Econ Final
When a firm becomes so large it is difficult to coordinate and control, it is most likely that
diseconomies of scale have begun
The fact that diamonds have a much higher price than water
does not violate the rules of utility maximization because water's marginal utility is low.
The demand curve for a monopoly is
downward sloping
The short run is the time frame
during which the quantities of some resources are fixed.
A firm's total revenue minus its total opportunity cost is called its
economic profit
When a perfectly competitive industry is taken over by a monopoly, some consumer surplus is transferred to the monopolist in the form of
economic profit
In the used car market, with a pooling equilibrium the price of a lemon is ___ the price of a good used car and with a seperating equilibrium the price of a lemon is __ the price of a good used car
equal to; less than
Screening
explains why insurance companies offer low-premium, high deductible policies and high-premium, low-deductible policies.
A perfectly competitive market is in equilibrium and then demand decreases. The decrease in demand means the market price will___ and eventually there will be ___
fall; exit by existing firms
Advertising is a ___ cost that is incurred by ___
fixed; monopolistically competitive firms
If you have found the percentage of the value of total revenue accounted for by the four largest firms in an industry, you have found the
four-firm concentration ratio
The main source of economics of scale is
greater specialization of both labor and capital
For a monopolistically competitive firm, the demand curve
has a negative slope
The good produced by a monopoly
has no close substitutes
As more of a good is consumed, total utility
increases
A consumption point inside the budget line
is possible to afford but has some unspent income
Assume someone organizes all farms int he nation into a monopoly. What is the monopoly's marginal cost curve?
it is the formerly competitive industry's supply curve.
If a monopolistically competitive sellers marginal cost is $3.56, the firm will increase its output if
its marginal revenue is more than $3.56
To produce more output in the short run, a firm must employ more of
its variable resources.
An industry with a large number of firms, differentiated products, and free entry and exit is called
monopolistic competition
Which of the following market types has the fewest number of firms?
monopoly
Suppose a consumer has $100 to spend on two goods, shoes and shirts. If the price of a pair of shoes is $20 per pair and the price of a shirt is $15 each, which of the following combinations is unaffordable to the consumer?
0 pairs of shoes and 7 shirts
Adverse selection is created by
private information
One of the major benefits to society of monopolistic competition is
product differentiation
Product differentiation allows a firm to compete with another firm on the basis of
quality, price, and marketing
A budget line shows the
quantities of goods a buyer can purchase with given income and prices.
In the market for auto insurance, in a separating equilibrium,
risky drivers pay a larger premium than do safe drivers for insurance.
If one of the products a consumer buys rises in price, the consumer's budget line will
rotate inward, closer to the origin.
Suppose Alice spends her budget on books and downloaded movies. If her budget does not change and the price of a book stays the same but the price of a downloaded movie falls, her budget line
rotates outward and its slope changes
A price-discriminating monopoly is a monopoly that
sells different units of a good or service at different prices.
Lauren runs a chili restaurant in San Francisco. Her total revenue last year was $110,000. The rent of her restaurant was $48000, her labor costs were $42000, and her materials, food and other variable costs were $24000. Lauren could have worked as a biologist and earned $50,000 per year. An economist calculates her implicit costs as
$50,000
For Jack, the total utility from three shirts is 50 units and the marginal utility of one more shirt is
55
Which of the following is FALSE?
Fixed costs increase in the long run
Which of the following is always true for a single-price monopolist?
P > MR
When a firm maximizes its profit, which of the following is correct for firms in monopolistic competition and perfect competition?
P=MR=MC for firms in perfect competition and P>MR=MC for firms in monopolistic competition.
Which of the following statements is correct?
The slope of the budget line shows the opportunity cost of the good measured along the x-axis
Your grade point average acts as ___ to potential employers?
a signal
When compared to a perfectly competitive market, a single-price monopoly with the same costs produces___ output and charges ___ price.
a smaller; a higher
Used cars buyers believe a car is good quality when the seller signals the car's quality by offering a warranty because
a warranty on a lemon is costly to the seller.
