Micro practice test 2

If a perfectly competitive firm produces an output level at which price is less than marginal cost, and the firm should

Reduce output to earn greater profits or smaller losses

When a pharmaceutical company introduces a new drug, it's research and development costs are ______, and the cost of the chemicals used in manufacturing the drug are ______.

Start up costs; variable costs

John is trying to decide how to divide his time between his job as a stocker, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows downtown. He makes $2 for every window he cleans. What is the opportunity cost of cleaning windows for one hour?

$7

Refer to the accompanying table. As the firm increases the number of employees per each day from 1 to 2, output increases by

33 units

The short run is best defined as

A period of tine sufficiently short that at least one factor of production is fixed

A price ceiling that is set below the equilibrium price will result in

A shortage of the good

A pure monopoly exists when

A single firm produces a good with no close substitutes

A good is characterized by network economies if it

Becomes more valuable as more people own it

A firm whose production process exhibits constant returns to scale would find that if it doubled all its inputs, its output would

Double

As the market price of the service increases, more potential sellers will decide to perform that service because

More potential sellers will find at the market price exceeds their reservation price

Which of the following industries does not fit the natural monopoly model?

Fast food restaurants

A perfectly price discriminating monopolist's profit is ________ the profit of a monopolist who charges the same price to all of its customers

Higher than

If it is possible to make a change that will help some people without harming others, then the situation is

Inefficient

Which of the following is a characteristic of economic rent?

It can never be negative

Both the perfectly competitive firm and the monopolist find that:

It is best to expand production until the benefit and the cost of the last unit produced are equal

Cartel agreements are difficult to sustain because

It's a dominant strategy for each member to cheat on the cartel agreement

A firm is most likely to experience economies of scale is its start up costs are high and its marginal costs are

Low

Airlines that charge higher prices for seats in the first class cabin are

Not price discriminating because the product is not the same

Adam Smith coined the term "invisible hand" to describe the process by which the actions of independent, self-interested buyers and sellers will:

Often lead to the most efficient allocation of resources

The profit maximizing rule P=MC applies to

Perfectly competitive firms only

Free entry and exit of firms is a characteristic of

Perfectly competitive industries

Imperfect price discrimination occurs when a monopolist

Price discriminated but some buyers pay less than their reservation price

Because monopolist charge a price in excess of marginal cost, it must be the case that monopolists

Produce less than the socially optimal level of output

The role that prices play in distributing scarce goods and services to those consumers who value them the most highly is known as the ______ function of price.

Rationing

Subsidies are most likely to

Reduce total economic surplus

Refer to the accompanying figure. If the market for donuts is perfectly competitive, then assuming this firm can enough revenue to cover it's variable variable costs, it should produce

The quantity of donuts at which marginal cost equals the market price

According to the theory of the invisible hand, if buyers and sellers are free to pursue their own self-interest, the result often will be

An efficient allocation of resources

In an industry with free entry and exit, positive economic profit

Cannot be sustained indefinitely

Which of the following is NOT a characteristic of a perfectly competitive market

Each firm in the market sells a somewhat different variant of the good

According to the textbook, the most important nd enduring source of market power is

Economies of scale

For perfectly competitive firms, marginal revenue _______ price; for monopolists marginal revenue ______ price

Equals; is less than

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. The firm depicted in the graph on the right faces a demand curve that is

Horizontal at the market price

Given the demand curve it faces, if an imperfectly competitive firm wants to sell another unit of output, it must:

Lower its price

In general, when the price of a variable factor of production increases

Marginal cost increases

If a production process exhibits diminishing returns, then as output rises

Marginal cost will eventually increase

Explicit costs

Measure the payments made to the firm's factors of production

Game theory provides tools that are used to model:

Strategic interdependencies

If the firms in a market are earning an economic profit, then, in the long run, the market ______ curve will shift to the _______

Supply;right

Suppose farmers in a given market can either grow soybeans or corn on their land. In addition, suppose an increase in the demand for corn causes the price of corn to increase. All else equal, an increase in the price of corn creates an incentive for farmers to

Switch away from going soybeans and into growing corn

Suppose a firm produces the level of an output at which the marginal cost of the last unit produced equals the price of the food. Which of the following statements is always true?

The firm should shutdown if its total revenue is less than its variable cost

The statement "If a deal is too good to be true, then it probably is not true." is most closely related to which core economic principle?

The no-cash-on-the-table Principle

Which of the following is the most likely to be a variable factor of production at a university?

The number of librarians

A prisoners dilemma is a game in which

The player's payoffs are smaller when both play their dominant strategy compared to when play a dominated strategy

Which of the following is the most likely to be a fixed factor of production at a pizza restaurant?

The size of the seating area

Your neighbors have offered to pay you to look after their dog while they're on vacation. It will take you one hour per day to care for the dog which you can do before or after work. Your regular job pays $10 per hour, and you can work up to eight hours per day. The smallest amount of money you would accept to look after the dog each day is equal to

The value you place on one hour of leisure

Average total cost is defined as

Total cost divided by total output

Economic profit is equal to

Total revenue minus the sum of explicit and implicit costs

The sum of producer surplus and consumer surplus is

Total surplus

Individual supply curves generally slope _______ because _______

Upward; increasing opportunity costs

Even when a firm produces the level of output at which price equals marginal cost, it should shut down if its total revenue is less than its

Variable cost