Economics Final Review
Which of the following statements for a monopolistic competitor in long-run equilibrium is true?
(P = ATC) > (MC = MR).
Which of the following characteristics does perfect competition have in common with monopolistic competition?
HE SAYS NO BARRIERS TO ENTRY BUT THAT'S BS SO DO WITH THAT WHAT YOU WILL
Suppose that when producing 10 units of output, a firm`s AVC is $22, AFC is $5, and MC is $30. Then:
TC = $270
A cake producer moves from a small oven to a bigger oven. As a result of this s/he can expect:
economies of scale
If a 5% increase in price leads to an 8% decrease in quantity demanded, demand is
elastic
The price elasticity of demand of a straight-line demand curve is:
elastic in high-price ranges and inelastic on low-price ranges.
If market supply increases:
equilibrium price will fall causing a movement along the demand curve.
A monopolistically competitive firm's profit-maximizing price will:
exceed the marginal cost of production.
The firm is producing an output of 24 and has total costs of 260. Its marginal cost:
not enough information.
In a perfectly competitive market the demand curve faced by an individual firm is:
perfectly elastic
The area of a triangle is (1/2)x(base)x(height). If Supply is perfectly inelastic at Q = 4 and Qd (Qty demanded) = 11 - P, then in equilibrium:
Producer surplus is 28
If the demand for a good is very price elastic, the imposition of a tax on that good
places the largest portion of the burden on the sellers of that product
We would expect the cross elasticity of demand between Pepsi and Coke to be:
positive, indicating substitute goods.
If a monopolist must lower the price on all units in order to sell an additional unit,
price will always be greater than marginal revenue
Along a budget line:
prices and income are assumed constant (utility varies)
As a consumer moves along a budget constraint:
prices and income are held constant, but total utility likely changes.
A profit-maximizing firm in a perfectly competitive market that is facing a price of $10 decides to produce 100 widgets. This results in an economic profit of $80. If the marginal cost of producing the 100th widget was $12 then this firm should:
produce less than 100
A change in the price of a good leads to a change in ________, which leads to a ___________
quantity supplied; movement along the supply curve
If demand is perfectly inelastic and supply is upward sloping, then a $1 tax per unit placed on producers will:
raise the price for consumers by $1
The demands for such products as salt and electricity tend to be:
relatively price inelastic.
If the production possibilities frontier is a straight line,
resources must be equally adaptable at producing either product
A price ceiling above the equilibrium price will
result in anyone willing and able to buy the good to be able to buy it with no surplus
If the quantity demanded at a price of $10 is 2000 and the quantity demanded at a price of $8 is 2400, then a price-discriminating monopolist would earn higher profit by:
selling 2000 units for $10 each, then selling an additional 400 units for $8 each.
The most likely explanation for discounts given by many stores to senior citizens is that:
senior citizens have more elastic demands compared to other shoppers.
If the supply curve for apple juice decreases, we should expect the demand curve for orange juice:
shift to the right.
In the short run, an increasing marginal product of labor is generally the result of
specialization
Consider the following points that all lie on a production possibility curve. Point A: 10 eggs and 0 rye Point B: 8 eggs and 10 rye Point C: 6 eggs and 20 rye Point D: 4 eggs and 30 rye Point E: 2 eggs and 40 rye Point F: 0 eggs and 50 rye This production possibility table could be graphed as a:
straight line with negative slope.
The construction of a production possibilities curve assumes:
technology is fixed.
In perfect competition, if one firm raises its price,
that firm will lose all revenues because other firms will not follow
since 1990 (Soviet Union)
the Soviet command socialist economic structure has fallen apart
In economics, "investment" technically refers to
the creation of capital
Honey and Jam are substitutes. If the cost of raising honeybees increases:
the demand for jam will increase.
Other things equal, which of the following might shift the demand curve for gasoline to the left?
the development of a low-cost electric automobile
Which of the following is not a condition required for a monopolist to price discriminate?
the firm must exhibit strong economies of scale
The more elastic the supply and the demand curves are:
the greater shortage an effective price ceiling will create.
