Chapter 3, 4, 5

If a firm with costs totaling $173 million experiences a loss of $13 million, its revenues must have been $___million.

160

If a pizza vendor can sell all the slices it wants at $2 per slice, then its marginal revenue will be $_.

2

Suppose a recent afternoon has Charley's food truck selling 120 cheese steak sandwiches at $5.00 each, 50 gyros at $3.00 each, and 200 bottles of water at $1.00 each. For the day, his revenue is $

950

Which of the following are characteristics of perfect competition?

Buyers and sellers are well informed. The products are standardized. There are many buyers and sellers

Which of the following are examples of barriers to entry?

Government regulations The lack of a key resource High start-up costs

Businesses in monopolistic competition _____ price takers.

Producers of navel oranges

A good for which the quantity demanded falls as income increases is classified as a(n) _____ good.

inferior

An important way that businesses can differentiate themselves from their competitors and thus escape perfect competition is to engage in ___________.

advertising

The coal that a steel firm purchases from mining companies to fire its blast furnaces is considered to be ______.

an intermediate input Reason: Intermediate goods are goods bought by other companies to produce goods and services.

If the handful of gas stations in your neighborhood agree to keep gas prices high and not undercut one another, they are guilty of ______.

colluding

Oligopoly sometimes resembles perfect competition because the sellers ______.

compete intensively.

If the price that a firm receives for its output decreases and the firm can sell all that it makes, then according to the the profit-maximizing rule, the firm should _____ production.

decrease

The responsiveness of quantity demanded or quantity supplied to changes in price (and other variables as well) is called

elasticity

The point of intersection between the supply and demand curves determines the _____ price and quantity values.

equilibrium

Suppose the market for used cars experiences a supply shift to the left. In this case, as the market adjusts to this change, a new equilibrium will be established with a _____ price and a _____ quantity.

higher; lower Reason: A supply shift to the left, assuming demand stays the same, causes the equilibrium price to rise and equilibrium quantity to fall.

The goods and services a business uses to produce its outputs are known as ______.

inputs

The mechanism that brings about the elimination of any mismatch between quantity demanded and quantity supplied is referred to as the _____ hand.

invisible

In perfect competition, a profit-maximizing business will expand production until its _____ equals the price.

marginal cost Reason: The profit maximizing (loss minimizing) rule is that the firm produces at a point where marginal cost, not average cost, equals marginal revenue.

The additional money a business gets from producing and selling one more unit of output is known as ______.

marginal revenue

In the simple case where a firm sells just one product at a fixed price, its revenue is equal to

price "times" quantity sold.

In order to raise its prices, a monopolist must ______.

restrict output.

Suppose a market's equilibrium quantity is observed to be higher following a supply shift. From this it can be deduced that the supply shift was to the ______.

right.

A market shift that encourages sellers to change the amount they wish to make available for sale at any given price is called a ______ shift.

supply

Suppose the market for shoes experiences a demand shift to the left. In this case, at the initial equilibrium price (where the original demand and supply curves intersected), there will now be an excess ______.

supply

Because barriers to entry are not present in competitive markets, profits there tend

toward zero.

In a graph showing a firm's cost function, with the total cost (in dollars) measured on the vertical axis and the level of production on the horizontal, the line representing the cost function will be _____ sloping.

upward

If a monopolist faces an elastic demand for its product, the ability it has to raise price will be relatively ______.

weak

Recent years have seen a number of American companies outsourcing their call centers and customer service processes. A particularly popular location for these operations has been the country of ______.

India

The classification economists give to markets is based upon which two of the following features?

Intensity of competition. Number of buyers and sellers.

Which one of the following markets is most likely to be classified as monopolistic competitive?

