ECO Final
(Figure: Long-Run Monopolistic Competition) Based on the graph, this monopolistically competitive firm will earn _____ profit in the long run.
zero economic
Which of the following words BEST describes what economics is about?
choices
When a sports team consistently struggles to win any games, one strategy is to replace the coach. But when this happens, the new coach initially has the same players, the team's primary input. How can a new coach improve the team's record when the players are mostly the same? The new coach
comes with a new idea that allows him or her to use the inputs more efficiently and productively.
One practical reason that economists use percentages to measure elasticity is to
compare characteristics of unrelated products.
(Figure: Determining Surplus and Loss) In the graph, if the government sets a maximum price of $5, there is a
shortage of 40 units.
Given the information in the table, the average fixed cost at 14 units of production is
$14.29.
Suppose that a customer's willingness-to-pay for a product is $5, and the seller's willingness-to-sell is $4. If the negotiated price is $3, how much is consumer surplus?
$2
For the monopolistically competitive firm in the following figure, the profit-maximizing price is _____ and the quantity is _____.
$32; 25
At 500 units of output, total cost is $50,000 and variable cost is $5,000. What is fixed cost at 500 units?
$45,000
(Figure: Impact of Tax on Market Equilibrium) Based on the graph, how much is the deadweight loss created by the tax?
$60
The accompanying graph depicts the cost curves of an individual firm in a perfectly (or purely) competitive industry. In the long run, the firm will shut down if the market price stays below
$9
The Miami Heat can sell five courtside seats for $2,000 each or six courtside seats if it reduces the price to $1,600 each. What is the marginal revenue of the sixth seat?
-$400
If sales of apples decrease by 5% because of an increase in the price of apples by 10%, the elasticity of demand for apples is
0.5.
Consider Perfect Competition. (Figure: Determining Long-Run Adjustments) The figure depicts the cost curves for a firm in a perfectly competitive industry in the long run. If the market price is $40, how many units of output should this firm produce?
12 units
The graph shows the cost curves of an individual firm in a perfectly (or purely) competitive industry. Use the line labeled Supply to trace out the firm's short‑run supply curve. What is the minimum quantity this firm will produce in the short run?
12 units
According to the By the Numbers graph, the annual growth rate in demand for electricity per capita has fallen over the past half-century but has remained positive nearly every year. Actual electricity demanded per capita grew in all of the following years except
2010-2015
Regulation is most likely to occur in a market with a Herfindahl-Hirschman Index (HHI) of
2500
Refer to the table to determine how many gallons of blood Vamplife should produce in order to maximize profit.
3
How much of each good does Ziva consume at these prices? Please answer in whole numbers.
4 rockets 5 fireworks
Consider Perfect Competition. In the following diagram of a firm in a perfectly competitive market, what is the quantity that maximizes the firm's profit?
62
Pfizer's control of the production of Viagra:
Legal barrier
In a perfectly competitive market, marginal revenue is equal to the market price.
True
Which is an example of an x‑inefficiency?
A company offers all of its upper management exclusive travel in a fleet of private jets, even to non‑business critical events.
Firms use price discrimination to increase their profits by converting part or all of consumer surplus to producer surplus.
A firm must have the ability to hide their prices from consumers.
How is the issue of raising capital a natural barrier to entry for new firms seeking to enter a market?
Banks and venture capital companies are unlikely to lend to firms with little chance of competing against established businesses.
In nearly every example of demand in this book, a negative relationship exists between the market price and the quantity demanded. Why doesn't this relationship exist for a firm operating in a perfectly competitive market?
Because in a perfectly competitive market, each individual firm does not have the market power to set prices. Each individual firm is a price taker.
Bree's Bait Shop is a successful store that specializes in highly effective fishing tackle. Bree has employed a high‑tech computer tracking system that allows her to separate her customers into two different groups of consumers with differing price elasticities of demand. Bree is interested in increasing her profits through price discrimination and approaches your marketing firm for advice. Assuming her demand curve is downward sloping, you tell her there is one more crucial piece of information you must have in order to advise her. What do you ask Bree?
Can your customers resell your products to one another?
Please answer the questions about cartels and the specific case of OPEC. Which statement is generally true of cartels?
Cartels collude to raise prices and profits.
Please answer the questions about cartels and the specific case of the Organization of the Petroleum Exporting Countries (OPEC). a. Which statement is generally true of cartels?
Cartels collude to raise prices and profits.
One can typically find a high-quality color laser printer for $300, which has four pre-installed color toner cartridges that are only half-filled. When the toner is used up, replacing all four cartridges costs over $400. Why would companies charge more to replace the toner than to buy the printer itself?
Companies have more monopoly power in the toner cartridge market than in the printer market.
Economist argue that consumers are better off when competition is strong and monopolies are limited to certain industries. One reason is the deadweight loss associated with monopoly markets and market power. Which of the following is an example of deadweight loss in monopoly markets?
Consumer surplus lost because prices are higher and output is lower under monopolistic conditions
China's control of the market for rare earths (a group of minerals used to produce electronics):
Control of a resource
The opening of formal Cuban relations with the United States has led to greater trade between the two countries, especially in perfectly competitive products such as sugar, tobacco, and oranges. Explain what is likely to happen in the market for these agricultural products under increased trade with Cuba.
Greater trade between the two countries will lead to lower prices in the market for products such as sugar, tobacco, and oranges.
In the Canadian province of Northern Territories in the Arctic, ice roads are an important means of transportation during the winter months. These are pathways for cars and trucks made on frozen lakes enabling trucks to reach remote mines that generate many jobs. However, in 2017, the 248-mile Tibbitt to Contwoyto Winter Road faced a shorter season due to warmer weather that delayed the freezing of the lakes. Moreover, the thawing permafrost surrounding the area releases carbon dioxide and methane trapped underneath, adding greenhouse gases to the atmosphere. Each of the following is an external cost faced by residents of the Northern Territories as a result of climate change except one. Which is the exception?