Who bears the primary costs of a rent control program?
the landlords
The greater the price elasticity of supply and demand
the more effective a tax will be at reducing the equilibrium quantity
Which of the following generalizations is correct?
the more elastic the supply of a product the larger the portion of an excise tax will be paid for by the consumer
Which of the following is not held constant as you move along a demand curve?
the price of that good.
When an effective price ceiling is removed we would expect:
the price of the good to increase and the quantity demanded to decrease
If you buy a sweater for $50 and think, "That was a GREAT deal" then we could say
there was a lot of consumer surplus but we don't know about producer surplus
The MR = MC rule applies:
to firms in all types of industries.
A purely competitive firm should produce in the short run if its total revenue is sufficient to cover its:
total variable costs.
If a nondiscriminating monopolist is operating at an output level where price equals average total cost, we can conclude that economic profit is
$0
Suppose that a firm incurs an average cost of $97 when it produces 10 units and an average cost of $100 when it produces 11 units. It can be concluded that the marginal cost of the 11th unit is:
$130
Suppose that a business owns the land on which it factory sits and thus pays no one rent. The rental market value of the land is $200,000 per year. It pays $800,000 per year for labor and inputs and also pays $200,000 per year for insurance. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were:
$200,000 and its economic profits were zero.
Suppose you have purchased a non-refundable plane ticket and, at the last moment, you cannot take the trip. You can, however, sell the ticket. You paid $700 for the ticket. The cost you to send the ticket to someone through overnight mail is $20 and it would take an hour of your time to take it to the post office. You value your time at $10 per hour. What sale price reflects the point of indifference for you? (that is, you may do it... but you would not gain or lose relative to your current position)
$30 because the $700 is a sunk cost
Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and average variable costs of $150. The firm's total fixed costs are:
$5000
A young chef is considering opening his own sushi bar. To do so, he would have to quit his current job, which pays $20,000 a year, and take over a store building that he owns and currently rents to his brother for $6,000 a year. His expenses at the sushi bar would be $50,000 for food and $2,000 for gas and electricity. What are his explicit costs?
$52,000
Suppose a monopolist sells its good to three people. Each person can only purchase one good. The first person is willing to pay $20 for the good, the second person is willing to pay $18, and the third is willing to pay $16. These three people make up the entire market for this monopolist. If the firm can perfectly price discriminate, how much revenue can it earn from selling 3 units?
$54
The slope of a budget constraint with combinations of cookies which cost $1 a cookie and milk which costs .50 a carton with cookies on the y-axis and milk on the x-axis is:
-1/2.
Assume a 3% increase in income produces a 1% decline in demand. Income elasticity of demand:
-1/3 so the good is inferior
If a monopolist increases output from 19 to 20 by lowering price from $10 to $9, the marginal revenue of the 20th unit is:
-10 because you take the individual change x the number of units
If the price of Pepsi-Cola increases from 40 cents to 50 cents per can and the quantity demanded decreases from 100 cans to 50 cans, then, according to the midpoint formula, the value of price elasticity of demand for Pepsi-Cola is
-3
Measuring the price in dollars per quart, an economist calculates the price elasticity of demand to be 1. What would the price elasticity of demand be if the economist had chosen to measure the price in dollars per gallon?
1
The Herfindahl index for a pure monopolist is:
10,000
Joe produces basketballs such that total fixed cost are $500, average variable costs are $20 and average total costs are $25. Joe is currently producing:
100 basketballs
Assume the demand for sushi is Qd = 180 - 3P, where Qd is quantity demanded and P = price in dollars. The supply of sushi is Qs = 80 + 5P, where Qs is quantity supplied (and P is, again, price in dollars). What would the equilibrium quantity be?
142.5
Refer to the data below. If the market price is $6, how many units would a profit-maximizing firm produce? Total cost of 1 unit = $3 Total cost of 2 units = $6 Total cost of 3 unit = $11 Total cost of 4 unit = $18
3
If there are only three firms in an industry with 50 percent, 40 percent, and 10 percent of the market, respectively, the Herfindahl Index is
4200
If government regulators want a natural monopolist to earn zero economic profits, then they will set price equal to:
ATC
New York City has experienced a housing shortage for a long time. Apartments are difficult to come by. The likely cause of this is:
An effective price ceiling on rent
Students that check out books at the school library tend to get better grades, thus we can conclude that:
Checking out books at the library may or may not lead to higher grades - we can not say.