Which of the following statements about price discrimination is false?
all forms of price discrimination are illegal
The utility-maximizing rule rays that consumers must
allocate the entire available budget and make the marginal utility per dollar the same for all goods.
A cost paid in money is
an explicit cost and an opportunity cost
A firm in monopolistic competition is similar to a firm in perfect competition because they both
can make only zero economic profit in the long run.
A differentiated product has
close but not perfect subsititues
In a month, Samantha consumes the quantity of lobster dinners so that her marginal utility from a lobster dinner is 500 units. The price of a lobster dinner is $25. She also is consuming the quantity of spaghetti dinners so that its marginal utility is 300 units, while its price is $15. Samantha is allocating her entire budget. What should she do to maximize her total utility?
consume the current combination of lobster and spaghetti dinners
A single-price monopoly transfers
consumer surplus to producers
If a perfectly competitive seller is maximizing profit and is making zero economic profit, which of the following will this seller do?
continue at the current output, making zero economic profit
If Melissa owns a software company that incurs no fixed costs, then
her total cost equals her total variable cost
A safe drive is likely to prefer an auto insurance policy that has a ___ deductible and ___ premium
high;low
Technology reduces the average cost of production, so in the long run.
i, ii, iii i. perfectly competitive firms produce at a lower average cost. ii. the market price of the goods falls. iii. firms with older plants either exit the market or adopt the new technology.
If a perfectly competitive firm is maximizing its profit and is making an economic profit, which of the following is correct?
i, ii, iii i. price equals marginal revenue ii. marginal revenue equals marginal cost iii. price is greater than average total cost
Which of the following is a legal barrier to entry?
i., ii, iii, i. public franchise ii. government license iii. patent
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.
In the long run, perfectly competitive firms will exit the market if the price is
less than average total cost
Which of the following firms is most likely to be a monopoly?
local distributor of natural gas
The long run is a time period that is
long enough to change the size of the firm's plant and all other inputs.
The change in cost that results from a one-unit increase in output is called the
marginal cost
For a perfectly competitive syrup producer whose average total cost curve does not change, an economic profit could turn into an economic loss if the
market demand for syrup decreases
A firm in monopolistic compeition
might be selling a brand name product
In the long run, advertising by all firms in a monopolistically competitive industry
might increase or decrease the firms' prices.
Which of the following market types has only a few competing firms?
oligopoly
Private information is a situation in which
one party to an exchange has information that is not available to the other.
When an economist uses the term "cost" referring to a firm, the economist refers to the
opportunity cost of producing a good or service, which includes both implicit and explicit cost.
Suppose that there are only two types of used cars, peaches and lemons. Peaches are worth $10,000 and lemons are worth $4,000. Without effective signals such as warranties, the owners of peaches cannot sell their cars for $10,000 because the
owners of peaches cannot convince buyers that their cars are worth $10,000.
Adverse selection is the tendency for people who accept contracts to be those who
plan to use private information to the disadvantage of the less well-informed party
When new firms enter the perfectly competitive Miami bagel market, the market
supply curve shifts rightward
A natural barrier to entry is defined as a barrier that arises because of
technology that allows one firm to meet the entire market demand at lower average total cost than could two or more firms.
The idea of an insurance company "pooling" the risk means that
the risk is spread over a large population
The price charged by a perfectly competitive firm is
the same as the market price
The market supply in the short run for the perfectly competitive industry is
the sum of the supply schedules of all firms
In monopolistic competition, each firm supplies a small part of the market. This occurs because
there are a large number of firms.
A single- price monopoly faces a linear demand curve. if the marginal revenue for the second unit is $20, then the marginal revenue for the
third unit is less than $20
In the market for automobile insurance, moral hazard implies that
those who are insured might take greater risks.
Moral hazard is
when one of the parties to an agreement has an incentive after the agreement is made to act in a manner that brings additional benefits to himself or herself at the expense of the other party.
If a consumer has allocated his or her budget and found the combination of goods where all marginal utilities divided by price are equal, what would happen if the consumer were forced to consume some other combination of goods? The consumer
will definitely have lower total utility.