Micro Exam 3

Refer to Table 13-2. At which number of workers does diminishing marginal product begin?

2

The De Beers Diamond company is not worried about differentiating its product from all other gemstones.

False

Two CEOs from different firms in the same market collude to fix the price in the market. This action violates the

Sherman Antitrust Act of 1890.

The fundamental cause of monopolies is barriers to entry.

TRue

The market for wheat is most likely considered a monopolistically competitive market.

False

The relationship between advertising and product differentiation is

positive; the more differentiated the product, the more a firm is likely to spend on advertising.

Refer to Figure 16-5. The firm's maximum profit is

$0.

Refer to Table 13-9. The average variable cost of producing 240 units is

$0.19.

Assume a firm in a competitive industry is producing 800 units of output, and it sells each unit for $6. Its average total cost is $4. Its profit is

$1,600.

In a competitive market the price is $8. A typical firm in the market has ATC = $6, AVC = $5, and MC = $8. How much economic profit is the firm earning in the short run?

$2 per unit

Scenario 15-1 A monopoly firm maximizes its profit by producing Q = 500 units of output. At that level of output, its marginal revenue is $40, its average revenue is $80, and its average total cost is $44. Refer to Scenario 15-1. At Q = 500, the firm's total revenue is

$40,000.

Refer to Table 15-3. If the monopolist can engage in perfect price discrimination, what is the total revenue when 3 ties are sold?

$450

Refer to Scenario 17-1. How much additional profit can the restaurant earn by switching to the use of a tying strategy to price salads and steaks rather than pricing these goods separately?

$6

Kate is a florist. Kate can arrange 20 bouquets per day. She is considering hiring her husband William to work for her. William can arrange 18 bouquets per day. What would be the total daily output of Kate's firm if she hired her husband?

38 bouquets

Refer to Table 17-2. Assume there are two profit-maximizing internet radio providers operating in this market. Further assume that they are not able to collude on the price and quantity of subscriptions to sell. How many subscriptions will be sold altogether when this market reaches a Nash equilibrium?

4,000

Which of the following is not an example of a barrier to entry?

An entrepreneur opens a popular new hair salon.

Refer to Table 14-1. Over which range of output is average revenue equal to price?

Average revenue is equal to price over the entire range of output.

Refer to Table 17-5. If there are exactly five sellers of gasoline in Driveaway and if they collude, then which of the following outcomes is most likely?

Each seller will sell 30 gallons, charge a price of $5, and earn a profit of $90.

A firm in a monopolistically competitive market can earn both short-run and long-run profits.

False

Refer to Figure 16-8. Assume a monopolistically competitive firm is currently producing the profit-maximizing level of output. Which of the following represents the excess capacity of this firm?

LM

Refer to Figure 15-1. The shape of the average total cost curve reveals information about the nature of the barrier to entry that might exist in a monopoly market. Which of the following monopoly types best coincides with the figure?

Natural monopoly

Which of the following governmental actions would eliminate some or all of the inefficiency that results from monopoly pricing?

Policymakers can regulate prices that the monopoly charges.

A dominant strategy is a strategy that is best for a player in a game regardless of the strategies chosen by the other players.

True

A firm operating in a perfectly competitive industry will shut down in the short run but earn losses if the market price is less than that firm's average variable cost.

True

Average variable cost is equal to total variable cost divided by quantity of output.

True

For a firm operating in a perfectly competitive industry, marginal revenue and average revenue are equal.

True

If a firm produces nothing, it still incurs its fixed costs.

True

Suppose that Ngoc and Zima are duopolists. Ngoc is producing 480 units of output, and Zima is producing 890 units of output. When Zima produces 890 units, Ngoc maximizes profit by producing 480 units. When Ngoc produces 480 units of output, Zima maximizes profit by producing 890 units. Ngoc and Zima are

at a Nash equilibrium.

If a firm in a competitive market doubles its number of units sold, total revenue for the firm will

double.

In the short run, a firm that produces and sells house paint can adjust

how many workers to hire.

Selling the same good at different prices to different customers is known as

price discrimination.

Bubba is a shrimp fisherman who could earn $5,000 as a fishing tour guide. Instead, he is a full-time shrimp fisherman. In calculating the economic profit of his shrimp business, the $5,000 that Bubba gave up is counted as part of the shrimp business's

implicit costs.

Winona's Fudge Shoppe is maximizing profits by producing 1,000 pounds of fudge per day. If Winona's fixed costs unexpectedly increase and the market price remains constant, then the short run profit-maximizing level of output

is still 1,000 pounds.

A firm cannot price discriminate if

it operates in a competitive market.

If marginal cost is rising,

marginal product must be falling.

The two types of imperfectly competitive markets are

monopolistic competition and oligopoly.

When an industry has many firms, the industry is

monopolistically competitive if the firms sell differentiated products, but it is perfectly competitive if the firms sell identical products.

Refer to Figure 14-1. If the market price falls below $3, the firm will earn

negative economic profits in the short run and shut down.

If there is an increase in market demand in a perfectly competitive market, then in the short run

profits will rise.

Defenders of advertising argue that in some markets advertising may

provide information to customers about products, including prices and seller locations.