Which of the following best explains the ability of dentists to engage in price discrimination?
It is difficult to resell their services.
The reason stores do not charge vegetarians a higher price for vegetables than they charge non-vegetarians is because:
It is hard to differentiate between different customers
What is true of marginal cost when the marginal product of labor is increasing?
It is positive and decreasing.
Suppose there is an improvement in production of TVs. If the TV industry is initially in a perfectly competitive equilibrium then the improvement will result in:
Lower prices and greater production of TVs
Which of the following is true of the relationship between price and marginal cost under monopolistic competition?
P > MC at the profit-maximizing quantity
What is true at the profit-maximizing quantity for a perfectly competitive firm but not for a nondiscriminating monopoly?
Price equals marginal cost.
In 1990 the UN places trade sanctions on Iraqi oil. In 1996 Iraq is allowed limited exports of oil to make war reparations payments. What is the likely effect of the two events on equilibrium price and quantity of oil?
Price rises initially then falls partially back toward the initial price, quantity falls then rises partially back toward the initial quantity.
One of the problems with rent control is that:
The costs and benefits are not transparent.
US agricultural price supports are politically popular because
The costs are spread out among millions of people
Suppose there are three consumers in the market for yo-yos: Don, John, and Ron. At a price of $5 per yo-yo, the quantities demanded by each are 3, 2, and 1, respectively. At a price of $3 per yo-yo, the quantities demanded by each are 4, 5, and 3, respectively. Which of the following is true if the price drops from $5 to $3?
The price drop causes the quantity demanded in this market to increase by 6.
Which of the following could be true of perfect competition but not of monopoly?
There are no barriers to entry. This was his answer, but it's false because perfect competition has FEW barriers to entry
Suppose that a monopolistically competitive firm is in long-run equilibrium. The demand curve the firm faces is tangent to the ATC curve at Q = 25. ATC is minimized at Q = 35, where average cost is $50. Which of the following is true?
This firm maximizes profit at an output level of 25 units. because demand curve is tangent to ATC
Which of the following is an example of a normative statement?
Unemployment is our worst current economic problem
Which of the following is true of marginal product?
When marginal product is increasing, total product is increasing by increasing amounts.
Assume that you divide your food budget between fish and chicken. Which of the following would not alter the position of a budget line drawn with fish on the horizontal axis and chicken on the vertical axis?
a change in your preference for fish
To the extent an industry is contestable...
a larger Herfindahl-Hirschman Index is less damaging to consumer interests
An explicit cost is:
a money payment made for resources not owned by the firm itself.
A monopoly firm is different from a competitive firm in that:
a monopolist can influence market price while a competitive firm cannot
An increase in the price of butter, a substitute for margerine, would be most likely to cause
a rightward shift of demand for margarine
In economics, the term "marginal" usually refers to
a small change in an economic variable
A firm in a perfectly competitive short-run equilibrium
accepts the market price for its product
Which of the following is inconsistent with the model of perfect competition?
advertising of product differences in the industry
The basic purpose of the "other things equal" assumption is to:
allow one to reason about the relationship between variables X and Y without the intrusion of variable Z.
Using the indifference curve model, a demand for X curve is derived by:
allowing the price of X to change and holding the price of Y and income constant.
The main determinant of elasticity of supply is the:
amount of time the producer has to adjust inputs in response to a price change.
A new hormone will increase the amount of milk each cow produces. If this hormone is adopted by many dairies, what will be the effect on the milk market?
an increase in supply, lower equilibrium price, and higher equilibrium quantity
The market for bubble gum is competitive with a current price of 50 cents and quantity of 100,000 units. Which of the following events would lead to a new equilibrium price of 60 cents and quantity of 90,000 units?
an increase in the price of the ingredients used to make bubble gum
Economists would describe the U.S. automobile industry as:
an oligopoly
Kuo S. Huang estimates that with every 20% increase in income, the quantity of grapes purchased rises by 11.2%. From this information one would conclude that grapes:
are a normal good.
