All Content Review, Hardest Questions

Which of the following is true of a monopolistically competitive firm in long-run equilibrium? Price is greater than marginal cost, and marginal revenue is equal to average total cost. Price is greater than marginal revenue, and marginal cost is equal to average total cost. Price is greater than marginal revenue, and marginal cost is greater than average total cost. Marginal revenue is equal to marginal cost, and price is equal to average total cost. Marginal revenue is greater than marginal cost, and price is equal to average total cost.

Marginal revenue is equal to marginal cost, and price is equal to average total cost.

In the absence of externalities, which of the following is true of a competitive market in equilibrium?

Marginal social benefit equals marginal social cost.

Can you have absolute advantage in both goods in terms of factor costs?

No

The government can correct a negative externality by creating a per unit tax at the (x-y?)

P4-P2, or by covering the Dead weight loss.

The following question is based on the table below, which gives cost information for a perfectly competitive firm. If the product price is $85, how many units of output must the firm produce in order to maximize profits? 1 - MC=50 2 - MC = 70 3 - MC = 80 4 - MC = 87 5 - MC = 170

Q3

Shelby is an entrepreneur who has decided to open a small advertising firm. She rents office space at a cost of $25,000 per year, she has employed an assistant at a salary of $30,000 per year, and she incurs annual utility and office supply expenses of $20,000. Her best alternative is to work elsewhere and to earn a salary of $50,000 per year. How much annual revenue must her firm receive so that Shelby earns zero economic profit?

125k

Assume that total fixed costs are $46, that the average product of labor is 5 units when 10 units of output are produced, and that the wage rate is $12. If labor is the only variable input, what is the average total cost of producing 10 units of output?

7 dollars (5 units when 10 = 2 workers = $24 wage rate + 46 fixed = 70/10 units = 7 ATC).

A monopolistically competitive firm's demand curve will be highly elastic if which of the following exists?* A high degree of product differentiation A highly elastic supply curve for the firm High barriers to entry in this industry A high degree of product substitutability A small number of competitors

A high degree of product substitutability

Which of the following MUST be true of the long run?* It is at least one year in duration. All factors of production are variable. At least one factor of production is fixed. Marginal costs are constant. Average total costs are constant.

All factors of production are variable.

At 100 units of a firm's output, average total cost is $10, average variable cost is $8, average fixed cost is $2, and marginal cost is $12. How will each of the following change as the firm's output further increases? Average total cost: increase; Average variable cost: increase; Average fixed cost: increase Average total cost: increase; Average variable cost: increase; Average fixed cost: decrease Average total cost: increase; Average variable cost: decrease; Average fixed cost: decrease Average total cost: decrease; Average variable cost: increase; Average fixed cost: increase Average total cost: decrease; Average variable cost: decrease; Average fixed cost: decrease

Average total cost: increase; Average variable cost: increase; Average fixed cost: decrease

Movement along the supply curve can occur because of... Change in oil prices Change of income Increase in workers Decrease in machinery

Change of income

One reason public goods are underproduced is because they cause free riders. What problem do free riders cause? Binding price ceilings Income inequality Positive externalities Decreased market demand Increased market demand

Decreased market demand

Which of the following statements about a monopolistically competitive firm in long-run equilibrium is true? It has excess capacity, even though its long-run profit is zero and its output prices equals its marginal cost. It has excess capacity, and its long-run profit is positive, even though its marginal revenue equals its marginal cost. It has excess capacity and its output price exceeds its marginal cost, even though its long-run profit is zero. It has no excess capacity and its long-run profit is zero. It has no excess capacity and its marginal revenue equals its marginal cost

It has excess capacity and its output price exceeds its marginal cost, even though its long-run profit is zero.

The graphs below show the individual demand curves for the only two consumers, Adey and Sarah, in the market for popcorn. As the price of popcorn decreases from $12 to $6, how does the quantity demanded change along the market demand curve? At $12, the Qd is 2 (2+0). At $6 the Qd is 8 (5+3).

It increases from 2 to 8 units.

the marginal revenue product (MRP) and the market wage rate for a profit-maximizing firm are located at P(10) and Q(90) Which of the following is true of the firm's hiring of labor? It should hire 15 workers. It should hire between 15 and 40 workers. It should hire 40 workers. It should hire between 40 and 90 workers. It should hire 90 workers.

It should hire 90 workers

If a firm is experiencing economies of scale, which of the following will decrease as output increases? Fixed cost Long-run total cost Long-run average total cost Marginal cost Marginal revenue

Long-run average total cost

MR* X = MRP

MP

MRP =

MRC = MR*MP

You reach the socially optimal point of cleaning up a city when the last level of marginal cost does not exceed

Marginal Benefit

Supply curve is equal to what, in a perfectly competitive market? Demand Marginal Benefit MB Marginal Social benefit MSB Marginal Cost

Marginal Cost

Which of the following is true for a monopolist that engages in perfect price discrimination? The firm sells the profit-maximizing quantity of the regular monopolist but charges each consumer a price higher than the regular monopoly price. There is more consumer surplus than exists with a regular monopoly. The monopolist further restricts output compared to the regular monopoly, creating greater deadweight loss. The monopolist sells the allocatively efficient quantity of output. The monopolist no longer faces a downward-sloping demand curve, becoming a price taker.

The monopolist sells the allocatively efficient quantity of output.

Businesses employ workers from city neighborhoods and rural areas. These workers are perfect substitutes and cannot relocate in the short run. The government offers businesses a wage subsidy if they hire workers from city neighborhoods. What is the effect of the subsidy on the wage rate of rural workers and on the total hours they work?

The wage rate for rural workers decreases and the hours worked by rural workers decreases

Can you have absolute advantage in both goods in terms of output?

Yes

If MR<MC,

decrease production

Assume the demand curve for a good is perfectly inelastic and the production of each unit of this good generates external costs. A profit-maximizing firm producing the good in an unregulated free market will

generate deadweight loss because marginal social cost is greater than marginal private cost

The supply curve on a monopoly is from

minimum AVC and up

The marginal benefit of consuming a good is

the maximum amount a consumer is willing to pay for one more unit of the good

MFC =

wages (labor cost)