Econ Quiz Study Guide

You have the following demand equation for a pack of cigarettes: Q = 200 - 0.30P with the average quantity 3 packs and average price $3.00 per pack. What is the price elasticity?

-.3

Because firms produce a differentiated product, each of the firms in a monopolistically competitive market faces a demand curve that is:

downward sloping

Assume that when price is $20, demand is 9 units, and when price is $19, demand is 10 units. Based in this information, we can conclude that over the price range from $19 to $20, demand is price:

elastic

A firm's profits will be greatest when it practices:

first-degree price discrimination

In order for "limit pricing" to be effective, the firm practicing such a strategy must be able to charge a price that is:

greater than the potential entrants' ATC but lower than the firm's own ATC

When the marginal revenue resulting from a decrease in price is negative, demand for the product is:

inelastic

Assume that when price is $20, demand is 9 units, and when price is $19, demand is 10 units. Based on this information, what is the marginal revenue resulting from an increase in output from 9 units to 10 units?

$10

Which of the following would not cause the supply curve for gasoline to shift?

A change in the incomes of drivers

Which of the following approaches to understanding and predicting consumer behavior does not actually solicit any information from potential customers?

Analysis of historical data

All else constant, as more firms substitute alternative materials, e.g., plastic, for copper, the market price of copper would be expected to:

Decrease

Which of the following statements regarding a price taking firm is correct?

Demand = Price = Average Revenue = Marginal Revenue

Assume a perfectly competitive firm is producing 500 unites of output, P=$7, ATC of the 500th unit is $6, marginal cost of the 500th unit = %7, and AVC of the 500th unit = $5. Based on this information, the firm is:

Earning an economic profit of $500

Assume that when the price of good Z is increased from $5 to $6, the total revenue earned increases from $600 to $690. Based on this information, we can conclude that over this range, demand for Z is:

Inelastic

Information on the price elasticity of demand is particularly important to managerial decision making because:

It allows one to predict how total revenue will respond (i.e. increase or decrease) to a change in price

Which of the following statements is true?

It is reasonable to assume that a profit-maximizing firm will never operate in the inelastic portion of its demand curve

Which of the following best describes the basic characteristics of non-cooperative oligopoly models?

Managers make decisions based on the strategy they think their rivals will pursue

Assume a perfectly competitive market firm is producing a level of output at which MR < MC. What will happen as the firm moves to its profit-maximizing equilibrium?

Marginal cost will fall

Walmart's decision in 1994 to continue operating stores in specific cities in Mexico when other firms were pulling out would be best classified as:

Microeconomic

Firms are considered to be price searchers, as opposed to price takers, in all of the following market types except:

Perfect Competition

Which of the following statements is correct?

Point elasticity of demand is measured at each point along a demand curve

Which of the following conditions holds for a monopolist, but not for a perfect competitor, at the profit maximizing level of output?

Price > marginal cost

Which of the following is false?

Price determination is the key in any market system

Assume an auto manufacturer can sell its SUV with out without a trailer towing package. One group of customers, group A, is willing to pay a maximum of $30,000 for the SUV and $1,100 for the towing package. A second group, B, is willing to pay $29,000 for the SUV and $1,000 for the towing package. Assuming the manufacturer cannot price discriminate, to maximize its revenues the manufacturer should

Sell the components separately, conforming with the price demands of group B.

An increase in the number of buyers in the market for LCD TVs would cause the market demand curve for LCD TVs to:

Shift right

Which of the following is true of the typical relationship between marginal product (MP) and average product (AP)?

The MP curve intersects the AP curve at maximum AP

Demand for a good will tend to be more price elastic if it exhibits which of the following characteristics?

The good has many available substitutes

The price elasticity of demand is calculated as:

The percentage change in quantity demanded divided by the percentage change in price

Suppose an oligopoly consists of two firms. Firm A lowers price and Firm B responds by lowering its price by the same amount. If average costs and industry output remain the same, which of the following will occur?

The profits of the two firms will decrease

In which of the following situations would each of the members responsible for producing an equal share of the total amount of output sold by the cartel engaged in joint profit maximization?

When the marginal costs of production are the same for each of the members of the cartel

Assume the supply function for good X can be written as Qs = -100 + 27Px - 5Py - 1.8W, where Px = the price of X, Py = the price of good Y, and W = Wage index for workers in industry X. According to this equation:

X and Y are substitutes

Assume the LRAC curve for a particular industry hits its minimum point at a relatively low level of output and then increases, and the demand for the industry output is quite large. In this case, consideration of the minimum efficient scale of operation suggests that the market should be served by:

a large number of small firms to minimize production costs

The list of major factors that create economies of scale includes all of the following except:

an increase in demand for the firm's output

In its effort to maximize economic profit, a firm characterized as a price setter must determine:

both the price it should charge and the quantity it should produce

Data collection on a sample of individuals with different characteristics at a specific point in time are called

cross section data

Assume an analyst has been hired to estimate the price elasticity of demand for Levi's brand blue jeans and for blue jeans in general. All else equal, we would expect the price elasticity of demand to be:

larger for Levi's brand blue jeans than for blue jeans in general

The amount of output produced with an additional unit of variable input time is referred to as

marginal product

All of the following are characteristics of long-run equilibrium for firms in a monopolistically competitive market except:

price equals marginal cost

The technique that estimates long-run costs and the minimum efficient scale by determining the scale of operation at which most firms in an industry are concentrated is called the:

survivor approach

The marginal product of a variable input is calculated as:

the change in total product divided by the variable input

Diminishing marginal returns occur when:

units of variable input are added to a fixed input and the marginal product falls