Microeconomics Final

If a product is in surplus supply, its price:

is above the equilibrium level.

The nondiscriminating monopolist's demand curve:

is less elastic than a purely competitive firm's demand curve.

If a monopolist is operating at an output level where marginal revenue is positive, the firm:

is operating on the elastic portion of its demand curve.

If a firm increases all of its inputs by 10 percent and its output increases by 15 percent, then:

it is encountering economies of scale.

Marginal product is:

the increase in total output attributable to the employment of one more worker.

Suppose that you could prepare your own tax return in 15 hours, or you could hire a tax specialist to prepare it for you in 2 hours. You value your time at $11.00 an hour. The tax specialist will charge you $55 an hour. The opportunity cost of preparing your own tax return is:

$165. The use of your time to do the tax returns is 15*$11.00 = $165.00. This is your opportunity cost.

Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and has average variable costs of $150. The firm's total fixed costs are:

$5,000. The firm's total costs are $200 * 100 = $20,000. Its total variable costs are $150 * 100 = $15,000. Thus, its fixed costs are $20,000 - 15,000 = $5,000.

Block's sells 500 bottles of perfume a month when the price is $7. A huge increase in resource costs causes price to rise to $9 and Block's only manages to sell 460 bottles of perfume. The price elasticity of demand is:

0.33 and inelastic. The change in quantity is (500 - 460)/(500 + 460) = 0.0417 and the change in price is (7 - 9)/(7 + 9) = 0.125. Elasticity, then is 0.0417/0.125 = 0.33.

to look up:

1- 5, 9, 10 4- 4, 5, 6, 7, 8 6- 11, 13 7- 30, 51, 52, 87 8- 52, 83, 92 9- 40

A durable consumer good is expected to last for at least how long?

3 years

questions to answer:

7- 55, 79, 103, 125 8- 31, 32, 37, 115 9- 31, 49, 136, 144, 158

Which would make it easier to maintain an effective collusive agreement in a cartel?

A decrease in the elasticity of demand for the cartel's product

Which of the following is correct?

A person who purchases a corporate stock is buying ownership in the corporation.

Which of the following would not shift the demand curve for beef?

A reduction in the price of cattle feed

Which of the following will cause the demand curve for product A to shift to the left?

An increase in money income if A is an inferior good

Other things equal, in which of the following cases would economic profit be the greatest?

An unregulated monopolist who is able to engage in price discrimination

Suppose there are two economies, Alpha and Beta, which have the same production possibilities curves and are on the same point on each curve. If Beta then devotes more resources to investment goods than consumer goods when compared to Alpha, then in the future:

Beta will experience greater economic growth than Alpha.

Which is a barrier to entry in an industry?

Economies of scale

Economic efficiency would be primarily discussed with respect to which of the fundamental questions about a competitive market economy?

How will the goods and services be produced?

What is the economic meaning of the expression that "there is no such thing as a free lunch"?

It means there is an opportunity cost when resources are used to provide "free" products.

What is the term that refers to increases in the value of a product to each user, including existing users, as the total number of users increases?

Network effects

In which market model is there mutual interdependence?

Oligopoly

Which characteristic would best be associated with pure competition?

Price taker

Which of the following is not considered a consumption expenditure?

Purchases of houses

Which is true of price discrimination?

Successful price discrimination will provide the firm with more profit than if it did not discriminate.

Which is an example of a privately owned monopoly?

The De Beers diamond syndicate

The influential book written by Adam Smith was:

The Wealth of Nations.

Which is not one of the Four Fundamental Questions?

What goods and services should be produced by government?

The principal-agent problem in corporations arises from:

a conflict of interest between corporate executives who manage the firm and stockholders who own the firm.

If two goods are complements:

a decrease in the price of one will increase the demand for the other.

Diseconomies of scale mean that:

a firm's long-run average total cost curve is rising.

The private ownership of property resources and use of prices to direct and coordinate economic activity is characteristic of:

a market system.

The law of diminishing returns indicates that:

as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.

A profit-maximizing firm in the short run will expand output:

as long as marginal revenue is greater than marginal cost.

Perfectly competitive markets explained on the basis of supply and demand:

assume many buyers and many sellers of a standardized product.

A point on the frontier of the production possibilities curve is:

attainable and the economy is efficient.

