MICRO FINAL

The profit-maximizing rule MC = MR is followed by firms operating in:

Both monopolistic competition and perfect competition

In the long run, monopolistically competitive firms:

Cannot earn an economic profit

An extreme case of oligopoly in which firms collude to raise joint profits is known as a:

Cartel

If your farm had the only known source of a rare cocoa bean needed to make chocolate-covered peanuts, your monopoly would result from:

Control of a scarce resource or input

The pricing in monopoly prevents some mutually beneficial trades. The value of these unrealized mutually beneficial trades is called:

Deadweight Loss

If the government allowed only one airline to serve the entire U.S. market, there would be a _____ loss associated with _____ output in the airline industry.

Deadweight; Reduced

The idea of diminishing returns to an input in production suggests that, if a local college adds more custodians, the marginal product of labor for the custodial staff will:

Decrease

In a perfectly competitive industry, the market demand curve is usually:

Downward Sloping

If monopolistically competitive firms are earning positive economic profits in the short run, then in the long run:

Economic Profits will be reduced to zero

Suppose that the market for haircuts in a community is a perfectly competitive constant-cost industry and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the long run, firms will _____ the market, driving the price of haircuts _____ and the profits of individual firms _____.

Enter, down; back to zero

In a monopoly in the long run:

Entry by other firms will not occur.

A natural monopoly is one that:

Has increasing returns to scale over the entire relevant range of output.

One government policy for dealing with natural monopoly is to:

Impose a price ceiling to reduce economic profit.

A perfectly competitive firm will maximize profits when the:

Marginal Revenue equals Marginal Cost

Suppose Susan owns a business that operates in a market characterized by monopolistic competition. Susan's profit-maximizing price is $12, her profit-maximizing output is 900 units per week, and her profits are $1,800 per week. Susan decides that she needs more profits and therefore raises her price to $15. At the new price of $15:

Marginal Revenue will be greater than marginal cost

The short-run supply curve for a perfectly competitive firm is its:

Marginal cost curve above its average variable cost curve

Because most communities have a large number of similar but not identical substitutes, the market for chiropractors is BEST considered to be:

Monopolistically Competitive

Television programs are nonrival because:

More than one person can consume the same unit of the good at the same time.

At the current level of output, Becca Furniture's marginal cost curve is above the average total cost curve. This means Becca Furniture's average total cost curve:

Must be rising.

A common resource is a good or service for which exclusion is _____ and that is _____ in consumption.

Not possible; rival

If there are two gas stations in a very small town, then the gas station business there is probably BEST characterized as:

Oligopolistic

The market for soft drinks, which is dominated by Coca Cola and Pepsi, is BEST considered to be an example of:

Oligopoly

A firm that has economies of scale:

Over the entire range of output demanded is a natural monopoly

When innovations by one firm are quickly emulated and improved on by rival firms in the same industry or in other industries, it is:

Technology spillover

You own a deli. Which input of production is MOST likely fixed at your deli?

The Dining Room

Lenoia runs a natural monopoly producing electricity for a small mountain village. The barrier preventing other firms from competing with her is:

The existence of economies of scale

With tradable emissions permits, the price of the permit is determined by:

The supply of and demand for permits

If government officials set an emissions tax too high:

There will be too little pollution

An advantage of tradable emissions permits is that:

They provide incentives for firms to develop technologies that are less polluting

A copper mining operation discharges waste products into a river and causes higher costs and discomfort to downstream users of the water for which they are not compensated. In this case:

Too much of society's resources are being used to produce copper

A market economy will produce _____ without any government regulation.

Too much pollution

Assuming that all other factors of production are held constant, marginal product is the change in _____ output resulting from a one-unit change in _____.

Total; Variable Input

A fixed input is one:

Whose quantity cannot be changed in the short run.

Which good BEST fits the characteristics of a private good?

A pizza

The market for breakfast cereal contains hundreds of similar products, such as Froot Loops, cornflakes, and Rice Krispies, that are considered to be different products by different buyers. This situation violates the perfect competition assumption of:

A standardized product

Many economists believe that there are more efficient ways to deal with pollution than with environmental standards because these standards do NOT :

Allow reductions in pollution to be achieved at minimum costs

Josh has an iPhone, and he frequently downloads songs from iTunes. He pays a small price for each download, but downloading a song does not remove it from the iTunes inventory, which is available for other buyers. The iTunes service is BEST described as a(n):

Artificially Scarce GOod

Louis has invested $1,000 in the stock market. At the end of one year, there is a 30% chance that his stock will be worth only $800 and a 70% chance that it will be worth $1,200. The expected value of his stock at the end of one year is:

$1,080

Austin's total fixed cost is $3,600 a month for making 100,000 cupcakes at his cupcake bakery. Austin employs 20 workers and pays each worker $600 a month. If labor is his only variable cost, what is Austin's total cost per month for making 100,000 cupcakes?

