve to the right. Reduces the equilibrium price Forces the typical producer to reduce output. All other choices
Which of the following must always be downward-sloping?
The ATC curve when it is above the MC curve.
The average variable cost curve slopes upward with a higher rate of output in the short run because of:
The effect of diminishing returns.
If price is less than marginal cost, a perfectly competitive firm should decrease output because:
The firm is producing units that cost more to produce than the firm receives in revenue thus reducing profits (or increasing losses).
Firm X is producing the quantity of output at which marginal revenue equals marginal cost. It is
There is not enough information to answer the question.
A monopoly occurs when:
There is only one producer of a good or service.
If the marginal cost curve is rising, then which of the following must be true?
Total costs must be rising.
When a firm produces at a technically efficient output level, it is:
Using the fewest resources to produce a good or service.
Which of the following is characteristic of a perfectly competitive market?
Zero economic profit in the long run.
If both factors always have positive marginal products, the
`isoquants must be downward sloping.
Which of the following events would cause the production-possibilities curve to shift inward?
a decrease in the supply of labor
Which of the following is not a characteristic of perfect competition?
a heterogeneous product
In a competitive market where firms are earning economic profits, which of the following should be expected as the industry moves to long-run equilibrium, ceteris paribus?
a lower price and more firms
A function that indicates the maximum output per unit of time that a firm can produce, for every combination of inputs with a given technology, is called
a production function
A right granted to a firm by government that permits the firm to provide a particular good or service and excludes others from doing the same is called
a public franchise
An industry is a natural monopoly when
a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms
If we take the production function and hold the level of output constant, allowing the amounts of capital and labor to vary, the curve that is traced out is called:
an Isoquant
The curve which shows combinations of inputs that yield the same output is called a(n)
an Isoquant curve
Technological changes that increase productivity shift the:
average total cost downward
When marginal cost exceeds average total cost,
average total cost must be rising
As we move downward along a typical isoquant, the slope of the isoquant
becomes flatter.
A straight-line isoquant indicates that
capital and labor are perfect substitutes in production.
If a given amount of output can be produced by several small plants or one much larger plant with identical minimum per-unit costs, this long-run situation reflects the existence of:
constant returns to scale
If a competitive firm's MC is greater than the market price, the firm should
decrease the level of output.
In a production process, all inputs are increased by 10%; but output increases less than 10%. This means that the firm experiences
decreasing returns to scale.
When a firm earns zero economic profit, it has
definitely earned an accounting profit if implicit costs are positive.
When adding another unit of labor leads to an increase in output that is smaller than the increases in output that resulted from adding previous units of labor, the firm is experiencing
diminishing marginal product
Boeing Corporation and Airbus Industries are the only two producers of long-range commercial aircraft. This market is not perfectly competitive because:
each company can significantly affect prices.
Which of the following is a barrier to entry into a monopoly market?
economies of scale
For the perfectly competitive firm, the marginal revenue is always:
equal to the market price
The key assumption underlying the theory of the firm is that:
firms are assumed to maximize profits.
For any competitive market, the supply curve is closely related to the
firms' costs of production in that market.
In the short run, when a firm produces zero output, total cost equals:
fixed cost
In the theory of perfect competition, the assumptions of many buyers and sellers, the production of a homogeneous product, and the possession of all relevant information by buyers and sellers imply that the perfectly competitive firm
has a demand curve that is perfectly elastic
The demand curve faced by a perfectly competitive firm is
horizontal
The perfectly competitive firm will produce in the
if P>AVC
Suppose the economy is operating on its PPF. As the output of one good increases, the opportunity cost of the good will most likely
increase
Suppose the state legislature in your state imposes a state licensing fee of $100 per year to be paid by all firms that file state tax revenue reports. This new business tax:
increases marginal cost. decreases marginal cost. increases marginal revenue. decreases marginal revenue. None of the above
The supply curve is upward-sloping, i.e. it takes a higher price to induce greater production, because of:
increasing marginal cost
An isoquant
is a curve that shows all the combinations of inputs that yield the same total output.
In the short run, a perfectly competitive firm earning negative economic profit
is on the upward-sloping portion of its AVC.
Total Utility
is the sum of the amounts of utility derived from consuming each unit of a good.
At the profit-maximizing level of output, marginal profit
is zero.
The "visible hand" is a metaphor used to describe
managerial coordination
In the short run, the best policy for a perfectly competitive firm is to
produce and sell its product as long as price is greater than average variable cost.
Economists assume the principal motivation of producers is:
profit
If the vertical distance between the total revenue curve and total cost curve is divided by output, the result is:
profit per unit
Most economists say that the firm's goal or objective is to maximize
profits
Which of the following production functions exhibits constant returns to scale?
q = K + L
The period in which at least one input is fixed in quantity is the:
short run
Real-world markets that approximate the four assumptions of the theory of perfect competition include
some agricultural markets and the stock market.
A production function assumes a given
technology
If the average variable cost curve is falling,
the MC curve must be below it.
When the output level increases from Q1 to Q2
the change in ATC less than that in AVC.
The marginal physical product (MPP) of a variable input is
the change in total output that results from changing the variable input by one unit.