Your instructor argues that losses in a capitalist system
are an important feedback mechanism
Economic profits in a competitive industry are signals that
attract new firms into the industry
Marginal product rises faster than ----------- and also falls faster than --------------
average product average product.
The average cost of producing electronic calculators in a factory is $20 at the current output level of 100 units per week. If fixed cost is $1000 per week. What's AVC?
average variable cost is $10.
Government price fixing for basic consumer goods in the Soviet Union established prices: Correct!
below the equilibrium level.
A consumer maximizes utility where the
budget line is tangent to an indifference curve
The price elasticity of demand coefficient indicates:
buyer responsiveness to price changes
Game theory can be used to demonstrate that oligopolists:
can increase their profits through collusion
If an economy is operating inside its production possibilities curve for consumer goods and capital goods, it:
can produce more of both consumer goods and capital goods by using its resources more efficiently.
Suppose that at 500 units of output marginal revenue is equal to marginal cost. The firm is selling its output at $5 per unit and average total cost at 500 units of output is $6. On the basis of this information we:
cannot determine whether the firm should produce or shut down in the short run.
Ski lift tickets (tickets to go skiing/snowboarding) and snowboards are:
complementary goods.
A shift to the right in the demand curve for product A can be most reasonably explained by saying that:
consumer preferences have changed in favor of A so that they now want to buy more at each possible price.
Suppose a monopolist is at the profit-maximizing output level. If the monopolist sells another unit of output then:
consumer surplus rises
The demand for a product is inelastic with respect to price if:
consumers are largely unresponsive to a per unit price change.
If a firm finds that it can earn $13,000 in revenues when price is $5 per unit and $11,000 in revenues when price is $6, then:
demand is elastic in that price range
A government-imposed price floor above the market price of milk would increase consumers' expenditures on milk only if
demand is inelastic
Aiyanna`s pizzeria faces a linear downward sloping demand curve and is charging a very high price per pizza initially. They are doing very little business. Aiyanna decides to lower pizza prices 5% per week for an indefinite period of time. We can expect each successive week that:
demand will become increasingly price inelastic
That successive increases in a variable factor of production added to a fixed factor of production lead to smaller and smaller increases in output is known as:
diminishing marginal productivity
Someone once said that Chevrolet is so large that if it shakes its tail, its takes two years for its head to notice it. This is an example of
diseconomies of scale
If the price elasticity of demand is -1.5 we:
do not know if the good is inferior or normal.
The market demand curve in a perfectly competitive industry is:
downward sloping
Firms in monopolistic competition and perfect competition typically
earn zero economic profit in the long run
As compared to a normal monopolist, a price discriminating monopolist:
earns higher profit
The DeBeers Company exercises monopoly power in the distribution of diamonds. If the company earns economic profits, the price of diamonds per carat will:
exceed the price that would be charged in the long-run under competitive conditions.
Economic profits are calculated by subtracting:
explicit and implicit costs from total revenue.
An oligopoly is characterized by
few firms, which have control over market price
Collusion occurs when
firms get together to maximize joint profits
Assume that an industry is perfectly competitive. In this industry we are likely to find
firms that do not advertise
Straight-line demand curves are elastic in the upper-left portion because the original price:
from which the percentage price change is calculated is relatively large and the original quantity from which the percentage change in quantity is calculated is relatively small.
Patents do what?
generate monopoly profits. increase research and development. raise market price above its competitive level.
Accounting profits are typically:
greater than economic profits because the former do not take implicit costs into account.
The production possibilities curve illustrates the basic principle that:
if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced.