$15,600

The BEST example of a good that is excludable in consumption is:

A bicycle

Barry's Brewpub is considering hiring more brewmasters. The market wage for a brewmaster is $120 per day. The average brewmaster produces 40 pints of beer per day, but Barry expects the next brewmaster to produce only 20 pints per day. Assuming the market for beer is perfectly competitive, Barry's Brewpub will hire another brewmaster only if:

A pint of brew sells for $6 or more

Which example BEST describes tradable emissions permits?

A system of licenses that can be bought and sold and that enable the holder to pollute up to a specified amount during a given period

Bob owns a trout farm with monopoly power in North Carolina. Bob's optimal output occurs where marginal revenue _____ marginal cost. Because of monopoly power, Bob's supply curve _____.

Equals; Does Not Exist

General Snacks is a typical firm in a market characterized by the model of monopolistic competition. Initially, the market is initially in long-run equilibrium, and then there is an increase in the market demand for snacks. We expect that:

In the long run, new firms will enter the market

Which example is considered a public good?

National Defense

Microsoft and its operating system are often cited as an example of a company that grew into a monopolist through:

Network Externalities

If firms are making positive economic profits in the short run, then in the long run:

New firms will enter the industry.

For the Colorado beef industry to be classified as perfectly competitive, ranchers in Colorado must have _____ on prices and beef must be a _____ product.

No noticeable effect; standardized

An individual is MOST likely to be a free rider when a good is:

Nonexcludable

National defense and clean air are similar in that both are _____, but they differ in that clean air is _____, while national defense is not.

Nonexcludable; Rival In Consumption

If an activity generates external costs, the decision makers generating the activity will:

Not be faced with its full costs

The demand curve faced by a single perfectly competitive firm is:

Perfectly Elastic

A(n) _____ is excludable and rival in consumption.

Private Good

If the price is greater than average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:

Produce at a profit.

In the short run, if AVC < P < ATC, a perfectly competitive firm:

Produces output and incurs an economic loss.

Firms in monopolistic competition can acquire some market power by:

Product Differentiation

A(n) _____ is nonexcludable and nonrival in consumption.

Public Good

Which good is MOST likely a common resource?

Public Park

Many customers will walk right past a diner that serves coffee and go to Starbucks, where they pay more for a cup of java. For these customers, coffee is differentiated by:

Quality

Used-car dealers will often advertise how long they have been in business as a means of _____ their long-term _____.

Signaling; Reputation

Micah is considering turning pro before his senior year basketball season. If he turns pro, Micah expects a pro contract worth $2 million in present value. If he does not turn pro, there is a 50% chance an injury will prevent him from playing professionally and a 50% chance he will get a pro contract worth $4 million in present value. What is the expected present value of Micah's pro contract if he stays in college for his senior year?

$2 Million

Amanda recently graduated from college, and she has a job offer with uncertain income: there is a 70% probability that she will make $10,000 and a 30% probability that she will make $70,000. The expected value of Amanda's income is:

$28,000

A monopoly will have a Herfindahl-Hirschman index equal to:

10,000

Which Herfindahl-Hirschman index is MOST likely to indicate a perfectly competitive market?

100

Suppose that when a coal-mining firm hires one, two, three, four, or five workers, the corresponding total outputs are 10, 15, 19, 22, or 24 tons of coal, respectively. The marginal product of the third worker is _____ tons of coal.

4

In the United States in 2015, approximately _____% of total income in the economy took the form of compensation of employees.

70

Many people smoke and continue poor eating habits because they have health insurance. This example illustrates:

Adverse Selection

If a firm hires labor such that W > VMPL, then profit:

Can be increased by hiring more labor

If a good is subject to the free-rider problem and an inefficiently high level of consumption, the good must be a(n):

Common Resource

For nonrival goods like pay-per-view television programs, the private market will lead to _____ from a social perspective.

Consumption of too little of the good

Benny employs people to sell candy bars at intersections. Assume that Benny can obtain candy bars to sell for no cost. The marginal product of the last worker Benny hired is 20 candy bars per hour. Benny pays $7 per worker per hour and sells the candy bars for $1 each. If the price of candy bars rises to $2, then the:

Demand for labor increases

An e-book is similar to a published book in that it is _____, but it is also similar to national defense in that it is _____.

