Microeconomics Final

In comparison to a perfectly competitive labor market, the monopsonist labor market tends to hire: More people at a lower wage Fewer people at a higher wage Fewer people at a lower wage More people at a higher wage

Fewer people at a lower wage

What is a characteristic of a purely competitive market? All of These Limited Number of Firms None of These Companies Set Market Price Free Entry/Exit of Marketplace

Free Entry/Exit of Marketplace

Suppose the equilibrium price of tulips is $1.25 per bulb. If the current price is $1 per bulb, then there will be a ___________ of tulip bulbs in the marketplace.

Shortage

Say the price of bread doubles. What can we assume will happen to the demand curve for lunch meat? Why is that?

-Curve shifts left -They are complimentary goods

At what output level should a firm produce in the following scenarios? -Price is less than ATC and less than AVC -Price is less than ATC and greater than AVC -Price is greater than ATC and greater than AVC

-0 -MR=MC -MR=MC

Categorize each of these pottery business costs, keeping in mind our definitions of explicit and implicit costs -Buying raw clay -Interest no longer earned on money used to open business -Purchasing a kiln to fire mugs in -Renting a storefront (you don't own) -Declining a job offer

-Explicit -Implicit -Explicit -Explicit -Implicit

How do you calculate each of the following cost curve data? Total Cost Average Fixed Costs Average Variable Costs Average Total Costs Marginal Cost

-Fixed Costs + Variable Costs -Fixed Costs / Total Quantity -Variable Costs / Total Quantity -Total Costs / Total Quantity -Change in Cost / Change in Product

For a purely competitive firm, what decisions should they make when the market price (their marginal revenue) is at the following levels? -Less than ATC and less than AVC -Less than ATC and greater than AVC -Greater than ATC and greater than AVC

-Shut down -Minimize loss -Maximize Profit

How will equilibrium price & quantity change when: 1. Supply increases 2. Demand decreases

1. Price decreases, Quantity increases 2. Price decreases, Quantity decreases

What effect will each of the following have on the supply of field corn? 1. Advances in GMO technology provides higher yields of corn on poorer quality soil. 2. An increase in the cost of nitrogen fertilizers. 3. The legislature approves a subsidy for the production of corn. 4. Price of soybeans increases dramatically.

1. Shift Right 2. Shift Left 3. Shift Right 4. Shift Left

A store drops the price they charge for socks by 10% and in response they see sales increase by 20%. What's the price elasticity of socks?

2

In economics, how do we define Demand?

A curve showing the quantity of a product that consumers are willing and able to buy at various prices.

An oligopolist market structure contains: Few buyers Many sellers Many buyers A few sellers

A few sellers

The "Profit-Max/Loss-Min/Shutdown Rule" applies to: Pure Monopoly only All market structures Perfect Competition only Most market structures

All market structures

In order to engage in price discrimination, which of the following must be true? Firm has monopoly power All of these Goods cannot be resold Market can be segmented

All of these

Minimum wage laws tends to increase unemployment because: All of these Labor demand is downward sloping It functions as a 'price floor' Firms can't pay more than workers produce

All of these

If the market price is above equilibrium, sellers have an incentive to cut prices because... -Production will decrease and less resources will be wasted. -It complies with the Law of Supply -Lower prices will increase sales. -All of these are true

All of these are true

The three principles which demonstrate the Law of Demand are: - You can afford to buy more at lower prices and prefer cheaper alternatives. - People want to buy more when it costs less. - As you consume more of something you get less satisfaction.

Answer 1: Income/Substitution Effect Answer 2: Common Sense Answer 3: Diminishing Marginal Utility

Economies of scale, resource ownership, pricing strategies, and laws & regulations all contribute to creating this feature of a monopolist market structure: Price-Maker vs Price-Taker Natural Monopoly Nonprice Competition Barrier to Entry

Barrier to Entry

Companies can experience Economies of Scale and get better at production as they increase output quantity. Which of the following is not a reason for this effect? -Labor Specialization -Bureaucratic Decision Making -Efficient Capital Implementation -Managerial Specialization

Bureaucratic Decision Making

With the rise of the 'hipster lifestyle', preferences have shifted toward vintage clothing. Thus we would expect the demand curve for thrift stores and vintage clothing to:

Shift right

Barriers to entry: Can result from government regulation Usually result in pure competition Exist in economic theory but not the real world Are typically the result of wrongdoing by a firm

Can result from government regulation

How do we construct a long-run Average Total Cost curve? -Combine the minimum points of all short-run ATC curves. -Add the values of all short-run ATC curves together. -Find the per-product average of all short-run ATC curves. -Add long-run fixed costs to short-run ATC curves.

Combine the minimum points of all short-run ATC curves

Which of the following is not one of the benefits of the concept of private property within a market system?

Communal ownership of factors of production

Suppose capital and labor are used in in a complimentary way to produce a good. If the price of capital declines, what can we assume will happen to the quantity of labor used in production? Costs have decreased so the firm will produce more and therefore demand more of both. The final effect cannot be predicted. Since the price of capital has gone down, less of both will be used.

