Test 3 - Econ

JoJo's Candy Shoppe normally employs 4 workers. When the Candy Shoppe hired a 5th worker the Shoppe's total output decreased. Therefore,

the marginal product of the 5th worker is negative.

If Sharon's LR ATC curve shows that she can produce 10,000 DVDs at an average cost of 2.00 and 15,000 DVDs at an average cost of 2.50 this is evidence of

diseconomies of scale. *when the quantity goes up and the cost goes up then diseconomies of scale*

Economic costs of production differ from accounting costs in that

economic costs include the opportunity costs of a firm while accounting costs do not.

If Levi's and Dockers, both producers of pants/slacks, were to merge, it would be an example of a:

horizontal merger.

If price is less than the average variable cost, a firm that continues to produce in the short run

incurs a loss greater than its fixed costs.

If a perfectly competitive firm achieves productive efficiency then

it is producing the good it sells at the lowest possible cost.

The law of diminishing marginal returns states

that at some point, adding more of a variable input to a given amount of a fixed input, will cause the marginal product of the variable input to decline.

If the market price is 15 in a perfectly competitive market, the marginal revenue from selling the third unit is

15.

Consider an industry that is mad eup of six firms with the following market shares: Firm A - 50%, Firm B - 20%, Firms C and D - 10% each, and Firms E and F - 5% each. What is the value of the Herfindahl-Hirschman Index and how will the industry be categorized?

3,150; highly concentrated 50^2+20^2+10^2+10^2+5^2+5^2 = 3,150

A natural monopoly is most likely to occur in which of the following industries?

An industry where fixed costs are very large relative to variable costs.

Donnie, a high-school student, bathes dogs for families in his neighborhood. The going rate is 25 for each dog bathed. Donnie would like to charge 35 because he believes he has more experience than the other teenagers who offer the same service. If the market for bathing dogs is perfectly competitive, what would happen if Donnie raised his price?

If Donnies raises his price he would lose all his customers.

Which of the following statements is false?

Marginal cost will equal average cost when marginal cost is at its lowest point.

Ordinarily, governments attempt to promote competition in markets. Why do governments use patents to block entry into some markets when this prohibits competition?

Patents encourage firms to spend money on research necessary to create new products.

Which of the following statements regarding a firm's long-run average total cost (LRATC) curve and its short-run average total cost (SRATC) curve is true?

The LRATC shows the lowest cost at which a firm is able to produce a given level of output when NO inputs are fixed.

Assume that the market for cell phones is perfectly competitive. Suppose a producer develops a successful innovation that enables it to lower its cost of production. What happens in the short run and in the long run?

The firm will be able to increase its profits temporarily but in the long run, profits will be eliminated as other firms copy the innovation.

Which of the following describes the difference between the market demand curve for a perfectly competitve industry and the demand curve for a firm in this industry?

The market demand curve is downward-sloping; the firm's demand curve is a horizontal line.

Baxter International, a manufacturer of hospital supplies, acquired American Hospital Supply, a distributor of hospital supplies. This is an example of

a vertical merger.

In a diagram showing the average total cost and average variable cost curves, the minimum point of the average total cost is

at a larger level of output than the minimum point of the average variable cost.

A perfectly competitive firm is incurring a loss when price is

below the minimum point of average total cost.

Output under a monopoly is

less than what output would be if the industry were competitive.

Some economists argue that Microsoft become a monopoly in the marekt for computer software by developing MS-DOS, an operating system used for the first IBM personal computers. The more people who used MS-DOS-based programs, the greater the usefulness of a using a computer with an MS-DOS operating system. The explanation for Microsoft's monopoly is

network externalities.

If a typical firm in a perfectly competitve industry is incurring losses, then

some firms will exit in the long run, causing market supply to decrease and market price to rise increasing profits for the remaining firms.

A Herfindahl-Hirschman Index is calculated by:

summing the squares of the market shares of each firm in the industry.

The first United States federal government antitrust law which prohibited agreements to fix prices and limit output, and declared monopolies illegal is

the Sherman Antitrust Act.

Market power is:

the ability of a firm to charge a price higher than marginal cost.

If production displays DISeconomies of scale, the long run average cost curve is

upward sloping.

The division of labor and specialization explain

why the marginal product of labor rises as a firm hires its first units of labor.