Excludable; Nonrival in consumption

If the market produces an efficient level of a good, then we know that the good must be _____ and _____ in consumption.

Excludable; Rival

Monopolistic competition is different from monopoly because firms:

Face some competition

Which good is MOST likely a public good?

Fire protection from the fire department in a town

A perfectly competitive firm will incur an economic loss but will continue to produce a positive quantity of output in the short run if the price is:

Greater than average variable cost and less than average total cost.

An advantage of employment-based insurance is that it:

Guarantees better care than is provided by government insurance such as Medicare

We would consider a tornado and a CEO scandal that hit a construction company on the same day as _____ events.

Independent

A monopolistically competitive industry is characterized by a _____ number of firms producing _____ products with _____ entry.

Small; Similar; Relatively easy

An example of a social insurance program is:

Social Security payments to the disabled

To calculate the Herfindahl-Hirschman index (HHI), one must _____ market share(s) of _____ in the industry.

Sum the squared; all of the firms

Tradable pollution permits are a:

System of exchangeable license that enable the holder to pollute up to a specified amount during a given period

Which program provides in-kind transfers?

Temporary Assistance for needy families

Which expression BEST describes the value of the marginal product?

The change in total revenue generated by a unit change in the quantity of a factor

All perfectly competitive fast-food firms are hiring the profit-maximizing quantity of labor and are paying their workers $7 per hour. If the government raises the minimum wage to $8 per hour:

The value of the marginal product will be less than the wage, and firms will lay off some workers

Most Americans receive their health insurance through:

Their employer

If, at the current amount of pollution, its marginal social benefit is greater than its marginal social cost:

There is too little pollution

Suppose the labor market for plumbers is in equilibrium. Which occurrence might DECREASE the wage for plumbers?

Unemployed manufacturing workers attend technical schools to learn the plumbing trade

The marginal utility of income for a risk-averse individual will be:

Unknown; the answer depends on the value of income

Which formula is CORRECT?

VMPL = MPL x P

Some of the major causes of poverty are lack of education, bad luck, lack of proficiency in English, and:

Racial and gender discrimination

If a perfectly competitive firm sells 10 units of output at $30 per unit, its marginal revenue is:

$300

If a stock analyst believes there is a 10% probability that the stock price of Dymonatis will be $30 at the end of the year, a 50% probability that it will be $40, and a 40% probability that it will be $50, then the expected value of the stock at the end of the year is:

$32

When a cherry orchard in Oregon adds a worker, the total cost of production increases by $24,000. Adding the worker increases total cherry output by 600 pounds. Therefore, the marginal cost of the last pound of cherries produced is:

$40

Damage to the environment occurs because:

A pollution results from production of goods and services.

Which statement is CORRECT? A. An emissions tax is a more efficient way to reduce pollution than is an environmental standard because an emissions tax equalizes the marginal benefit of pollution from all sources. B. An environmental standard is a more efficient way to reduce pollution than is an emissions tax because an environmental standard can be structured to equalize the reduction in pollution from all sources. C. It is easy to set emissions taxes at the "correct" level since the relationship between emissions taxes and the reduction in emissions that they induce has been extensively studied and is well known. D. If an emissions tax and environmental standards lead to the same total reduction in pollution, then they will also lead to the same reduction in pollution by individual polluters.

A. An emissions tax is a more efficient way to reduce pollution than is an environmental standard because an emissions tax equalizes the marginal benefit of pollution from all sources.

In perfectly competitive long-run equilibrium:

All firms produce at the minimum point of their average total cost curves.

Food stamps are an example of:

An in-kind benefit

Which example is a good or market activity that is associated with a positive externality?

An innovation in the semiconductor industry

If a good has a marginal cost of production of zero and an inefficiently low level of consumption, the good must be a(n):

Artificially scarce good

Tankao makes earbuds for mobile devices. When Tankao produces 20 sets of earbuds, its average variable cost is $5 per set and its average total cost is $8 per set. Tankao's:

Average fixed cost is $3 per set

In the classic prisoners' dilemma with two accomplices in crime, the Nash equilibrium is for:

Both to confess

Suppose that each of the two firms in a duopoly has the independent choice of advertising or not advertising. If neither advertises, each gets $10 million in profit; if both advertise, their profits will be $5 million each; and if one advertises while the other does not, the advertiser gets profit of $15 million and the other gets profit of $2 million. According to game theory, the Nash equilibrium is that:

Both will advertise

Suppose that each of two prisoners has the independent choice of confessing to a crime or not confessing to a crime they were both alleged to commit. If neither confesses, both spend two years in prison; if both confess, both spend three years in prison. If one confesses and the other does not, the confessor gets off with one year but the other gets six years. According to game theory, the MOST likely strategy of the prisoners is that:

Both will confess

A monopolist generally _____ than does a perfectly competitive industry with the same market demand.