Higher wages, owing to labor shortages associated with seasonal workers' inability to enter the region during winter
Which concept best explains why the firms will behave in this way?
Hotelling's location model
Why does this change (if any) occur to the demand curve for a forced cooperation oligopoly?
If one member of the cartel raises output and lowers prices, the rest of the cartel will also slash prices.
Which statement about marginal revenue (MR) is NOT true?
MR is the total revenue divided by the quantity sold.
Which situation gives the best example of a price‑taker as it pertains to perfect competition?
Mary Beth grows cotton. She finds that she can always sell her entire crop at the market price. However, if she asks a price that is even slightly higher she cannot sell any of her cotton.
Which of the following companies most closely resembles a monopoly?
Microsoft
Which firm is most likely to be a natural monopoly?
Municipal Power Light, the local supplier of electricity
Facebook's position in social media:
Network externalities
Which statement about the relationship between a firm's demand curve under perfect competition and a monopoly is TRUE?
Under perfect competition, the demand curve is perfectly elastic; under a monopoly, the demand curve has elastic, unit-elastic, and inelastic portions.
Mr. Gizmo, owner and CEO of Gizmos Incorporated, notices that, while people can be prevented from using gizmos, gizmos also exhibit simultaneous (nonrivalrous) consumption. Gizmos Incorporated, is most likely
a natural monopoly.
Consider Perfect Competition. (Figure: Unicycle Production Costs) If the market price is $18, this firm makes
a normal profit or zero economic profit.
All of these are characteristic of monopolistic competition EXCEPT
barriers to entry.
(Figure: Determining Surplus and Loss) Consider the graph. If the price is lowered from $8 to $5, producer surplus
bce.
From the perspective of the consumer, product differentiation has
both benefits and costs
Increased trade tensions between the United States and China in recent years have led to tariffs (taxes) being placed on many U.S. agricultural products sold to China. If many of these products are in a perfectly competitive industries, what will happen to the demand and the market price?
Demand will decrease, and the market price will fall.
The graph shows the cost curves of an individual firm in a perfectly (or purely) competitive industry. Use the line labeled Supply to trace out the firm's short‑run supply curve. In the long run, the firm will shut down if the market price stays below
$9
Daniel and Baily just purchased a piece of land and a tractor. They plan to start growing and selling organic peas. They have heard that the market for organic peas is perfectly competitive. What does that mean in terms of long‑run profit?
Firms will earn zero economic profit in the long run
What could explain why Mylan did not lose many customers after raising the price of the EpiPen? Mylan did not lose many customers because
EpiPen had few substitutes. EpiPen is a necessity for people with allergies. the demand for EpiPen was nearly perfectly price inelastic.
Increased trade tensions between the United States and China in recent years have led to tariffs (taxes) being placed on many U.S. agricultural products sold to China. how will producers be affected in the short run and long run?
In the short run, firms' profits will decrease. In the long run, some firms will exit the industry.
Consider the three different long‑run industry supply curves (LRIS). Choose the statement that best describes the type of industry LRIS represents.
LRIS1 represents an increasing cost industry.
Economic theory states that the firm should shut down if market price falls below average variable costs at the profit maximizing output. The firm will minimize losses by stopping production when revenue is not sufficient to cover variable costs. In the business world, the decision to shut down a firm is often more complicated. Under what circumstances might a firm continue to operate when prices are below average variable costs?
The firm might continue to operate if profit could be generated in the long run.
Which of the statements about free trade's effects on the environment is not commonly given as an argument against trade liberalization?
The international trade of agricultural products harms local agriculture in all countries.
Bertrand is an avid supporter of protectionism. His primary platform is the idea that the United States imports too many foreign goods. He dislikes that many of his clothes are made in China instead of the United States because clothing is a basic need, even for babies. He would prefer that the United States drill in the Arctic National Wildlife Refuge (ANWR) instead of importing oil from Kuwait because oil powers our military's tanks and planes. Which argument for protectionism is Bertrand using?
The national interest argument
Which statement is the best definition of the price elasticity of demand?
The ratio of the percent change in quantity demanded to the percent change in price.
The growth of ride-sharing services such as Uber and Lyft has generated much discussion in the news. Drivers operate as independent businesses, working as many hours as they choose and earning a portion of the fares. Fares are set by the company, with market prices increasing during periods of high demand, such as "surge" pricing by Uber. From the driver's perspective, ride-sharing companies share many characteristics with perfectly competitive firms. Which of the following is not a characteristic found in ride-sharing companies?
The short-run supply curve is nonexistent.
Which of the given factors is an assumption of perfect competition?
There are a large number of producers in the market.
Use the accompanying graph to answer the questions. Ziva is deciding how many fireworks and toy rockets to buy with her $120. The price of fireworks is $12, and the price of rocket ships is $15. The graph shows her indifference curves for these two goods. Place the budget constraint, BC, to show Ziva's consumption possibilities, and place point A at Ziva's consumption point if she maximizes her utility. Curves U1 through U5 represent five of Ziva's indifference curves. Which is the highest level of utility that Ziva can achieve with her budget?
U3
How might an industry's costs change in the long run? Costs may decrease due to
economies of scale.
Suppose that a car manufacturer discovers that it can lower its average costs if it diversifies its operation by also producing pickup trucks and SUVs. What concept does this illustrate?
economies of scope
Behavioral economics is the field of economics that
explores economic decision making using findings from experimental psychology.
A farmer in Iowa sells corn to a food processing plant in China.
export
Chevron, a U.S. based oil company, sells oil to oil refineries in Brazil and Mexico.
export
In comparison to oligopolies, firms in monopolistic competition
face competition from many other firms.