A situation in which the dominant firm in an industry sets a price that is used by the other firms in the industry is called:
implicit collusion
Natural resources are
included in the category of resources called land
Do you like Mexican food? You can use either corn or flour tortillas when making burritos and tacos. I like them both.. Consider the US market for corn tortillas. How do the demand (D) and supply (S) curves shift and what is the net short-run impact on equilibrium price (P) and quantity (Q) resulting from the following event(s): Large increase in the number of people immigrating from Mexico to the United States.
increase D, increase P, and increase Q
Susan's price elasticity of restaurant meals is 2.27. If the price of a restaurant meal falls by 2% then the quantity of restaurant meals Susan demands will:
increase by 4.54%
For an economy to produce at a point beyond its production possibilities curve, the economy can
increase its economic resources (over time)
If both demand and supply increase, price will
increase only if demand increases more than supply does
Other things equal, an excise tax on a product will typically:
increase price by less than the amount of the tax.
If the marginal revenue of the last widget the firm produces is $50 and its marginal cost is $35, a firm should:
increase production
If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will:
increase the quantity demanded by about 25 percent.
Gigantic State University raises tuition for the purpose of increasing revenue. This will work as long as demand for education at GSU is:
inelastic
During the first Gulf War many of Kuwait's oil refineries were destroyed. This would best be represented by a
inward shift of the the production possibilities curve
A perfectly competitive firm's marginal revenue:
is constant
The price of product X is reduced from $100 to $90 and, as a result, the quantity demanded increases from 50 to 60 units. Therefore demand for X in this price range:
is elastic.
The men's suit business is monopolistically competitive. It follows that in equilibrium the marginal revenue of any firm in the industry:
is less than the price.
The demand curve a monopolist faces
is the market demand curve
Economists tend to assume firms will try to maximize profits by polluting and paying low wages because:
it is better to acknowledge self-interest than to assume it away
Once a firm hits the point of diminishing marginal product of labor
it might want to hire more labor
If a purely competitive firm shuts down in the short run:
it will realize a loss equal to its total fixed costs.
Economic resources refers to
land, labor and physical capital
A natural monopoly, such as your local water company, is characterized by
large economies of scale
Suppose a family-owned yogurt shop has $80,000 in total revenues but pays $36,000 in rent and $20,000 in additional explicit operating costs. The husband and wife work in the shop and pay no wages to themselves. The economic profits from the shop are:
less than $24,000
Sometimes firms choose to form a cartel when they produce. The purpose of a cartel is to:
limit output
What's the LRATC and what does it assumer
long run average total cost assumes all inputs are variable
If zinc suppliers are successful in forming an international zinc cartel, they will experience
lower output, higher prices, and the need to organize an effort to prevent the entry of new firms into the industry
Monopolistic competition is best described as
many firms with some control over price, and some product differentiation
Which of the following best explains why marginal cost eventually increases as output increases?
marginal product decreases
The total output of a firm will be at a maximum where:
marginal product of labor is zero
The slope of the total revenue curve for a perfectly competitive firm equals
marginal revenue, which is equal to price
If money income increases and the prices of products A and B both increase, then the budget line:
may shift either to the right or the left.
Money is not an economic resource because:
money, itself, is not productive.
An industry comprised of 40 firms, none of which has more than 3 percent of the total market for a differentiated product is an example of:
monopolistic competition
A leftward shift in the supply curve of product X will increase equilibrium price to a greater extent the:
more inelastic the demand for the product.
If a consumer is initially in equilibrium, an increase in money income will:
move him to a new equilibrium on a higher indifference curve.
Assume an economy is operating at some point on its production possibilities curve, which shows civilian and military goods. If the output of military goods is increased, the output of civilian goods:
must be decreased.
It is more efficient for a single mail carrier to deliver mail to every house on a block than for 10 mail carriers to each deliver to a single house. This argument implies that mail delivery is a:
natural monopoly
The price elasticity of demand is
negative if you do not take the absolute value
The price of Y (the quantity of which is plotted on the vertical (y) axis) is initially $15 while the price of X is initially $3. Income is initially $60. If the prices of X and Y then double while income also doubles then the budget line will:
not change
If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue:
will also be $5
If a nondiscriminating imperfectly competitive firm is selling its 100th unit of output for $35, its marginal revenue:
will be less than $35
The incentive problem under communist central planning refers to the idea that:
workers, managers, and entrepreneurs could not personally gain by responding to shortages or surpluses or by introducing new and improved products.
Monopolistically competitive firms earn what economic profits in the long-run
zero