Charges a higher price

Zoe, the owner of Zoe's Bakery, determines that, at her optimal level of production in the short run, P < ATC and P > AVC. In the short run, Zoe should:

Continue to operate, even though she is taking an economic loss

Suppose the dry-cleaning market is monopolistically competitive and economically profitable this year. In the long run, the demand for any one firm's dry-cleaning services will _____ as more firms enter the industry, causing economic profits to _____.

Decrease; Fall to Zero

Ashley Bakery expects its marginal cost curve will eventually slope upward because, as with most production processes, baking has:

Diminishing Marginal Returns

Monopolistic competition is similar to perfect competition because firms in both market structures:

Do not face any barriers to entry to the industry in the long run.

The demand curve for a firm operating in a monopolistically competitive industry is:

Downward Sloping

The wedding dress industry is monopolistically competitive. As a result:

Dresses tend to be differentiated among the many sellers serving this market

Buffalo Aircraft doubles the amount of all of the inputs it uses—the factory doubles in size and twice as many workers are hired. After this expansion, the number of aircraft produced triples. If the price of inputs is unchanged, this means that Buffalo Aircraft is operating with:

Economies of Scale

It is common in large breweries for the long-run average total cost to decline as output increases. This indicates that many breweries operate with:

Economies of Scale

Laws that require vehicles to have catalytic converters or that restrict or prohibit leaf burning are:

Environmental Standards

If a monopolistically competitive firm is in long-run equilibrium, price:

Equals average total cost

During the past 25 years, the degree of income inequality in the United States has been rising. Which factor is NOT a possible reason for this phenomenon?

Higher divorce rates

José, a corn farmer operating in a perfectly competitive market, pays his workers $8 an hour. At his current level of labor use, the marginal product of an additional hour of labor is three bushels of corn. The market price of corn is $2.75. To maximize his profits, Jose should:

Hire more labor

An externality is said to exist when:

Individuals impose costs or benefits on others but have no incentive to take these costs and benefits into account

Marginal revenue:

Is the change in quantity divided by change in the total revenue

Human capital:

Is the improvement in labor produced by education, which has become less important because of the progress in technology.

A good is MOST likely to be artificially scarce if:

It is nonexcludable and nonrival

In an industry characterized by extensive economies of scale:

Large companies are more profitable than are small companies

An industry with production that generates external costs produces a quantity of output that is:

Larger than the socially optimal quantity

The GoSports Company is a profit-maximizing firm with a monopoly in the production of school team pennants. The firm sells its pennants for $10 each. We can conclude that GoSports is producing a level of output at which:

Marginal Cost equals Marginal Revenue

If a monopolistically competitive firm is producing the profit-maximizing level of output and is earning an economic profit in the short run:

Marginal Revenue equals Marginal Cost

A decrease in the demand for pastry chefs may come about because of an increase in the:

Market wage rate for pastry chefs

In contrast with perfect competition, a monopolist:

May have economic profits in the long run.

The U.S. government health insurance program for people aged 65 years and older is:

Medicaid

When labor is hired in a competitive market, the value of the marginal product of labor is computed by:

Multiplying the price of the output by the marginal product of labor

A life insurance company will often require an applicant to submit to a brief physical exam to assess that person's basic level of health. This practice is a form of _____ to lessen the problem of _____.

Screening; Adverse Selection

Which activity generates a negative externality?

The only two coffee shops in town conspire to raise prices.

A familiar example of a negative externality is traffic congestion. In principle, it should be possible to internalize this externality by permitting drivers to negotiate rights to drive during particular times. The most likely reason that these negotiations do NOT happen is that:

The transaction costs associated with identifying and establishing communication among the many interested parties would be prohibitive

A familiar example of a negative externality is loud music on a college campus. In principle, it should be possible to internalize this externality by permitting students to negotiate rights to play music during particular times. The most likely reason that these negotiations do NOT happen is that:

The transaction costs associated with identifying and establishing communication with students would be high.

An externality is said to be internalized:

When individuals take external costs and benefits into account in their decision making

Buford Bus Manufacturing installs a new assembly line. As a result, the output per worker increases. The marginal cost of output at Buford:

Will decrease (the MC curve will shift down)

If two firms are identical in all respects except that one has more of the fixed input capital than another, the total product curve for the firm with more capital:

Will lie above the total product curve for the firm with less capital.

The largest _____ program in the United States is _____.

social insurance; Social Security payments to retired persons