An increasing number of charities have turned to online auctions as a way to raise money by selling unique experiences donated by celebrities, such as a meet-and-greet with a celebrity before a concert or a walk-on role on a television show. Why would the use of auctions lead to a better outcome for the charity as opposed to just setting a fixed price? The outcome is better because
in an auction consumers reveal the highest price they are willing to pay, which may be higher than the fixed price.
Stone and brick are substitutes in home construction. Consider the market for bricks depicted in the graph. Suppose the price of stone increases due to new regulations for the stone quarrying industry. Illustrate the impact this will have on the market for bricks. Equilibrium quantity __________________.
increases.
The key difference between microeconomics and macroeconomics is microeconomics focuses on _____ while macroeconomics focuses on _____.
individual decisions; aggregate issues
City beautification is a public good because:
it is nonrival in consumption and nonexcludable.
What would be a possible opportunity cost of a person going to a doctor for a check-up?
lost income due to not being at work for those hours
Indicate whether each possible solution is a private or non-private approach to the problem caused by the loud fraternity. The local city government sends the police to break up the parties.
non-private solution to an externality
Rambutan is a fruit prized in Eastern Asia for its unique hairy look. Once peeled, it reveals a sweet, slightly sour grape-like gummy tasting fruit. Consider the graph for marginal revenue (MR), marginal cost (MC), and average total cost (ATC) for a perfectly competitive rambutan farmer. This firm is currently incurring a ___________________ . In the long run, other firms will _______________ this market.
profit; enter
Which business organization typically has a single owner that has unlimited liability?
sole proprietorship
Which of the following is not a characteristic of a perfectly competitive market?
some control over price
Consider the maximum amount of a product that sellers are willing and able to provide for sale over a relevant range of prices, holding all other factors constant. Economists call this __________.
supply.
Aurora Township is asking all of its citizens to chip in and donate money to build a new library. Tommy thinks he already pays enough money in taxes, so he chooses not to donate. He knows that even if he does not contribute he will be able to use the library once it is built. This is an example of
the free rider problem.
When the market price of a good increases, the amount that sellers are willing to offer for sale increases. Economists call this
the law of supply.
Suppose a firm experiences an increase in average cost as it hires more labor because it becomes harder to maintain motivation and enthusiasm. This is an example of
the principal-agent problem.
Demand is best described as
the quantity of a good or a service that people are willing and able to purchase at different possible prices.
According to the Coase theorem, private parties can negotiate to an efficient solution in the presence of externalities if the _______________ is (are) relatively low.
transaction costs
If demand is perfectly inelastic and supply is relatively elastic, the burden of a tax
falls entirely on consumers.
Which of these would MOST likely reflect the cross elasticity of demand between honey and sugar?
2
A monopolistic competitor, much like a firm in perfect competition, sells its product at a pointwhere the price is equal to the marginal cost.
false
Which statement describes a monopoly?
A single firm produces a product with no close substitutes and control over the market price.
Aarika, Katrina, and Gabriela are discussing cost curves over a Carmel Rotti Twist at Spike's Coffee Lounge. Aarika contends that an increasing‑cost industry is an industry in which costs rise in the long run as output rises. Katrina believes that an industry can have decreasing costs in the long run as output expands. Gabriela is certain that an industry can expand in the long run even as costs remain constant. Select the most correct statement.
Aarika, Katrina, and Gabriela are all correct.
In 2015, United Airlines and Orbitz Travel sued a 22-year-old person who created the Web site skiplagged.com aimed at helping travelers save money using a technique called "hidden‑city ticketing" (CNN Business, May 1, 2015). Hidden-city ticketing works when a passenger wants to travel nonstop between an airline's major hubs but can find a less expensive fare by booking a connecting flight. The passenger travels on the first leg of the flight and does not take the connecting flight. An example would be a passenger who wanted to travel from Houston to Denver on United Airlines. The website might find a cheaper fair available from Houston to Colorado Springs with a connection in Denver. The passenger can purchase the cheaper flight, fly the first leg, and stay in Denver. Why would an airline charge more for a single flight than one that continues onwards to another destination?
Airlines charge a higher price for nonstop flights because they face little competition from other airlines that require stops at their own hubs.
Which of the following statements correctly describes the role that easy entry and exit play in competitive markets over the long run?
As a result of entry and exit, firms earn a normal profit in the long run.
A monopolistic competitor wishing to maximize profit will select a quantity where
marginal revenue equals marginal cost.
In 2018, two regional airline carriers, Alaska Airlines and Virgin America, agreed to merge into one larger airline under the Alaska Airlines name. Although the merger would reduce the number of airlines serving the U.S. market, and hence raise the HHI, the argument made by Alaska Airlines is that the overall airline industry would become more competitive, not less. Take a look at Alaska Airlines's and Virgin America's old route maps (they can be searched using Google) and compare them to the current Alaska Airlines route map. How might the larger airline be a more competitive player in the airline market?
Because a larger airline can attract more customers and increase its market share to a level similar to that of other leading airlines
Why are barriers to entry important in maintaining a monopoly?
Because barriers to entry give innovators market power and control over price.
Why are monopolies in a high‑tech field, such as consumer electronics, often short‑lived?
Because shortly after a new electronic product appears, other firms often introduce similar, though not identical, products to compete for profits.
Coca-Cola's vast market share in the soft drink market:
Brand loyalty
Monopolies exist because of barriers to entry, obstacles that prevent other firms from entering an industry and competing for market share. For each case, indicate which barrier to entry applies. a. Coca‑Cola's vast market share in the soft drink market:
Brand loyalty
Suppose you master the art of growing herbs in your garden and sell them for a profit at the local farmer's market. Your neighbor sees your profitable business and decides to do the same. However, with less experience, your neighbor faces a much higher marginal cost curve. Assume the market for herbs operates under perfect competition. How is it possible for both you and your neighbor to sell herbs at the same price?
