ECON FINAL EXAM

total fixed cost of production is

$10

What is the lowest price at which the firm will start producing output in the short run?

.60

If the market price for the firm's product is $180, the firm will produce

7 units and earn a economic profit of $238

Suppose, that your community has identified five different areas of town that are polluted and has assigned clean-up projects to each area: projects A through E in the table below. For simplicity, let's assume that the marginal cost of each project is $75,000. The marginal benefit to the community, however, is different for each and listed in the table below. If your city has enough money to pay for all five projects, which areas should it clean up?

A, B, C and D

If the industry were served by a pure monopoly, the deadweight loss would be the area _____.

ACE

In long-run equilibrium, a profit-maximizing firm in a monopolistically competitive industry will produce the quantity of output where

ATC=P MR=MC MC<P

At any level of output

Average total cost will exceed average variable cost by the amount of the average fixed cost

Average fixed cost

declines continually as output increases

Which of the following is an example of a negative externality (additional social cost)?

failing property values in a neighborhood where a disreputable nightclub is operating

Which of the following firms is considered an oligopolistic firm using the four-firm concentration ratio? Firm A: Four-Firm Concentration ratio = 35% Firm B: Four-Firm Concentration ratio = 45%

firm B

Which of the following is most likely to be an implicit cost for Company X?

forgone rent from the building owned and used by company x

Sam uses Craig's Netflix account to watch movies and shows but does not actually pay for the service himself. This is an example of

free-rider program

On Tuesday, a movie theater discounts tickets to all shows. What would we expect to see happen to popcorn on Tuesdays?

increased demand for popcorn

Use the figure below to answer the following question. An increase in quantity supplied caused by a change in price is depicted by a

movement from point y to point x

For most products, purchases tend to fall with decreases in consumers' incomes. Such products are known as

normal goods

What might happen to alligators in the south if the U.S. Fish and Wildlife Service were to reduce or eliminate the tags required to hunt alligators?

over consumption, which could lead to extinction

Which of the following would be an implicit cost for a business owner?

the 50,000 salary the entrepreneur could be making as a CPA

Steve went to his favorite hamburger restaurant with $3, expecting to buy a $2 hamburger and a $1 soda. When he arrived, he discovered that hamburgers were on sale for $1 each, so Steve bought two hamburgers and a soda. Steve's response to the decrease in the price of hamburgers is best explained by

the income effect

If an industry has a Herfindahl index of 10,000, then

the industry is a single firm

The oligopolistic industry is not allocatively efficient because

the industry produces too little of the good

If the number of firms in a monopolistically competitive industry increases and the degree of product differentiation diminishes

the industry would more closely approxinate pure competition

Why might it be a bad idea to engage in first-degree price discrimination?

the information needed can be costly and can lead to decreased profits for the company

U.S. sugar trade agreements have fallen through. What will the likely effect be?

the supply of goods that use sugar will decrease

When economists speak of "demand" in a particular market, they refer to

the whole demand curve or schedule

If the firm is producing at Q1, the area 0BEQ1 represents the

total variable cost

The diagram shows the short-run average total cost curves for five different plant sizes of a firm. If in the long run the firm should produce output 0x, it should do it with a plant of size

#2

If the product price is $283, the per-unit economic profit at the profit-maximizing output is

$112 (price - ATC)

How much profit will this firm make?

$200

Suppose that Oscar sells pork in a perfectly competitive market. The market price of pork is $3 per pound. The marginal revenue generated by Oscar from selling the 12th pound of pork would be

$3

To answer the next question, use the following table, which shows the demand schedule faced by Ninaskets, a pure monopoly selling baskets. What is the change in total revenue if the pure monopoly lowers the price from $20 to $18?

$30

Answer the next question based on the demand and cost schedules for a monopolistically competitive firm given in the table below. At the profit-maximizing level of output, marginal revenue is

$4

The total variable cost associated with the production of 5 units of output is

$63

Use the following graph for a monopolistically competitive firm to answer the next question. In the short run, this monopolistically competitive firm will set price at

$65 and produce 35 units of output

What is the long-run average total cost of producing 30 units of output?