A person receives a paper asset from a corporation that is a promise from the corporation to repay a loan at a fixed rate of interest. This type of asset is referred to as a:

bond

The law of increasing opportunity cost explains why the shape of the production possibilities curve is:

bowed out (concave) from the origin of the graph.

If a monopolist engages in price discrimination, it will:

charge a higher price where individual demand is inelastic and a lower price where individual demand is elastic.

The price elasticity of demand increases with the length of the period to which the demand curve pertains because:

consumers will be better able to find substitutes.

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 1000 units is $2.50. The minimum possible average variable cost is $2.00. The market price of the product is $2.50. To maximize profit or minimize losses, the firm should:

continue producing 1000 units.

Productive efficiency refers to:

cost minimization, where P = minimum ATC.

With a downsloping demand curve and an upsloping supply curve for a product, a decrease in resource prices will:

decrease equilibrium price and increase equilibrium quantity.

Assume, in a competitive market, price is initially above the equilibrium level. We predict that price will:

decrease, quantity demanded will increase, and quantity supplied will decrease.

The incentive to cheat is strong in a cartel because:

each firm can increase its output and thus its profits by cutting price.

To the economist, total cost includes:

explicit and implicit costs, including a normal profit.

The kinked-demand curve is based upon the assumption that an oligopolist's rivals will:

follow a price cut, but ignore a price increase.

Consider a society that is producing inside its production possibilities frontier. This society could best achieve efficiency in its production of output by:

fully employing all available resources.

A basic characteristic of a command system is that:

government owns most economic resources.

Accounting profits are typically:

greater than economic profits because the former do not take implicit costs into account.

A nation can increase its production possibilities by:

improving labor productivity.

An inferior good is best defined as a product for which the:

income elasticity of demand is negative.

If the price elasticity of demand for a product is equal to 0.5, then a 10 percent decrease in price will:

increase quantity demanded by 5 percent.

An increase in the price of product A will:

increase the demand for substitute product B.

A demand curve:

indicates the quantity demanded at each price in a series of prices.

If the price elasticity of demand for a good is .75, the demand for the good can be described as:

inelastic

An auto rental company lowers the price of its rentals to increase its market share. The price cut increases quantity demanded, but total revenue decreases. This result suggests that over this price range, the demand for the auto rentals is:

inelastic.

When a firm produces less output, it can reduce:

its variable costs but not its fixed costs.

The monopolistically competitive seller's demand curve will become more elastic the:

larger the number of competitors.

When compared with the purely competitive industry with identical costs of production, a monopolist will produce:

less output and charge a higher price.

The issue of the separation of ownership and control is concerned with the fact that:

major decisions in large corporations are generally made by professional managers rather than the owners of the corporation.

A monopolistically competitive firm is operating at a short-run level of output where price is $21, average total cost is $15, marginal cost is $13, and marginal revenue is $13. In the short run this firm should:

make no change in the level of output.

In an oligopolistic market there is likely to be:

neither allocative nor productive efficiency.

In monopolistic competition, there is:

neither allocative nor productive efficiency.

If a firm is a price taker, then the demand curve for the firm's product is:

perfectly elastic.

If the price of a product increases, we would expect:

quantity supplied to increase.

The simple circular flow model shows that workers, entrepreneurs, and the owners of land and capital offer their services through:

resource markets.

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

segment of the MC curve lying above the AVC curve.

Suppose some firms exit a monopolistic competition industry. We would expect the demand curve of a firm already in the industry to:

shift to the right.

A positive cross-price-elasticity of demand for two products indicates that they are:

substitutes

A purely competitive firm is in short-run equilibrium and its MC exceeds its ATC. It can be concluded that:

the firm is realizing an economic profit.

Competition is more likely to exist when:

there is free entry into and exit out of industries.

The utility of a specific product:

varies from person to person using the product.

A group of three plants that is owned and operated by a single firm and that consists of a farm growing wheat, a flour-milling plant, and a plant that bakes and sells bread would best be an example of a:

vertically integrated firm.

The money income of households consists of the sum of:

wages plus rents plus interest plus profits.

Economies and diseconomies of scale explain:

why the firm's long-run average total cost curve is U-shaped.

One prediction about monopolistic competition is that firms:

will be inefficient in the long run.