Each seller produces the herbs until marginal cost equals the market price.
What attribute of natural monopolies discourages new entrants?
Economics of scale
. The local utility company that can provide electricity to the entire market at a lower average cost than other producers:
Economies of scale
The local utility company that can provide electricity to the entire market at a lower average cost than other producers:
Economies of scale
Which of the statements is true of the long‑run industry supply curve (LRIS)?
External economies result in a decreasing cost industry and a downward sloping LRIS curve.
An individual firm in a perfectly competitive market can obtain a higher price for its product by reducing output.
False
An individual firm in a perfectly competitive market must lower its price to sell more of its product.
False
In general, the market demand curve in a perfectly competitive market is perfectly elastic.
False
Which statement is true of OPEC?
OPEC sets production quotas in order to restrict supply
Which statement is true of OPEC?
OPEC sets production quotas in order to restrict supply.
Maintenance of the Barbary macaque population is paid for by
Gibraltar's government using tax dollars.
How can a kinked demand curve indicate that the firms in the oligopoly will continue to behave as a cartel and not have an incentive to deviate from the cartel?
If the firms in the oligopoly collude to restrict output, the firms implicitly agree to cut prices if a firm in the oligopoly cuts prices
Demand and supply are initially at D0 and So, as shown in the graph. Demand increases, and new firms enter the industry; therefore, in the long run, demand and supply move to D1 and S1. The long‑run industry supply curve is SLR. Using the information in the graph, what conclusion can be drawn?
In the long run, industry costs have increased.
Which of the statements is true of the prisoner's dilemma?
In the prisoner's dilemma, firms could do better if they both did exactly the opposite of what they ultimately choose to do.
Clark grows corn and is a price‑taker. For each scenario, decide what Clark should do to his price. Higher taxes, fuel prices, and wages are driving costs up for all corn farmers.
Increase
(Figure: Monopoly Pricing and Output Decisions) Based on the graph, which statement is TRUE about this monopolist?
It is operating at a profit.
Which statements is TRUE for a perfectly competitive firm that is in long-run equilibrium?
It is producing at the minimum point of both its LRATC and SRATC curves.
Which property is NOT a characteristic of a good environmental protection policy?
It minimizes abatement costs.
What are antitrust laws?
Laws meant to eliminate collusion and promote competition among firms.
Poker players are known to bluff once in a while, meaning that they will make a large bet despite holding inferior cards in an effort to pressure other players to fold their hands. Would bluffing be considered a dominant strategy in poker?
No, because if a player bluffs on every hand, other players will catch on and call his or her bluff.
Which of the statements is TRUE?
Patents give inventors exclusive rights to sell a product for a specific period of time. Copyrights are legal protections that protect a product from being copied by others for a specific period of time.
In the long run, which statement is TRUE for a monopolistically competitive firm?
Price equals average total cost, and MR = MC.
Suppose that the price of corn, a crop produced in a perfectly (or purely) competitive industry, increased 208% last year as demand for corn‑based ethanol fuel increased. What do you expect to happen in the long run for the corn industry given this recent success?
Profits will be equal to zero.
_____ would be MOST likely to have a free rider problem.
Public TV
Sally is a monopolist who owns the only cake shop in town. At a quantity of 20 cakes, the marginal cost of producing one more cake is $12, while the marginal revenue from selling one more cake is $10. To maximize profits, should Sally increase or decrease output? Should she increase or decrease price?
She should decrease output and increase price.
In which situation does a free rider problem occur?
Someone benefits from a good but does not have to pay for it.
Identify the first antitrust law and its purpose
The Sherman Act of 1890 prohibits price fixing, collusion, and monopolization.
If the US government decides to break up the cartel, under which of the following pieces of legislation could the cartel be prosecuted?
The Sherman Antitrust Act
Which statement best explains why consumers might benefit more from monopolistic competition than perfect competition?
The benefits of having more variety offsets the losses from differing prices and output.
Which statement best explains why consumers might benefit more from monopolistic competition than perfect competition?
The benefits of having more variety offsets the losses from productive and allocative inefficiencies.
Assume a competitive industry is in long-run equilibrium and firms in the industry are earning zero economic profit. Now assume that production technology improves such that average total costs decline by $5 per unit. How will the industry move to a new long-run equilibrium?
The decline in costs will result in economic profits in the short run. In the long run, firms will enter the market causing the price to fall until all firms only earn normal profits.
Mr. Gizmo, owner and CEO of Gizmos Incorporated, notices that, while people can be prevented from using gizmos, gizmos also exhibit simultaneous (nonrivalrous) consumption. Which of the statements is definitely true of Gizmos Incorporated?
The firm has large economies of scale.
Which condition is NOT necessary for price discrimination to exist?
The firm must set different prices to reflect marginal cost.
What do all three types of business structure have in common?
They all react to the profit incentives of the market.
Which of these scenarios is NOT an example of a barrier to entry?
Tinseltown Theaters shows almost all of the most popular newly released movies.
In a perfectly competitive market, average revenue is equal to the market price.
True
In general, an individual firm in a perfectly competitive market faces a perfectly elastic demand curve.
True
MR < P for the monopolist; however MR = P for the competitive firm.
True
Suppose Ethan is a driver in Singapore. Before the government implements additional congestion charges, the toll rate is equal to Ethan's maximum willingness‑to‑pay to use the highway during peak periods. After the government implements congestion charges, peak‑period toll prices increase, and fewer drivers use the highway during peak times. Before the government implements congestion charges, Ethan's consumer surplus from driving on the highway is
Zero.
According to the law of demand,
a decrease in price increases quantity demanded.