$7

The marginal cost associated with the production of the sixth unit of output is

$8

A pure monopoly can sell 20 toys per day for $8 each. To sell 21 toys per day, the price must be cut to $7. The marginal revenue of the 21st toy is

-$13

Answer the next question based on the following payoff matrix for two oligopolistic firms in which the numbers indicate the profit in thousands of dollars for a high-price or a low-price strategy. If both firms collude to maximize joint profits, the total profits for the two firms will be

1,250,000

The table below shows the weekly supply for hamburgers in a market where there are just three sellers. If seller 3 exits the market (goes out of business), then the weekly market quantity of hamburgers supplied at a price of $4 will be

10

Harvey quit his job at State University where he earned $45,000 a year. He figures his entrepreneurial talent or foregone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10% interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 each. Of the $75, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building. What is the economic profit generated by Extreme Gaming in the first year?

160,000

The graph shows the cost curves for a perfectly competitive firm. If the market price of the product is $1.25 per unit, then the firm will produce how many units to maximize profits in the short run?

20

What is the Herfindahl index for Industry 1?

30,798

If the 4 largest cereal companies' total sales are $19 billion, and the industry's total sales are $55 billion then the Four-Firm Concentration Ratio is

34.55%

Given the data in the table below, what is the short-run profit-maximizing level of output for the perfectly competitive firm?

4 units

Marginal product is zero when the total product is

58

What is the average variable cost of the 4th unit of production?

7.50

The letters A, B, and C designate three successively larger plant sizes. In the long run, the firm should use plant size "C" for the production of

80 to 100 units of output

The graph shows the cost curves for a perfectly competitive firm. If the market price of the product is $1.25 per unit,then the firm will earn how much in profits/losses in the short run?

9

If you know that when a firm produces 10 units of output, total cost is $1,030 and average fixed cost is $10, then total variable cost is

930

For a pure monopoly to sell a quantity of 10 units, the price must be $8. Marginal revenue (MR) at this output level will be _____.

<$8

A short-run equilibrium that would produce profits for a monopolistically competitive firm would be represented by graph

A

Use the following graph of the demand for noodles to answer the question below. Refer to the three demand curves for noodles. Which of the following would shift the demand for noodles from D1 to D2?

An increase in the number of buyers of noodles

Which of the following statements is true about supply?

As price increases, producers are willing and able to put more of the good on the market for sale

Asarta Inc. is polluting into a nearby fishing; doing so benefits them $40,000 a year. The fishermen are unhappy as their trout are dying off. Typically, the fishermen can catch trout and sell it to a local market where they can earn about $8,000 a year. Currently, the fishermen have the rights to use the stream as they see fit. Which of the following is an optimal solution according to the Coase Theorem?

Asarta inc. could pay the fishermen and keep polluting

Consumers who clip and redeem discount coupons _____.

Exhibit a relatively higher price elasticity of demand for a given product than consumers who not clip and redeem

If a third-degree price-discriminating pure monopoly sells the same product in two markets but charges a higher price in market X and a lower price in market Y, the pricing difference indicates that demand is _____.

If a third-degree price-discriminating pure monopoly sells the same product in two markets but charges a higher price in market X and a lower price in market Y, the pricing difference indicates that demand is _____.

Third-degree price discrimination is more common in service industries because _____.

Low price buyers will find it virtually impossiuble to resell the products of such industries to high price buyers

Suppose that TC = $550, TVC = $500, and MC = $100. If the firm produces 10 units of output, then

MC>AVC

A major reason that firms form a cartel is to

Maximize joint profits

Given a downward-sloping linear demand curve, if total revenue decreases as quantity of output increases, marginal revenue must be _____.

Negative and demand is inelastic

If the industry were served by a pure monopoly, the profit-maximizing price and quantity of output would be ____.

P3, Q1

The potential problem with competitive pricing regulation of a natural monopoly is that _____.

P<ATC

A pure monopoly is not allocatively efficient because at the profit-maximizing level of output _____.

P>MC

If a good that generates negative externalities were priced to take these negative externalities into account, its

Price would increase, and its output would decrease

What is the difference between demand and quantity demand?

QD is a number while demand is the whole curve

The local pizza place sells 1 large pizza for $7.99 or 2 large pizzas for $11.99. The pizza joint is engaging in _____.

Second-degree price discrimination

Based on the cost data given, which of the following price-quantity tables correctly represents the firm's short-run supply schedule?

Table 2

According to the law of diminishing marginal returns

The additional product generated by additional units of an input will eventually diminish

Given the graph above, which level of output should the perfectly competitive firm choose?

