ECO 2123 Microeconomics Mid-Term

Which of the following conditions is not required for price discrimination?

Buyers with different elasticities must be physically separate from each other.

Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. This firm's profit-maximizing price will be:

$16.

Refer to the data. Total fixed cost is:

$50.00.

If a firm wanted to know how much it would save by producing one less unit of output, it would look to:

MC.

The diagram portrays:

The diagram portrays:

Which of the following is most likely to be an inferior good?

Used clothing.

A purely competitive seller is:

a "price taker."

A perfectly elastic demand curve implies that the firm:

can sell as much output as it chooses at the existing price.

Total fixed cost (TFC):

does not change as total output increases or decreases.

Refer to the diagram for a purely competitive producer. If product price is P3:

economic profits will be zero.

Barter

entails the exchange of goods for goods.

Refer to the diagrams. Diagram (A) represents:

equilibrium price and quantity in a purely competitive industry.

To the economist, total cost includes:

explicit and implicit costs.

Economic resources are also called:

factors of production.

Accounting profits are typically:

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

Refer to the diagrams. The price will be _______ and the quantity will be _______ with the industry structure represented by diagram (B) compared to the one represented in (A).

higher; lower

The copper, aluminum, cement, and industrial alcohol industries are examples of:

homogeneous oligopoly.

When the price of a product increases, a consumer is able to buy less of it with a given money income. This describes the:

income effect.

The fact that most medical care purchases are financed through insurance:

increases the amount of health care consumed by reducing the price of additional units of care.

Entrepreneurs in purely competitive industries:

innovate to lower operating costs and generate short-run economic profits.

As a general rule, oligopoly exists when the four-firm concentration ratio:

is 40 percent or more.

An industry having a four-firm concentration ratio of 85 percent:

is an oligopoly.

"Vote for my special local project and I will vote for yours." This political technique:

is called "logrolling."

Producer surplus:

is the difference between the minimum prices producers are willing to accept for a product and the higher equilibrium price.

The utility of a good or service:

is the satisfaction or pleasure one gets from consuming it.

Refer to the diagram. Flow 2 represents:

land, labor, capital, and entrepreneurial ability.

The four factors of production are:

land, labor, capital, and entrepreneurial ability.

A natural monopoly occurs when:

long-run average costs decline continuously through the range of demand.

Monopolistic competition means:

many firms producing differentiated products.

An industry comprised of four firms, each with about 25 percent of the total market for a product, is an example of:

oligopoly.

The unlawful misdirection of governmental resources for personal gain is known as:

political corruption.

The law of demand states that, other things equal:

price and quantity demanded are inversely related.

A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from:

product differentiation.

In terms of the circular flow diagram, households make expenditures in the _____ market and receive income through the _____ market.

product; resource

In an oligopolistic market:

products may be standardized or differentiated.

The term productive efficiency refers to:

the production of a good at the lowest average total cost.

Normal profit is:

the return to the entrepreneur when economic profits are zero.

Economies and diseconomies of scale explain:

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

Nonprice competition refers to:

advertising, product promotion, and changes in the real or perceived characteristics of a product.

In the long run:

all costs are variable costs.

The main determinant of elasticity of supply is the:

amount of time the producer has to adjust inputs in response to a price change.

Refer to the diagram. This firm is selling in:

an imperfectly competitive market.

The following is cost information for the Creamy Crisp Donut Company:Entrepreneur's potential earnings as a salaried worker = $50,000Annual lease on building = $22,000Annual revenue from operations = $380,000Payments to workers = $120,000Utilities (electricity, water, disposal) costs = $8,000Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000Entrepreneur's forgone interest on personal funds used to finance the business = $6,000Refer to the data. Creamy Crisp's implicit costs, including a normal profit, are:

$136,000.

Refer to the diagram. At the profit-maximizing output, total revenue will be:

0AHE.

Refer to the diagram. A surplus of 160 units would be encountered if the price was:

1.60

Refer to the data. The marginal cost curve would intersect the average variable cost curve at about:

4 units of output.