An oligopoly arises when _______________ have all or most of the sales in an industry. If oligopolists with the same marginal costs and no fixed costs compete against each other in price, it leads to all firms __________________ .
a few larger firms; making zero profit
Which is most likely to be a natural monopoly?
a firm that provides electricity to all of the homes in Los Angeles
Which of these factors will increase the chance of a new firm securing capital?
a high chance of success
Marjorie enjoys antique shopping by visiting the estate sales of those who have passed on, where she occasionally finds a rare piece priced at a bargain because the estate's beneficiaries were not aware of its high value. A market failure occurs in this situation due to
a mismatch of information.
What is a natural monopoly?
a monopoly that results when one firm is able to produce at a lower cost than multiple firms, giving large firms with higher levels of output an advantage over smaller competitors
If oligopolists cooperate, they can act as ___________ resulting in_____________.
a monopoly; higher prices and profits
Suppose the government is interested in moving the market closer to the socially optimal quantity. Which policy would likely result in the desired outcome?
a subsidy to consumers who choose to purchase solar-powered vehicles
U.S. fast‑food chains alter their menus and business practices in nearly every country in which they operate. For example, McDonald's restaurants in Mumbai sell Maharaja Macs—which consist of two chicken patties with three layers of bun—instead of traditional Big Macs. McDonald's offering of chicken patties instead of hamburger patties in India is
a way to accommodate consumer preferences.
Given an equilibrium level of output in an oligopoly market, each firm may face a kinked demand curve because the firms
agree to cut prices if another firm cuts prices.
When regulating a natural monopoly, average cost pricing is more effectively used than marginal cost pricing because average cost pricing
allows the firm to earn a normal rate of return on investment, while marginal cost pricing will lead to economic losses.
How might an industry's costs change in the long run? Costs may increase because
an expanding industry bids up resource or input costs.
Suppose Jeremy, Francis, and Andrew are part of Mu Epsilon Nu, a college fraternity known for its very loud, rambunctious weekend parties. The parties annoy many of the residents in nearby apartment complexes due to the loud music and blaring neon lights. This is an example of ___________________
an external cost
Clark grows corn and is a price‑taker. For each scenario, decide what Clark should do to his price. A bumper crop results in a much higher supply of corn this year.
decrease
In a market economy, there is ___________________________ relationship between the price of a good and the amount of a good that buyers are willing and able to purchase.
an inverse or negative
The law of demand says that
as the price of a good increases, buyers are willing and able to purchase less.
Teri takes her new puppy to the veterinarian. After he examines the puppy, the vet tells Teri that her puppy needs a series of shots. Teri agrees to the shots since the veterinarian knows way more about animal health than she does. This is an example of
asymmetric information.
A monopolistically competitive firm is like a perfectly competitive firm in the long run because
both firms will earn zero profit.
If a firm is producing a quantity where marginal cost exceeds marginal revenue, the firm should ____ existing levels of production in order to ____.
decrease ; increase profitability
Government restrictions on common property resources
can improve allocative efficiency.
A price maker is a firm that
can influence market price by adjusting its level of output.
Why do perfectly competitive firms sell their products only at the market price? Perfectly competitive firms
cannot charge more than other firms lest they sell nothing, and they have no incentive to sell at a lower price.
(Figure: Determining Surplus) In the graph, the triangle hik represents
consumer surplus.
Low‑fare carriers such as Spirit, Allegiant, and Frontier have been successful at gaining market share by offering low base fares, but then charging for everything from seat assignments to snacks, to carry‑on bags. In response, the major airlines (Delta, United, and American) introduced a new fare category called Basic Economy that mimics the low‑fare competition. This new strategy allows the major airlines to avoid a prisoner's dilemma outcome by
continuing to charge higher prices to their more loyal flyers, while competing for low‑fare carriers' customers.
Which of the following is a legal rule that prohibits copying of material in order to protect the rights of those responsible for the creation of the good?
copyright
Which business organization can raise capital by issuing stock?
corporation
Sandy owns the only landscaping company in town that specializes in flower gardens—thus, Sandy is a monopolist. At a quantity of 10 flower gardens, the marginal cost of producing one more flower garden is $300, and the marginal revenue from selling one more flower garden is $250. To maximize profits, Sandy should
decrease output to the point where 𝑀𝑅=𝑀𝐶MR=MC and increase price based on the demand curve.
Under monopolistic competition, entry of new firms typically causes price to _____ and profits to _____.
decrease; decrease
How do monopolistically competitive firms attain market power? Such firms attain market power by
differentiating their products.
Perfect price discrimination is characterized by charging
each customer a price equal to his or her maximum willingness to pay.
Profits that are calculated factoring both implicit and explicit costs are called _____ profits.
economic
Suppose monopolistically competitive firms are earning economic profits in the short run. In the long run, firms will ________the industry, __________the demand faced by each firm until all firms are earning normal profits.
enter; reducing
Which is not an example of rent‑seeking behavior?
excessive spending on a corporate jet for executives
If firms in a monopolistically competitive industry are experiencing economic losses in the short run, some firms will _____ the industry, _____ demand for each individual firm until each firm earns a normal profit.
exit; increasing
If a firm is producing a quantity where marginal revenue exceeds marginal costs, the firm should ____ existing levels of production in order to ____.
expand ; increase profitability
If a firm is producing a quantity where marginal revenue exceeds marginal costs, the firm should __________ existing levels of production in order to _____________.
expand; increased profitability
What explains why unregulated monopolists, unlike perfectly competitive firms, can maintain positive economic profits in the long run? Unregulated monopolists, unlike perfectly competitive firms,
face no competition in the long run.
If negative externalities are taken into account in the market, then output will _____, and price will _____.
fall; rise
In the long run, monopolistic competitors make a similar amount of profit to monopolists, since, in both cases, the firm's demand curves are downward sloping, and at the profit maximizing point, the marginal cost is equal to the marginal revenue.
false
Why, if competitive firms are earning economic profits in the short run, are they unable to earn them in the long run? If firms are making short-run profits,
firms will enter the industry and greater competition will drive profits to zero in the long run.