X3, since any increase in output beyond that point will reduce its profits

Which of the following factors will decrease the current demand for a product?

a decrease in the current price of a substitute good

Refer to the three demand curves for coffee. Which of the following would shift the demand for coffee from D1 to D3?

a decrease in the number of buyers of coffee

The diagram shows three supply curves for apples. Which of the following would cause the supply of apples to shift from S1 to S3?

a decrease number of apple farmers

A decrease in the demand for recreational fishing boats might be caused by

a decrerase in the number of sport fishers

A major distinction between a monopolistically competitive firm and an oligopolistic firm is that

a recognized interpendence exists between firms in one industry but not in the other

Suppose that a more efficient way to produce a good is discovered, thus lowering production costs for the good. This will cause

a rightward shift of the supply curve

Use the figure below to answer the following question. A decrease in supply would best be reflected by

a shift from supply curve A to supply curve C

Use the figure below to answer the following question. The figure above shows three supply curves for wheat. Which of the following would cause the supply of wheat to shift from S1 to S2?

a subsidy for wheat production

Which of the following is an example of a public good?

a weather warning system

Use the following graph for a profit-maximizing pure monopoly to answer the next question. At equilibrium, the firm will be generating _____.

an economic profit

Use the following graph of the demand for pasta to answer the question below. Refer to the three demand curves for pasta and assume that pasta is an inferior good. Which of the following would shift the demand for pasta from D1 to D3?

an increase in consumer incomes

Which of the following will shift the supply curve for USB flash drives to the right?

an increase in the number of sellers

If the marginal cost curve is below the average variable cost curve

both average total cost and average variable cost are decreasing

Two firms are creating apps with their profits in the payoff matrix below: Without collusion, what will each firm decide to sell their app for?

both firms will sell the app for $1.99

Pepsi Co. and Coca Cola decide to merge. Which of the following antitrust acts are being violated?

clayton act

Refer to the above table. If the price of a hamburger falls from $5 to $4, then the weekly market quantity of hamburgers supplied will

decrease from 17 to 13

The table below shows the weekly supply for hamburgers in a market where there are just three sellers. If the price of a hamburger decreases from $3 to $2, then the weekly market quantity of hamburgers supplied will

decrease from 9 to 5

If X is a normal good, an increase in income will shift the

demand curve for X to the right

it is a "given" that an individual firm selling in a perfectly competitive market will take the market price because

each producer supplies a negligible fraction of total market

In a perfectly competitive industry

economic profits may exist in the short run but not in the long run

Suppose that two roommates share a bathroom. Jeff, your roommate, makes a mess with toothpaste in the sink. This bothers the other roommate, Justin. According to the Coase Theorem, one necessary condition to alleviate the externality of toothpaste in the sink is that

either jeff or justin own the house (and therefore the bathroom)

Use the figure below to answer the following question. The diagram shows three supply curves for apples today. Which of the following would cause the current supply of apples to shift from S1 to S3?

expectations of higher apple prices in the future

Use the following graph for a pure monopoly operating in the short run to answer the next question. At the profit-maximizing level of output, this firm ___.

generate a loss per unit equal to DE

Assume that the current market demand and supply curves for Z are D1 and S1. If there are substantial external consumption benefits associated with the production of Z, then

government can improve the allocation of resources by subsidizing consumers of Z

If the MB of polluting increased, then what would happen to the optimal level of pollution?

increase

The table below shows the weekly demand for hamburgers in a market where there are just three buyers. Refer to the table. If the price of a hamburger decreases from $6 to $5, then the weekly market quantity demanded will

increase from 17 to 24

The table below shows the weekly supply for hamburgers in a market where there are just three sellers. If the price of a hamburger increases from $3 to $5, then the weekly market quantity of hamburgers supplied will

increase from 9 to 17

in monopolistic competition, which of the following would make an individual firm's demand curve less elastic?

increased brand loyalty towards the firms product

if the price of Sea World tickets increased what might we expect to see happen to tickets for Disneyland?

increased demand for disneyland tickets

Hot dogs and hamburgers might be considered_____goods compared to steak.

inferior

The demand curve faced by a monopolistically competitive firm

is more elastic than the monopolists demand curve

An industry in which the firm's cost structures do not vary with changes in production will have a long-run supply curve that

is perfectly elastic

The demand curve faced by a perfectly competitive firm

is the same as its marginal revenue curve

A perfectly competitive firm should continue to operate even at a loss in the short run if

it can cover its variable costs of production

Purchasing blueberries at a store that are $2.50 per carton or 2/$5 is an example of what type of price discrimination?