Restaurants

When oligopolists reach an "understanding" about their pricing policies rather than a formal agreement, the collusion is said to be ______.

implicit

If the price that a firm receives for its output increases and the firm can sell all that it makes, then according to the the profit-maximizing rule, the firm should ________ production.

increase

The actual ground a business uses in its production activities is classified as ____.

land

In the years following the 2007-2009 Great Recession, many lenders significantly tightened their lending standards (e.g., borrowers needed higher credit scores to receive loans). All else constant, we would expect to see the demand for many expensive products to shift _____, producing _____ prices.

leftward; lower

For every major category of consumption—food, clothing, housing, transportation, health care, and entertainment—lower-income households spend _____ than higher-income households.

less

For a business operating in monopolistic competition, profit will be maximized when marginal revenue equals marginal cost, but unlike perfect competition, marginal revenue is _____ than price.

less Reason: In order to sell more of good the firm must lower its price because it has a downward sloping demand curve.

As a business adds workers without changing the amount of capital or other inputs, it will eventually see that the successive workers add _____ to output.

less and less Reason: The law of diminishing returns to labor is as a firm holds capital and land fixed and increases the number of workers, the additional output per additional worker falls.

he process by which the low-cost producers in a competitive market drive out high-cost producers is a _____ run phenomenon.

long

When a business is in a position to vary all of its inputs, we say that it is seeking _____-term profit maximization.

long Reason: In the long run all inputs are variable.

The price of furniture in the U.S. fell during the 2000s as the result of a supply shift to the right which, in turn, came from the decision of American furniture companies to make more furniture in ______.

low-cost China

When a business operating in monopolistic competition reduces its price in order to sell more, it loses some revenue on the units it was already selling, thereby making marginal revenue _____ than price. higher

lower Reason: In order to sell more of good the firm must lower its price because it has a downward sloping demand curve.

If a business operating in monopolistic competition wishes to increase its sales volume, it will have to ______.

lower its price.

Physical capital refers to _____.

machinery, buildings and computers

In a competitive market all businesses face the same market price, so they all end up producing at the same _____ cost.

marginal

The added expense of producing one more unit of output is known as _____ cost.

marginal

If a business is unable to change some of its inputs, then the link between its output and the cost of that output is described by the _____ cost function.

short-term Reason: In the short run at least one input to production is fixed.

The market for gasoline in the United States was impacted significantly in 2005 by a leftward shift in _____ attributed to an act of _____.

supply; nature

In a perfectly competitive market, all buyers and sellers are said to be price ______.

takers.

Marginal cost (MC) is defined as ______.

the additional total cost of additional production

Which one of the following is not a way that economists speak of a firm's average product?

Extra output per laborer

Which of the following are examples of natural monopolies largely relevant to the past?

Telephone service Cable TV Electricity

Suppose that the government requires that all new houses have sprinkler systems installed. Because house will now be costlier to build but safer to live in, we will likely observe ______.

a leftward shift in supply and a rightward shift in demand.

Market power leads to a redistribution of income away from _____ and toward _____.

consumers; producers

The total cost of producing each level of a firm's output is given by the ____ function

cost

At firms that pay primarily by the hour, like airlines, labor is typically measured by the number of ______.

hours worked

As a firm adds additional workers to its fixed capital, the marginal product of labor typically _________

decreases

A market shift that encourages buyers to increase the amount they wish to purchase at any given price is called a ______ shift.

demand

If the quantity demanded exceeds the quantity supplied at the current market price, then an excess ______ , Correct Unavailable exists.

demand

In the basic supply and demand diagram, the demand curve is _____ sloping and the supply curve is _____ sloping.

downward; upward

Government actions (rules and regulations) can typically impact ______.

either demand, supply or both

The profit-maximizing level of production for a business is found at the point where marginal revenue _____ marginal cost.

equals Reason: The profit maximizing (loss minimizing) rule states that profit is maximized or loss is minimized when marginal revenue equals marginal cost.

The quantity supplied and demanded at the market's equilibrium price is called the _____ quantity.

equilibrium

When a market price occurs such that the quantity demanded equals the quantity supplied, the market is said to be in ______.

equilibrium

In the long run, any successful business in monopolistic competition will quickly have many imitators, resulting in the relatively rapid _____ of its competitive edge.

evaporation

Suppose a company knows that it can sell all the products it wants for $300 each. From this we know that it will produce up to the point where its marginal cost is ______.

exactly $300. Reason: MC=MR

In a perfectly competitive market, buyers are assured of a product's availability provided the price they are willing to pay _____ the marginal cost of production.

exceeds

The number of sellers in an oligopoly market is usually less than ______.

five

An excess supply is said to exist if, at the current market price, the quantity supplied is _____ than the quantity demanded.

greater

As long as price exceeds marginal cost, a perfectly competitive market ______.

guarantees that a seller will emerge.