Production functions describe
what is technically feasible with the given inputs when the firm operates efficiently
In the theory of perfect competition, the assumption of easy entry into and exit from the market implies
zero economic profits in the long run.
Writing total output as Q, change in output as ΔQ, total labor employment as L, and change in labor employment as ΔL, the marginal product of labor can be written algebraically as
ΔQ / ΔL
To maximize profits, a competitive firm will seek to expand output until:
marginal cost equals price
In a short-run production process, the marginal cost is rising and the average variable cost is falling as output is increased. Thus,
marginal cost is below average variable cost.
The slope of the total product curve is the
marginal product
A firm maximizes profit by operating at the level of output where
marginal revenue equals marginal cost.
Marginal profit is equal to
marginal revenue minus marginal cost.
Economists normally assume that the goal of a firm is to
maximise it's profit
If a monopoly firm produces the quantity of output at which MR = MC,it necessarily
maximises its profit or minimises it's loss
In a perfectly competitive market:
no single buyer or seller can significantly affect the market price.
For many firms, capital is the production input that is typically fixed in the short run. Which of the following firms would face the longest time required to adjust its capital inputs?
nuclear power plant
In the short run, a perfectly competitive firm earning negative economic profit is
on the downward-sloping portion of its ATC curve.
The demand for an individual competitive firm is
perfectly elastic
The demand curve facing a perfectly competitive firm is
perfectly horizontal
Some economists conduct empirical research on the theory of the firm by measuring the degree of technical efficiency achieved by actual firms. What type of research contributions are provided by these studies?
positive
The perfectly competitive firm produces at the output level where
price equals marginal cost.
Short-run profits are maximized, for a perfectly competitive firm, at the rate of output where:
price is equal to marginal cost
When a producer can control the market price for the good it sells:
the producer has market power
The demand curve facing a perfectly competitive firm is
the same as its average revenue curve and its marginal revenue curve.
In the model of perfect competition, the firm's marginal revenue curve is
the same as the firm's demand curve.
At the profit-maximizing level of output, what is relationship between the total revenue (TR) and total cost (TC) curves?
they must have the same slope
Which of the following statements is true?
In the long run, there are no costs, fixed or variable. In the short run, there are no fixed costs, only variable costs. In the short run, there are fixed and variable costs, but fixed costs are the only costs a firm is concerned with. In the short run, there are fixed and variable costs, but in the long run there are only fixed costs. None of the above.
Which of the following events would cause the production-possibilities curve to shift outward?
Increased efficiency in the use of resources
Productivity:
Increases when the ratio of output per unit of input rises.
At the profit-maximizing output for a perfectly competitive firm:
Marginal cost = price.
Does it make sense to consider the returns to scale of a production function in the short run?
No, we cannot change all of the production inputs in the short run.
Ronny's Pizza House operates in the perfectly competitive local pizza market. If the price of pizza cheese increases (ceteris paribus), what is the expected impact on Ronny's profit-maximizing output decision?
Output decreases because the marginal cost curve shifts upward
Many mining and mineral extraction processes tend to exhibit increasing returns to scale. Suppose copper mines have increasing returns, and the existing copper mines reduce their capital and labor inputs by 25 percent in response to a global recession. What is the expected impact on copper output?
Output decreases by more than 25 percent
A point on a nation's production-possibilities curve represents:
The full employment of resources to achieve a particular combination of goods and services.
Suppose we can describe the production function for the MC Shoe Co. with the equation, TP = 7L (where L = the number of workers). Based on this information, which of the following statements is true?
The law of diminishing returns does not apply at the MC Shoe Co.
Which of the following statements is true?
The marginal revenue curve of the single-price monopolist lies below its demand curve.
When the size of a factory (and all its associated inputs) doubles and, as a result, output more than doubles:
The production technology exhibits increasing returns to scale.
Which of the following is an assumption under which the production-possibilities curve is drawn?
The supply of factors of production is fixed
If input prices are constant, a firm with increasing returns to scale can expect
costs to go up less than double as output doubles.
A farmer uses M units of machinery and L hours of labor to produce C tons of corn, with the following production function Q = L^0.5*M^0.75, where "^" is the exponential operator. This production function exhibits
increasing returns to scale
The supply curve for a competitive firm is
its MC curve above the minimum point of the AVC curve.
"As additional units of a variable input are added to a fixed input, eventually the marginal physical product of the variable input will decline." This is a statement of the
law of diminishing marginal returns.
The perfectly competitive firm will shut down in the short run if price is
less than average variable cost.
The average-marginal rule states that if the marginal magnitude is
less than the average magnitude, the average magnitude falls.
A production function in which the inputs are perfectly substitutable would have isoquants that are
linear
If the law of diminishing returns applies to labor then
the MPP of labor will eventually fall.
Although there are many reasons why a market can be non-competitive, the principal economic difference between a competitive and a non-competitive market is:
the extent to which any firm can influence the price of the product.
If MR > MC, then
the firm can increase its profits or minimise its losses by increasing output.
Ultimately, market supply curves are upward sloping because of
the law of diminishing marginal returns.
For a perfectly competitive firm,
the marginal revenue curve and the demand curve are the same.
If the market price for a competitive firm's output doubles then
the marginal revenue doubles
Which of the following is probably the worst real-world example of a perfectly competitive market?
the market of automobiles