Refer to the diagram. The highest price that buyers will be willing and able to pay for 100 units of this product is:

60

Refer to the data. The marginal cost of the fifth unit of output is:

78

Which of the following is an example of market failure?

All of these.

Which of the following best expresses the law of diminishing returns?

As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra or marginal output will decline.

Which of the diagrams correctly portrays a nondiscriminating pure monopolist's demand (D) and marginal revenue (MR) curves?

B.

Which of the following is a distinguishing feature of a command system?

Central planning.

Why do people tend to eat more at all-you-can-eat buffet restaurants than at restaurants where each item is purchased separately?

Once the all-you-can-eat meal is purchased, consumers view additional trips back to the buffet as having a price of zero.

Allocative efficiency is achieved when the production of a good occurs where:

P = MC.

In which of the following cases will total revenue increase?

Price rises and demand is inelastic.

Which of the following is a fundamental characteristic of the market system?

Property rights.

In which one of the following market models is X-inefficiency most likely to be the greatest?

Pure monopoly.

Which of the following is not a basic characteristic of monopolistic competition?

Recognized mutual interdependence.

The U.S. federal government's largest unfunded liability is:

Social Security.

What do economies of scale, the ownership of essential raw materials, and patents have in common?

They are all barriers to entry.

Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?

Use of savings to pay operating expenses instead of generating interest income.

Which of the following is one of the Five Fundamental Questions?

What goods and services will be produced?

(Consider This) From an economist's perspective, when is government too big?

When the marginal costs from additional government spending exceed marginal benefits.

The term oligopoly indicates:

a few firms producing either a differentiated or a homogeneous product.

An explicit cost is:

a money payment made for resources not owned by the firm itself.

The term "other things equal" means that:

a number of relevant variables are assumed to be constant.

Pure monopoly refers to:

a single firm producing a product for which there are no close substitutes.

Refer to the diagram. A price of $60 in this market will result in:

a surplus of 100 units.

Economists would describe the U.S. automobile industry as:

an oligopoly.

Fixed cost is:

any cost that does not change when the firm changes its output.

"Earmarks" refer to:

authorized expenditures benefiting a narrow, specifically designated group that are included in more comprehensive spending legislation.

Refer to the diagram for a purely competitive producer. The firm will produce at a loss at all prices:

between P2 and P3.

The law of diminishing marginal utility states that:

beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer.

If for a firm P = minimum ATC = MC, then:

both allocative efficiency and productive efficiency are being achieved.

The law of increasing opportunity costs is reflected in a production possibilities curve that is:

bowed out from the origin.

The price elasticity of demand coefficient measures:

buyer responsiveness to price changes.

A perfectly inelastic demand schedule:

can be represented by a line parallel to the vertical axis.

Marginal cost is the:

change in total cost that results from producing one more unit of output.

Marginal utility is the:

change in total utility obtained by consuming one more unit of a good.c

The study of economics is primarily concerned with:

choices that are made in seeking the best use of resources.

The point on the production possibilities curve that is most desirable can be found by:

comparing marginal benefits and marginal costs.

The regulatory mechanism of the market system is:

competition

Blu-ray players and Blu-ray discs are:

complementary goods.

When congressional representatives vote on an appropriations bill, they must vote yea or nay, taking the bad with the good. This statement best reflects the:

concept of limited and bundled choices.

Refer to the diagram. Flow 4 represents:

consumer expenditures.

The dollar votes of consumers ultimately determine the composition of output and the allocation of resources in a market economy. This statement best describes the concept of:

consumer sovereignty.

An increase in the price of a product will reduce the amount of it purchased because:

consumers will substitute other products for the one whose price has risen.

The advent of DVDs has virtually demolished the market for videocassettes. This is an example of:

creative destruction.

The law of diminishing marginal utility explains why:

demand curves slope downward.

The marginal benefit to society of reducing pollution declines with increases in pollution abatement because of the law of:

diminishing marginal utility.

The mutual interdependence that characterizes oligopoly arises because:

each firm in an oligopoly depends on its own pricing strategy and that of its rivals.

If demand for a product is elastic, the value of the price elasticity coefficient is:

greater than one.