As long as price exceeds marginal cost, a perfectly competitive market ______.

guarantees that a seller will emerge. Reason: The profit maximizing (loss minimizing) output is where mc=mr.

A review of the events impacting monopolies over the past several decades suggests that the simplest way to hang on to monopoly power today is to ______.

have government protection.

The text's use of the phrase, "big squeeze," refers to the fact that _____ producers will be forced out of competitive markets.

high-cost

Events in the U.S. market for gasoline in the latter half of 2005 produced a _____ equilibrium price and a _____ equilibrium quantity.

higher; lower

Any movement along either a demand or supply curve happens only when the _____ is changing.

market price

In a supply-demand diagram with price measured on the vertical axis and quantity on the horizontal, the market equilibrium is found where the supply and demand curves ____.

meet

In some markets it may make economic sense to have only one supplier. These situations are known as _____ monopolies.

natural

Globalization can create shifts in demand and supply curves by introducing _____ a market.

new participants into

Any business in a competitive market that fails to produce the output where price equals marginal cost will ______.

not maximize profit.

If a business has increased production to the point where marginal revenue is less than marginal cost, then it is

not maximizing profit

Business "know-how" costs, that is the accumulated experience of the owners, are ____ by most companies.

not officially reported

Collusion is most common in _____ markets.

oligopolistic

The situation where a market has only a small number of sellers producing similar products is known as an _________.

oligopoly

A market experiencing a demand shift will see its equilibrium

price and quantity both change.

Market power is the ability to raise _____ above the level produced by perfect competition.

prices

Suppose you are producing cakes. You will need some ingredients such as flour, sugar, eggs, and milk as well as a bowl to mix and a pan to bake your cake. These are your inputs to production. Given these inputs, the number of cakes you can bake in a given time is specified by a __________ ________.

production function

A firm's attempt to produce something for which the difference between its sales receipts and its production costs is greatest is shorthand for _____ maximization.

profit

Monopolistic competitive resembles perfect competition in the long run in the sense that ______.

profit tends toward zero

Technological change typically produces _____ market supply curves.

rightward shifts in

When new businesses enter a competitive market, the market supply curve shifts _____, forcing the price _____.

rightward; down

When new businesses enter a competitive market, the market supply curve shifts _____, forcing the price _____.

rightward; down Reason: New entrants into a market increases supply thereby shifting the supply function to the right.

Henry Ford's 1913 introduction of assembly-line production in his automobile plants shifted the supply curve _____, pushing price _____ and quantity _____.

rightward; down; up

Suppose new drilling techniques produce a surge in natural gas production which causes lower prices for natural gas. Because much electricity is generated by the use of natural gas, the supply curve of electricity will shift _____, yielding _____ electricity prices.

rightward; lower

If consumer tastes change so that people have a more positive view toward a product, its demand curve will shift _____ and the price will _____.

rightward; rise

When interest rates rise, the cost of borrowing money _____, inducing people to borrow and spend _____.

rises; less

Suppose that an excess demand exists at the current market price. In this case, the resulting _____ pressure on price continues until the excess supply disappears.

upward

Consider a graph showing the simple production function for a barber shop, with haircuts measured on the vertical axis and barbers on the horizontal. Letting all the other inputs (building, chairs, scissors, etc,) be fixed, the line depicting the relationship between barbers and haircuts will be _____ sloping.

upward Reason: More barbers can produce more haircuts.

When a firm's workers are equipped with more or better capital, the positively sloped line depicting the production function between labor and output will pivot on the origin, rotating

upward, in a counterclockwise fashion. Reason: More or improved capital goods will increase production which leads to an outward shift in the production function.

In the real world, perfectly competitive markets are ______.

very rare.