Costs have decreased so the firm will produce more and therefore demand more of both.

When international trade is included in the Production Possibilities Model, countries are able to reach higher levels of production. Why is this?

Countries may have specialized resources.

Regarding the Determinants of Supply, what are the effects of Producer Expectations? (All else being equal. Suppose producers expect the price to drop in the future.)

Depending on what is being produced, supply could shift left or right.

What is elasticity of demand all about?

Determining how much quantity demanded changes in response to a change in price

When we say that output increases at a decreasing rate, we refer to the idea of: Diminishing Marginal Returns Negative Marginal Returns Short-Run Production Decisions Long-Run Variable Costs

Diminishing Marginal Returns

Under which circumstance would a price decrease cause no change in total revenue for a firm?

E=1 (unit elastic)

Under which circumstance would a price decrease cause an increase in total revenue for a firm?

E>1 (elastic)

Price is taken as 'given' by an individual firm selling in a purely competitive market because: -Product differentiation is reinforced by extensive advertising -The firm's demand curve is downward-sloping -There are no good substitutes for the firm's product -Each seller supplies a negligible fraction of total market share

Each seller supplies a negligible fraction of total market share

In pure competition, each extra unit of output that a firm sells will yield a marginal revenue that is: Equal to the average cost Less than the price Greater than the price Equal to the price

Equal to the price

In the circular flow diagram, what flows between Households and the Resource Market?

Factors of Production Wages, Rents, Interest, & Profit

A firm in a monopoly market structure always operates at an economic profit. (T/F)

False

The ash boards used in the production of furniture can easily be substituted for another type of wood. This indicates that the demand for ash boards is probably: Unit Elastic Highly Inelastic Highly Elastic

Highly Elastic

What is the difference between a firm's short-run and long-run decision-making? -In the short run labor is fixed and we try to eliminate fixed costs. In the long run we can adjust both. -In the short run we choose production capacity, in the long run we choose labor levels. -Short run deals with variable costs, long run deals with fixed costs. -In the short run, production capacity is fixed but in the long run all costs are variable costs.

In the short run, production capacity is fixed but in the long run all costs are variable costs

The demand for the good is __________ if total revenue increases as the price of a good increases.

Inelastic

A company's fixed cost curve will be affected by a change in the cost of: Labor Costs Raw Materials Interest Rates Fuel

Interest Rates

Suppose capital and labor can be substituted in the production of a good. If the price of labor falls dramatically, say during an economic recession, what can we assume will happen to the quantity of capital used in the production of this good? The firm will purchase less capital since labor is less expensive. No answer text provided. The firm will purchase more capital since total costs have declined. It depends on if the substitution or output effect is stronger.

It depends on if the substitution or output effect is stronger.

When compared with a purely competitive firm with the same cost curves, a monopolist firm will produce: More output at higher prices Less output at identical prices More output at identical prices Less output at higher prices

Less output at higher prices

A price ceiling will result in a shortage only if the ceiling price is ___________ the equilibrium price

Less than

When examining how much labor to use in the production of a good or service, in which case has "average product" been maximized? MP=AP MP<AP MP>AP MP=0 MP=Max

MP=AP

In comparing the Perfectly Competitive and Pure Monopoly market structures, one aspect they both have in common is that they both: Block entry of other firms into their markets Face a perfectly elastic demand curve Have influence over market prices Make production decisions such that MR = MC Have no close substitutes for their products

Make production decisions such that MR = MC

Monopolies don't get to charge just any price they want. Their output level is determined by where: Marginal Revenue = Average Cost Marginal Cost = Average Revenue Average Cost = Average Revenue Marginal Cost = Marginal Revenue

Marginal Cost = Marginal Revenue

Since firms that are not in perfect competition face downward-sloping demand curves, we know that to increase sales quantity they must lower prices. As a result: Price and Revenue are equal to each other Product Price is less than Marginal Revenue Price and Revenue are no longer related Marginal Revenue is less than Product Price

Marginal Revenue is less than Product Price

Which of the following is true for a purely competitive firm producing at an optimal level? The firm makes only normal profits. Marginal revenue will equal marginal cost A decrease in output increases profits. Marginal cost will be greater than marginal revenue

Marginal revenue will equal marginal cost

When we say we've reached "consumer equilibrium" we mean that we're getting the: -maximum total utility possible from our budget -best marginal utility from our budget -same total utility from each product -same number of each product

Maximum total utility possible from our budget

In the long run a firm will choose a plant size that has the: -Minimum average total cost of producing the level of output. -Capacity to produce the largest quantity of the product -Minimum of average fixed costs -Maximum level of resource use per unit of the total product of output

Minimum average total cost of producing the level of output

Which of the following contributed to the demise of the Command System? -Insufficient natural resources -Inability to enforce production decisions -Rapid innovation -All of these -None of these

None of these

In which case will a demand curve shift to the right? -The price of a complimentary good increases -Customers anticipate lower prices in the future -Preferences shift away from the product -Number of buyers in the market increases

Number of buyers in the market increases

In a purely competitive market, if the market price for a good is higher than the minimum average cost of the firms, then: Some firms will exit the industry and supply will decrease Other firms will enter the industry and supply will increase Some firms will exit the industry and supply will increase Other firms will enter the industry and supply will decrease