Prashanth decides to buy a $75 ticket to a particular New York professional hockey game rather than a $50 ticket for a particular Broadway play. We can conclude that Prashanth:

has a higher "marginal utility-to-price ratio" for the hockey game than for the play.

To maximize profit, a pure monopolist must:

maximize the difference between total revenue and total cost.

Marginal product:

may initially increase, then diminish, and ultimately become negative.

The restaurant, legal assistance, and clothing industries are each illustrations of:

monopolistic competition.

Supply curves tend to be:

more elastic in the long run because there is time for firms to enter or leave the industry.

Refer to the diagram. An increase in quantity supplied is depicted by a:

move from point y to point x.

Refer to the data. The price elasticity of demand is unity:

n the $4-$3 price range only.

Refer to the diagrams for two separate product markets. Assume that society's optimal level of output in each market is Q0 and that government purposely shifts the market supply curve from S to S1 in diagram (a) on the left and from S to S2 in diagram (b) on the right. We can conclude that the government is correcting for:

negative externalities in diagram (a) and positive externalities in diagram (b).

A positive statement is one that is:

objective and is based on facts.

Market failure is said to occur whenever:

private markets do not allocate resources in the most economically desirable way.

A firm finds that at its MR = MC output, its TC = $1,000, TVC = $800, TFC = $200, and total revenue is $900. This firm should:

produce because the resulting loss is less than its TFC.

Refer to the diagram for a nondiscriminating monopolist. Marginal revenue will be zero at output:

q2

Refer to the data. Assuming that the firm is motivated by self-interest and that the 20 units that can be produced with each technique can be sold for $2 per unit, the firm will:

realize an economic profit of $10.

Production costs to an economist:

reflect opportunity costs.

Other things the same, if a price change causes total revenue to change in the opposite direction, demand is:

relatively elastic.

Refer to the diagram. In the P1P2 price range, demand is:

relatively elastic.

Gigantic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is:

relatively inelastic.

The demand for a luxury good whose purchase would exhaust a big portion of one's income is:

relatively price elastic.

The pursuit through government of a "transfer of wealth" at someone else's expense refers to:

rent-seeking behavior.

Long-run competitive equilibrium:

results in zero economic profits.

A production possibilities curve illustrates:

scarcity

Macroeconomics can best be described as the:

study of the large aggregates of the economy or the economy as a whole.

Any point inside the production possibilities curve indicates:

that more output could be produced with the available resources.

Refer to the diagram for a purely competitive producer. The firm's short-run supply curve is:

the bcd segment and above on the MC curve.

Allocative efficiency occurs only at that output where:

the combined amounts of consumer surplus and producer surplus are maximized.

Opportunity costs exist because:

the decision to engage in one activity means forgoing some other activity.

The income and substitution effects account for:

the downward-sloping demand curve.

If a variable input is added to some fixed input, beyond some point the resulting extra output will decline. This statement describes:

the law of diminishing returns.

The lowest point on a purely competitive firm's short-run supply curve corresponds to:

the minimum point on its AVC curve.

The economizing problem is:

the need to make choices because economic wants exceed economic means.

The Illinois Central Railroad once asked the Illinois Commerce Commission for permission to increase its commuter rates by 20 percent. The railroad argued that declining revenues made this rate increase essential. Opponents of the rate increase contended that the railroad's revenues would fall because of the rate hike. It can be concluded that:

the railroad felt that the demand for passenger service was inelastic and opponents of the rate increase felt it was elastic.

Price discrimination refers to:

the selling of a given product at different prices to different customers that do not reflect cost differences.

The concept of price elasticity of demand measures:

the sensitivity of consumer purchases to price changes.

When the price of a product rises, consumers with a given money income shift their purchases to other products whose prices are now relatively lower. This statement describes:

the substitution effect.

A negative externality or spillover cost occurs when:

the total cost of producing a good exceeds the costs borne by the producer.

Competition means that:

there are independently acting buyers and sellers in each market.

Refer to the data. Diminishing returns begin to occur with the hiring of the _________ unit of labor.

third

Refer to the diagram. Flow 1 represents:

wage, rent, interest, and profit income.