The opportunity costs of attending college do NOT include
food expenditures.
What type of behavioral factor does this strategy demonstrate? This strategy demonstrates
framing bias.
Barbary macaques are the only population of wild monkeys that remain in Europe. Barbary macaques are subject to the
free rider problem
U.S. fast‑food chains often alter their menus or business practices to accommodate local tastes and customs when operating in other countries. One reason for this may be that U.S. companies do not want to go against cultural norms or offend their customers when operating overseas. To a certain extent, U.S. companies wish to fit in to the cultures where they are selling their products. Given this, consider why they do not simply offer the exact same menu items offered by local competitors in each market that they serve. a. Some degree of product differentiation is necessary to
gain market share.
Suppose there are three internet service providers (ISPs) in a local market which have been around for a long time and generate healthy economic profits. Suppose that a startup fiber company enters the market. Initially, the startup captures many customers from the older ISPs but soon experiences financial problems due to the huge upfront costs associated with creating a fiber network. In order to generate more revenue, the startup decreases its price by 10%. In response, the established firms all offer price-match guarantees and an additional 5% off any matched price. The older ISPs run the price matching scheme even after the startup decides to return to its original price. Eventually, the startup goes bankrupt and the older ISPs return to the initial pricing regime. What type of strategy did the three existing ISPs employ?
grim trigger
Which industry is MOST likely to be monopolistically competitive?
hair salon service
The opioid epidemic causing a staggering number of deaths each year in the United States is largely caused by two drugs: heroin and fentanyl. Much of the heroin is supplied by several major organized Mexican cartels while the much stronger fentanyl is mostly produced in hundreds of labs (big and small) in China. The market structure for heroin can be considered as an oligopoly that operates as a monopoly. On the other hand, the fentanyl industry is less organized in terms of cartel organization and therefore more competitive. How do the differences in the organization of both industries explain why deaths from fentanyl have skyrocketed in recent years? The organized heroin cartel
has the ability to control quantity and raise the prices. The more competitive fentanyl industry makes more of the drug available at a lower price.
Which of these is MOST likely to have a perfectly inelastic demand curve?
heart transplant surgery
Which of these is NOT correct? Price floors and price ceilings
help a market balance the interests of sellers and buyers.
Competing airlines occasionally merge to create a larger airline. According to antitrust laws, all of the following help determine whether such mergers might be uncompetitive except
how many employees the airline has.
Efficiency within economics focuses on
how well resources are used and allocated.
Colombia's coffee producers operate in a perfectly competitive industry. Which statement is most likely true? In Colombia,
hundreds of thousands of individually-owned coffee farms produce the same type of coffee.
Emilio lives in the U.S. and purchases a video game produced in Japan.
import
Stone and brick are substitutes in home construction. Consider the market for bricks depicted in the graph. Suppose the price of stone increases due to new regulations for the stone quarrying industry. Illustrate the impact this will have on the market for bricks. Equilibrium price _________________.
increases
Assume the demand for coffee is inelastic. If the price of coffee increases, total revenue
increases.
Power plants have traditionally been considered natural monopolies due to
large economies of scale.
A college student can create a negative externality by
leaving a coffee cup in a classroom.
There are 38 nearly identical ABC stores within a one-mile radius in Waikiki. The combined size of these 38 stores allows ABC to offer large quantities at favorable prices. Antitrust laws are designed to maintain competition and prevent monopolies from developing. One reason antitrust laws exist is that monopolies tend to produce ________________output and charge _________________ prices than firms in perfectly competitive industries.
less; highter
Which of these is the BEST example of a common property resource?
lobsters in the ocean off the coast of Maine
Which situations would most likely result in an oligopolistic market?
local market for internet services
If a firm is able to change all of its factors of production, then it is operating in the
long run.
A perfectly competitive firm charges a price that is _____ and produces _____ than a monopolist.
lower; more
A perfectly competitive industry is characterized by
many firms with no control over the market price producing identical products.
Suppose Ethan is a driver in Singapore. Before the government implements additional congestion charges, the toll rate is equal to Ethan's maximum willingness‑to‑pay to use the highway during peak periods. After the government implements congestion charges, peak‑period toll prices increase, and fewer drivers use the highway during peak times. After the government implements additional congestion charges, during peak times, Ethan
may drive on the highway and possibly receive consumer surplus.
Han and Micah have just started their own business: a food truck that sells specialty Vietnamese food. Although the start-up costs were low, Han and Micah charge a higher price for their food than their competitors because people from all over the city come to buy their food. What type of market structure do they face?
monopolistic competition
A monopoly creates deadweight loss while a perfectly competitive industry does not because _____ than those of a perfectly competitive industry.
monopoly output is lower but its price is higher
Suppose there are three firms in the widget industry. Widgets 'R' Us decides not to cut the price for its widgets for fear that The Widget Warehouse and Widgets Unlimited, Ltd. will cut their prices and prevent Widgets 'R' Us from increasing its market share. This decision on the part of Widgets 'R' Us is an example of
mutual interdependence.
Regulation is more likely to occur in
narrowly defined markets.
(Figure: Determining Marginal Returns) Based on both the table and the figure, if a tenth worker is added, this leads to _____ marginal returns.
negative
A Chinese consumer purchases a TV produced in China.
neither
Veronica lives in Tennessee and buys an orange grown in Florida.
neither
Clark grows corn and is a price‑taker. For each scenario, decide what Clark should do to his price. Clark's wife wants to buy a new house. She argues that raising the price of his corn by a few cents per bushel would pay for it in no time.
no change
An advantage of tradable permits over emission taxes is that
no knowledge of marginal abatement costs is needed to ensure that the tax rate is optimal.