Refer to Figure 17-1. Suppose this market is served by two firms who each face the marginal cost curve shown in the diagram. The marginal revenue curve that a monopolist would face in this market is also shown. If the firms are able to collude successfully,

the total output will be 2 units and the price will be $8.00 per unit.

When some resources used in production are only available in limited quantities, it is likely that the long-run supply curve in a competitive market is

upward sloping.

A monopolist produces where P = MC = MR.

False

In a prisoner's dilemma, only one firm has a dominant strategy.

False

In a long-run equilibrium, both perfectly competitive markets and monopolistically competitive markets have price equal to average total cost.

True

In a long-run equilibrium,

neither a competitive firm nor a monopolistically competitive firm charges a markup over marginal cost.

If a pharmaceutical company discovers a new drug and successfully patents it, patent law gives the firm

sole ownership of the right to sell the drug for a limited number of years.

A government-created monopoly arises when

the government gives a firm the exclusive right to sell some good or service.

One problem with government operation of monopolies is that

the government typically has little incentive to reduce costs.

Farmer McDonald sells wheat to a broker in Kansas City, Missouri. Because the market for wheat is generally considered to be competitive, Mr. McDonald maximizes his profit by choosing

the quantity at which market price is equal to Mr. McDonald's marginal cost of production.

A monopolistically competitive firm chooses

the quantity of output to produce, but the price of its output is determined by demand.

Table 17-4Only two firms, ABC and MNO, sell a particular product. The following table shows the demand curve for their product. Each firm has the same constant marginal cost of $4 and zero fixed cost. ​​ Refer to Table 17-4. ABC and MNO agree to maximize joint profits. However, while ABC produces the agreed-upon amount, MNO breaks the agreement and produces 5 more than agreed. How much profit does MNO make?

$70.00

Bev is opening her own court-reporting business. She financed the business by withdrawing money from her personal savings account. When she closed the account, the bank representative mentioned that she would have earned $300 in interest next year. If Bev hadn't opened her own business, she would have earned a salary of $25,000. In her first year, Bev's revenues were $30,000, and she spent $1,000 on materials and supplies. Which of the following statements is correct?

Bev's economic profit is $3,700.

A profit-maximizing firm in a competitive market will earn zero accounting profits in the long run.

False

As the number of firms in a cartel increases, the easier it is to enforce the cartel agreement.

False

In a prisoner's dilemma situation where firms are setting prices, the dominant strategy is always to charge the price that leads to maximum profits for all firms.

False

In the short run, if a firm produces nothing, total costs are zero.

False

One characteristic of a monopoly market is that the product is virtually identical to products produced by competing firms.

False

Suppose a firm is considering producing zero units of output. We call this exiting an industry in the short run and shutting down in the long run.

False

Variable costs equal fixed costs when nothing is produced.

False

​A Nash Equilibrium always results in the highest total profit for the firms in an oligopoly market.

False

​Firms operating in a perfectly competitive market have an incentive to advertise their products since this will increase the demand for their products.

False

​In the long run, a monopolistically competitive firm produces at efficient scale.

False

Refer to Table 13-12. Which firm's long-run marginal cost decreases as output increases?

Firm 1

Refer to Table 13-12. Which firm has constant returns to scale over the entire range of output?

Firm 3

Refer to Scenario 16-1. Which of the following statements best describes the long-run adjustment in this market?

One or more new ice cream shops in Fairfield opens and competes with Hassan for customers, reducing the demand for Hassan's ice cream. Hassan's profits decline until he earns zero profit.

Policymakers have generally come to accept the view that advertising enhances the efficiency of markets.

True

Refer to Table 13-13. Firm A is experiencing economies of scale.

True

Suppose a profit-maximizing monopolist faces a constant marginal cost of $20, produces an output level of 100 units, and charges a price of $50. The socially efficient level of output is 200 units. Assume that the demand curve and marginal revenue curve are the typical downward-sloping straight lines. The monopoly deadweight loss equals $1,500.

True

Assume that Samorola has entered into an enforceable resale price maintenance agreement with Trint and U-Mobile. Which of the following will always be true?

U-Mobile and Trint will always sell Samorolas for exactly the same price.

Scenario 14-2 The information below applies to a competitive firm that sells its output for $45 per unit. • When the firm produces and sells 100 units of output, its average total cost is $24.5. • When the firm produces and sells 101 units of output, its average total cost is $24.65. Refer to Scenario 14-2. Suppose the firm is currently producing and selling 100 units of output. Should the firm increase its output to101units?

Yes, because the marginal revenue exceeds the marginal cost

Table 17-7 Two companies, Wonka and Gekko, each decide whether to produce a good quality product or a poor quality product. In the figure, the dollar amounts are payoffs and they represent annual profits (in millions of dollars) for the two companies. Refer to Table 17-7. Wonka and Gekko agree to cooperate so as to maximize total profit. If this game is played repeatedly and Wonka uses a tit-for-tat strategy, it will choose a

poor quality product in the first round and in subsequent rounds it will choose whatever Gekko chose in the previous round.

Consider a market served by a monopolist, Firm A. A new firm, Firm B, enters the market and, as a result, Firm A lowers its price to try to drive Firm B out of the market. This practice is known as

predatory pricing.

A law that restricts the ability of hotels/motels to advertise on billboards outside of a resort community would likely lead to

reduced efficiency of local lodging markets.