it is not price discrimination

A perfectly competitive firm's output is currently such that its marginal revenue is $5 and marginal cost is $4. Assuming profit maximization, the firm should

leave price unchanged and increase output

All else held constant, if the government places a tax on each gallon of gasoline produced, then this would cause a

leftward shift in the current supply of gasoline

It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river. As a result, operators of hydroelectric power-generating plants downstream along the river find that they must clean up the river's water before it flows through their equipment. Based on the preceding information, which of the following policies would be most appropriate for dealing with this problem?

levy a tax on the producers of paper products and use the tax revenue to clean up the river

In a market, buyers want to pay the _____ possible price and sellers want to charge the _____ possible price.

lowest, highest

he Coase Theorem works because the negotiation

makes both parties better off

At long-run equilibrium in monopolistic competition, there is

neither allocative nor productive efficiency

Suppose Asarta Inc. is polluting yucko and they have been tasked with cleaning up some of their waste. The company decides to clean up Q tons of yucko—are they cleaning up enough?

no, because MB>MC

Suppose that this pure monopoly is subjected to a regulatory commission. If the commission seeks to achieve the most efficient allocation of resources for this industry, it should set the price at _____.

p2

If the government regulated the pure monopoly and made it produce the level of output that would achieve allocative efficiency, what price and quantity of output levels would we observe in the short run?

p2 and Q3

Suppose an increase in market demand occurs in a constant-cost industry. As a result

perfectly competitive firms will eventually enter the industry

A decrease in supply would best be reflected by a change from

point 2 to point 1

Refer to the three demand curves. A "decrease in quantity demanded" caused by a change in price would be illustrated by a change from

point 2 to point 5

Use the figure below to answer the following question. An increase in price, all else held constant, would cause a change from

point 3 to point 4

In the past few years, the quantity of donuts demanded has increased due to changes in the prices of donuts. This would be illustrated by a change from

point 5 to 2

It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river. As a result, operators of hydroelectric power-generating plants downstream along the river find that they must clean up the river's water before it flows through their equipment. If the government intervenes and corrects the externality in the situation described above, we would expect

production in paper mills to decrease

The goal of antitrust acts is to

protect consumers

What do interventions like hunting or fishing licenses do to the market for deer or fish?

provide clear property rights to reduce overconsumption

Farmers selling some of their soybeans in storage because they anticipate a lower price of soybeans in the near future would cause a

rightward shift in the current supply of soybeans

An improvement in production technology will

shift the supply curve to the right

T-Shirt Enterprises is operating in a perfectly competitive market. It is producing 3,000 t-shirts and selling them for $10 each. At this level of output, the average total cost is $10.50 and the average variable cost is $10.20. Based on these data, the firm should

shut down in the short run

Game theory, which is used in studying oligopoly behavior, originated from the study of games such as the following, except

solitaire

Assume that the market for corn is perfectly competitive. Currently, firms growing corn are generating losses. In the long run, we can expect

some firms to exit, causing the market price of corn to increase

When economists say that the supply for a product has increased, they mean that the

supply curve has shifted to the right

Assume that the number of people affected by these external costs is large. If the government wishes to establish an optimal allocation of resources in this market, it should

tax producers so that the market supply curve shits leftward

The result that, under certain conditions, government intervention is unnecessary to fix a negative externality because it can be eliminated through bargaining between the affected people is called

the coaste theorem

The income and substitution effects are part of the reason why

the demand curve is downward sloping

Use the following graphs for a perfectly competitive market in the short run to answer the next question. Which of the following statements is true?

the firm is generating a loss

If a perfectly competitive firm is facing a situation where the price of its product is lower than the average total cost, which of the following statements is true?

the firm is generating a loss, and if things are not expected to improve the firms will leave the industry

When the free-rider problem occurs in a market for a good, what is true of the quantity of the good supplied relative to the efficient quantity of the good?

the good is typically undersupplied in a market where the free rider problem occurs

Which of the following statements is correct?

the marginal cost curve intersects the average variable cost curve at its lowest point

Which of the following best approximates a pure monopoly?

the only bank in a small town

Which one of the following would not affect the position of the supply curve for cranberries?

the popularity of cranberry drinks

Why do private companies rarely provide public goods?

there is no way to force people to pay for the public good which increases free rider

If there are positive externalities from the consumption of product X, then the socially optimal demand curve would be

to the right of line D on the graph

In order to derive a market demand curve from individuals' demand curves, we add up the

various individuals quantities demanded at each price

In understanding and analyzing "demand," we focus on how much of a product the buyers are

willing and able to buy at different prices