To be produced by a natural monopoly, a good must be
nonrival and excludable
A question whose answer is based on societal beliefs is a ____ question.
normative
Consider two rival firms competing in the headphone market. Which of the following product mix decisions are most likely, according to the relevant economic theory? The two firms will
offer similar types of products but differentiate based on product quality, features offered, and availability.
Regulation is most likely to occur in a market characterized as
oligopolistic.
Externalities are the impacts
on third parties.
Which characteristic is NOT typical of monopolistic competition?
one seller
There are 38 nearly identical ABC stores within a one-mile radius in Waikiki. The combined size of these 38 stores allows ABC to offer large quantities at favorable prices. Antitrust laws are designed to maintain competition and prevent monopolies from developing. ABC:
operates in a contestable market and is therefore unlikely to charge high prices.
Which business organization has unlimited liability and more than one owner?
partnership
Which of the following describes rules created by governments that allow for exclusivity in sales, use, and production of an invention for a limited period?
patent
Which market structure has many relatively small buyers and sellers, a standardized product, good information for both buyers and sellers, and no barriers to entry or exit?
perfect competition
Which market structures share the characteristic of many buyers and sellers?
perfect competition and monopolistic competition
Firms in _____ and _____ market structures earn zero economic profit in the long run.
perfect competition; monopolistic competition
How do barriers to entry affect monopolies? They
prevent or lessen competition.
Consider Perfect Competition. According to this graph of a perfectly competitive firm, what is the profit-maximizing price and quantity?
price = $12; quantity = 14
A firm increases its price for a good and total revenues increase. From this, we can conclude that its demand is
price inelastic.
Why are marginal revenue and price equal for competitive firms? Price equals marginal revenue because
price is constant for all levels of output
When prices fall below equilibrium
producer surplus falls and it is uncertain what happens to consumer surplus.
Suppose that a customer's willingness-to-pay for a product is $120, and the seller's willingness-to-sell is $110. If the negotiated price is $119
producer surplus is greater than consumer surplus.
Which of the following is a characteristic of monopolistic competition but not perfect competition?
product differentiation
Which of the following is a characteristic of both monopoly and monopolistic competition? Both market structures involve
product differentiation.
A physical DVD disc is a(n) _____ good, while a streaming video that can be used by multiple paying users is _____.
rival; nonrival
When a business offers its customers bulk discounts, they are practicing _____ price discrimination.
second-degree
If demand is extremely elastic, it is likely that _____ will bear most of the burden of a tax and that the deadweight loss will be relatively _____.
sellers; large
Why does deadweight loss occur at a price below equilibrium even though some consumers benefit? The deadweight loss occurs because
some trades between willing sellers and buyers are missed because the price is too low.
If Good C increases in price by 30% a pound, and this causes the quantity demanded for Good D to increase by 40%, what is the cross-price elasticity of the two goods? What is the relationship between the two goods?
substitutes
If the marginal cost pricing rule is used to regulate a natural monopolist, the monopolist
sustains an economic loss.
An example of a variable cost is
the cost of labor.
Which of the markets is the best example of monopolistic competition?
the fast food industry
Why must price cover average variable costs if the firm is to continue operating? If price is less than average variable costs,
the firm will minimize its losses by shutting down.
Colombia's coffee producers operate in a perfectly competitive industry. The market price of a pound of coffee is determined by
the global supply of and demand for coffee.
Which factors have the potential to develop an oligopolistic market?
the granting of a limited number of patents high economies of scale
In which industries are firms more likely to face a contestable market?
the low‑cost airline industry
In the short run, a perfectly competitive firm will continue to produce even though it might experience an economic loss if
the market price exceeds the average variable cost.
If a price floor is set below the equilibrium price in the market, consumer surplus will be
the same as it would be without the price floor.
Utility is the measure of
the satisfaction a good or service gives to the consumer.
The graph shows the market for office rental space. A $400$400 per month excise tax is imposed on firms selling office space. D is the demand curve, S1 is the supply curve in the absence of the tax, and S2 represents the supply curve that includes the tax. This excise tax falls on this group because
the supply of office rentals is more inelastic than the demand for office rentals.
(Table) Based on the table, diminishing returns occur when hiring the _____ worker.
third
Rambutan is a fruit prized in Eastern Asia for its unique hairy look. Once peeled, it reveals a sweet, slightly sour grape-like gummy tasting fruit. Consider the graph for marginal revenue (MR), marginal cost (MC), and average total cost (ATC) for a perfectly competitive rambutan farmer. If the market price falls to $8 per bushel, then
this firm is breaking even (zero profit).
The MAIN determinant of price elasticity of supply is
time.
The average fixed cost curve is not U-shaped because
total fixed cost doesn't vary with output, and therefore, average fixed cost declines as more output is produced.
The marginal cost curve intersects the average _____ point.
total variable curve at its minimum
Profits are equal to the difference between _____ revenue and _____ costs.
total; total
Which of the following is a word, name, symbol or device that shows the creator of the good and can only be used by that firm?
trademark
Suppose there is a single internet service provider (ISP) in a local market which has been around for a long time and generates healthy economic profits. Suppose that a startup fiber company enters the market. Initially, the startup captures many customers from the older ISP but soon experiences financial problems due to the huge upfront costs associated with creating a fiber network. In order to generate more revenue, the startup decreases its price by 10%. The older ISP contacts a local market research group and asks them to begin an e‑mail campaign to survey potential customers about how they would feel about the older ISP changing its pricing scheme. The new scheme would include a price match guarantee and offer an additional 5% off any matched price. The older ISP makes sure that many executives at the startup receive an e‑mail as part of the campaign. Upon hearing about the possible new pricing scheme, the startup switches back to its old pricing model and the older ISP decides not to implement the price match. What type of strategy did the older ISP employ?
trembling hand trigger
Advertising can play a role as an indirect signal of product quality to customers.
true
In the short term, a monopolistic competitor will make a profit if the demand curve is above the average total cost curve at some point.
true
Monopolistically competitive industries are more likely to make use of advertising to create products that catch on in mainstream popularity than industries in perfect competition.
true
Scarcity is BEST defined as when
unlimited wants exceed limited resources.