Other firms will enter the industry and supply will increase

This "Fair-Return Price" level occurs when: P = ATC MR = MC P = MR P = MC

P = ATC

Smartphone flashlight apps are readily available from a variety of different software companies and they all perform the same function. Which market model would these be an approximate example of? Perfect Competition Pure Monopoly Oligopoly Monopolistic Competition

Perfect Competition

Which of the following does NOT affect business costs in a monopoly market? Rent-Seeking Expenses Perfectly Elastic Demand Economies of Scale Higher Average Wages

Perfectly Elastic Demand

Sometimes a company will divide its customers into categories in order to charge them different prices. The prices may be higher or lower, depending on the elasticity of that market segment, this is called: Fair-Return Price Socially Optimal Price Price Discrimination Game Theory

Price Discrimination

In which case will the quantity demanded of a good decrease? -Consumers become more favorable -Price of substitute increases -Number of buyers increases -Price increases

Price increases

How do we calculate total revenue?

Price times quantity at a given point on the demand curve

Why does the supply curve have an upward slope?

Producers are more willing and able to make a product at higher prices.

Suppose a firm earns $10 for every $10-employee they hire and they earn $1 for every dollar they spend on capital. From this we know that the firm is producing at a: Profit-maximizing point and a cost-minimizing point Profit-maximizing point but maybe not a cost-minimizing point Cost-minimizing point but maybe not a profit-maximizing point

Profit-maximizing point and a cost-minimizing point

A company's variable cost curve will be affected by a change in the cost of: Depreciation Resources Rent Insurance

Resources

A 'kinked' demand model for oligopolies attempts to show how: Ologopolist firms can collude and cheat the market Rival firms will ignore price cuts and match price increases Demand is more elastic when cutting prices on a product Rival firms will ignore price increases but match price cuts

Rival firms will ignore price increases but match price cuts

Suppose society decides a monopoly must produce at an allocatively efficient level. Therefore it regulates the market so that the market price is equal to marginal cost (P = MC), we call this the: Socially Optimal Price Fair-Return Price Monopoly Market Price Social Construct Price

Socially Optimal Price

Suppose a firm is earning $2 for every dollar they spend on labor and $0.90 for every dollar they spend on capital. They should: Increase spending on capital Spend more on capital and labor Spend less on capital and more on labor

Spend less on capital and more on labor

When society regulates a monopoly to force it to sell at a "Fair- Return Price", what problem arises? Cost minimization becomes a primary priority The monopoly may have to be subsidized All of these Substantial bureaucratic costs are added

Substantial bureaucratic costs are added

Suppose the government wishes to protect Illinois pineapple farmers and so establishes a minimum price for the fruit - a.k.a. "Price Floor". Given our supply & demand model, what would we expect to see take place in the market shortly thereafter? Equilibrium Declining Supply Surpluses Profits

Surpluses

What do we mean by "marginal product" of labor? -The increases in output resulting from adding one more unit of labor -The last unit of output produced by labor at the end of the period -Total output divided by total number of units of labor -Smallest unit of output produced by total labor units used

The increases in output resulting from adding one more unit of labor

Comparing monopoly and competitive market structures, "Deadweight Loss" refers to: Shortages caused by high monopoly pricing. Surpluses caused by monopoly underproduction. The production gap resulting from under-allocation of resources. Underground markets developing to supply the monopoly good.

The production gap resulting from under-allocation of resources.

The monopolist's demand curve is: Derived by vertically summing individual demand curves Horizontal / Elastic More elastic than the demand faced by a competitive firm The same as the industry demand curve

The same as the industry demand curve

Which of these is an example of a product that could be considered to have inelastic demand? -A flower arrangement where there are many to choose from of equal quality -Utility bill for water service -Purchasing a new home -You need to upgrade your computer in the next 6 months

Utility bill for water service

The power has gone out in Jurassic Park. John Hammond must sell all the ice cream in the park's freezers before it melts. He also has no way of producing more. The supply curve for ice cream is going to be: -More inelastic, steep curve -More elastic, shallow curve -Very elastic, flat curve -Very inelastic, vertical curve

Very inelastic, vertical curve

Just six American film production companies account for about 90% of all domestic revenue in the movie industry. The US movie industry could be considered to be: Pure Competition Monopolistic Competition an Oligopoly Market a Pure Monopoly

an Oligopoly Market

Economic growth can be shown in the Production Possibilities Curve by:

an outward / rightward shift of the curve.

The production possibilities curve is a graph of:

efficient combinations of products which can be produced.

"The Economizing Problem" highlights the conflict between:

limited resources and unlimited wants

In economics, we define a 'Rational Consumer' as someone who:

makes choices to maximize utility, given scarce resources.

Economics is a social science which studies how individuals, institutions, and society:

use resources to maximize satisfaction of economic wants

"Opportunity Cost" is best described as:

what you have to give up in order to get more of something else

What is the elasticity of demand for any good being produced by a purely competitive firm? <1 ∞ >1 0

∞