When is allocative efficiency met in a perfectly competitive market?
when price equals marginal cost
Microeconomics is concerned with issues such as
which job to take.
Blake eats two bags of generic potato chips each day. Blake's hourly wage increases from $7 to $15, and he decides to stop eating generic chips and instead eats a name-brand potato chip. Use the midpoint method to calculate Blake's income elasticity of demand for generic potato chips. Round your answer to two decimal places.
-2.75, inferior good
If Good C increases in price by 30% a pound, and this causes the quantity demanded for Good D to increase by 40%, what is the cross-price elasticity of the two goods? Round your answer to one decimal place.
1.3
The accompanying graph depicts the cost curves of an individual firm in a perfectly (or purely) competitive industry. What is the minimum quantity this firm will produce in the short run?
12 units
The hypothetical city of Hurstville is trying to decide how many city beautification projects should be approved each year. These projects involve planting gardens, commissioning murals, and building fountains. The city has two types of citizens.Type B citizens appreciate beauty more than type A citizens. There is an equal number of each type of citizen. The accopmanying graph depicts each type of citizen's marginal benefit for city beautification projects. The average cost of each project is $400. Use the information in the graph to answer the questions. Use the interactive points to draw the marginal social benefits (MSB) curve. What is the optimal quantity of city beautification projects?
3
Papa Mel's is an alfalfa farm in a perfectly competitive industry. The market demand and supply for alfalfa is shown in the market graph. Based on this information, move the line segment in Papa Mel's graph to show the correct placement of the demand curve for Papa Mel's alfalfa, then answer the question. The market graph is for reference and it is not graded. What is Papa Mel's profit‑maximizing level of output?
6 bales
Use the By the Numbers graph to answer the following question. Which region employs the highest number of people in the farm and farm-related industries?
Northern Crescent
Suppose the firms in the market for bacon, also a perfectly (or purely) competitive industry, experienced losses last quarter due to people becoming increasingly concerned about how high-fat diets negatively impact health. What do you expect to happen in the long run for the bacon industry?
Profits will be equal to zero.
Which question is NOT an example involving marginal analysis?
Should Kmart rebrand all of its stores to use the Sears name?
Which of the choices describes how the effects of import tariffs and import quotas are different?
Some foreign producers receive some of the benefits generated by an import quota.
Which scenario is an example of an industry in monopolistic competition?
Within walking distance from your home, there are a plethora of fast-food restaurants including Koala Express,Cabo Bob's Burritos, Oodles of Noodles, and Hanz's Hearty Hamburgers.
In 2018, the FDA approved for sale a generic version of EpiPen made by a competing company, Teva Pharmaceuticals. What will likely happen to the market price and the price elasticity of demand for the EpiPen brand after Teva starts selling the generic version? The market price will
decrease, and demand for the good will become more price elastic.
Which of the following makes monopolistic competition different than perfect competition? Monopolistically competitive firms
differentiate their products
Firms in monopolistic competition
differentiate their products.
A common practice at many supermarkets is to show the total "savings" customers received from their purchase at the bottom of the receipt. Such savings include the total discounts from goods purchased, along with savings from coupons used. How would listing the total savings on a receipt influence consumption habits? Consumers would
not react in any meaningful way to receiving a tally of the total savings.
In his book, Happiness: Lessons from a New Science, Richard Layard examines many pieces of research. He states that once a country's annual per-capita income exceeds $20,000, the relationship between happiness and income becomes small. Does this statement suggest that the marginal utility from income above $20,000 is small for every consumer? Marginal utility is
not small for every consumer, because preferences vary from one individual to the next.
The _____ of parking at school includes the amount of time a person has to search for a parking space.
opportunity cost
Monopolies and monopolistically competitive firms differ in that monopolies
participate in markets where barriers to entry are present.
Vamplife is a company that produces blood for vampire consumption. In this market, assume that there are many firms, entry and exit is relatively easy, and firms sell a homogeneous product. Vamplife is a firm in which market structure?
perfect competition
Suppose that solar-powered car technology advances to the point that solar-powered cars become affordable for the average consumer. Which type of externality is likely to result from a consumer's decision to purchase a solar-powered vehicle instead of a gas-powered vehicle, and how does it arise? This decision generates a
positive externality because the replacement of gas-powered vehicles with solar-powered vehicles will result in less environmental pollution.
In 2016, Congress called the CEO of Mylan Pharmaceuticals, Heather Bresch, to a hearing over the rapid increase of its life‑saving drug, EpiPen. EpiPen is an auto‑injector used to treat serious allergic reactions. Mylan raised the price of EpiPen by about 500% over a seven‑year period. Bresch argued that the price increase was justified based on market demand and the fact that the drug does save lives. Considering the uses for the EpiPen, the _________________ would be nearly _____________________.
price elasticity of demand; perfectly inelastic
The fraternity pays the local community to compensate for the noise pollution.
private solution to an externality
The residents of the apartment complexes pay Mu Epsilon Nu not to have loud parties.
private solution to an externality
Daniel and Baily just purchased a piece of land and a tractor. They plan to start growing and selling organic peas. They have heard that the market for organic peas is perfectly competitive. Daniel and Baily want to know the quantity they should produce to maximize profit. As their economic advisor, you recommend that they
produce until marginal cost is equal to marginal revenue.
The graph shows the market for office rental space. A $400$400 per month excise tax is imposed on firms selling office space. D is the demand curve, S1 is the supply curve in the absence of the tax, and S2 represents the supply curve that includes the tax. Which group has the larger tax incidence?
producers (suppliers)