ECON 102 FINAL
The demand curve faced by a pure monopoly is
downward sloping.
The utility from a specific product is
a measure of one's preference or taste for it.
The cross-price elasticity of demand between pasta and spaghetti sauce is likely to be
a negative number.
The cross-price elasticity of demand between Quaker State motor oil and Texaco motor oil is likely to be
a positive number.
Pure monopoly refers to
a single firm producing a product for which there are no close substitutes.
The characteristic most closely associated with oligopoly is
a few large producers.
A cartel is
a formal agreement among firms to collude.
a profit maximizing firm in the short run will expand output...
as long as MR is greater than MC
A perfectly competitive firm trying to maximize profits in the short run will expand output
as long as marginal revenue is greater than marginal cost.
A pure monopoly may generate economic profits because
of barriers to entry.
A monopolistically competitive firm has a
highly elastic demand curve.
The goal of product differentiation and advertising in monopolistic competition is to make
price less of a factor and product differences more of a factor in consumer purchases.
The price elasticity of demand is a measure of the
responsiveness of buyers of a good to changes in its price.
what are the 2 characteristics that differentiate private goods from public goods?
rivalry and excludability
where there are spillover (or external) costs from having a particular product in society, the government can make the quantity of the product approach the socially optimal level by doing which of the following... subsidizing the buyers of the product providing the product itself taxing the sellers of the product subsidizing the sellers of the product
taxing the sellers of the product
Where there are spillover (or external) benefits from having a particular product in a society, the government can make the quantity of the product approach the socially optimal level by doing the following except.. subsidizing the buyers of the product. taxing the sellers of the product. subsidizing the sellers of the product. providing the product itself.
taxing the sellers of the product.
comparing coffee to tea and coffee to cream, we would expect the cross price elasticity of demand for
tea to be positive, but negative for cream
according to the law of diminishing marginal returns.. the additional output generated by additional units of an input at some point will diminish the additional inputs necessary to produce an additional unit of output will diminish output will fall and then rise as additional units of input are employed employing additional inputs will diminish total output
the additional output generated by additional units of an input at some point will diminish
Which of the following defines marginal utility?
the additional satisfaction or happiness received from the consumption of an additional unit of a good or service
Consumer surplus arises in a market because
the market price is below what some consumers are willing to pay for the product.
At the output level that maximizes economic surplus
the maximum willingness to pay for the last unit of output equals the minimum acceptable price of that unit of output
at the output level that maximizes economic surplus... consumer surplus exceeds producer surplus by the greatest amount the maximum willingness to pay for the last unit of output equals the minimum acceptable price of that unit of output marginal benefit exceeds marginal cost by the greatest amount the areas of consumer and producer surplus necessarily are equal
the maximum willingness to pay for the last unit of output equals the minimum acceptable price of that unit of output
Which of the following best approximates a pure monopoly? the foreign exchange market the Kansas City wheat market the only bank in a small town the soft drink market
the only bank in a small town
The cross-price elasticity of demand measures how sensitive purchases of a specific product are to changes in
the price of some other product.
Productive efficiency occurs at the point where
the production technique minimizes cost.
if you know that TFixedC is $200, total variable cost is $600 and total product is 4 units, then ATC must be
$200
the price elasticity of demand for widgets is .75 assuming no change in the demand curve for widgets, a 9% increase in sales implies a...
12% reduction in price
which of the following statements are correct? when marginal utility is decreasing, an increase in the quantity consumed will decrease total utility when MU is positive, an increase in the Q consumed will increase TU when MU is 0 an increase in Q consumed will make TU 0 when MU is positive, an increase in the Q consumed will decrease TU
when MU is positive, an increase in Q consumed will increase TU
Assume a perfectly competitive constant-cost industry is initially at long-run equilibrium. Now suppose that a decrease in market demand occurs. After all the long-run adjustments have been completed, the new equilibrium price
will be the same as the initial price, and the output will be less.
When a competitive market achieves allocative efficiency, it is implied that
.the combined consumer and producer surplus is maximized.
the supply of product X is perfectly inelastic if the price of X rises by 10% and Qs stays the same 5% and Qs rises by 7% 8% and Qs rises by 8% 7% and Qs rises by 5%
10% and Qs stays the same
The supply of product X is unit-elastic if the price of X increases by ______ and, as a result of that price change, the quantity supplied ________________
8%; increases by 8%.
Which of the following characteristics differentiates a firm in an oligopolistic market from a firm in a perfectly competitive market?
A firm in an oligopolistic market has to consider its own impact on price when making production decisions.
Which of the following statements is a major criticism of a pure monopoly as a source of allocative inefficiency? A pure monopoly fails to expand output to the level where the price of an additional unit is just equal to its marginal cost. A pure monopoly has no incentive to produce efficiently, because even the inefficient pure monopoly can be assured of economic profits. A pure monopoly will always generate economic profit, and that means that prices are too high. A pure monopoly has an unfair advantage because it can purchase labor at a lower price than perfectly competitive firms can.
A pure monopoly fails to expand output to the level where the price of an additional unit is just equal to its marginal cost.
Assume that product Alpha and product Beta are both priced at $1 per unit and that Ellie has $20 to spend on Alpha and Beta. She buys 8 units of Alpha and 12 units of Beta. The marginal utilities of the last unit of Alpha and Beta that she purchases are 40 utils and 20 utils, respectively. This indicates that
In order to maximize utility, Ellie should buy more Alpha and less Beta.
Which of the following statements about perfect competition is true? In the short run, firms can only generate economic profits. In the long run, the entry and exit of firms will generate economic profits for firms. In the long run, the entry and exit of firms will generate losses for firms. In the long run, the entry and exit of firms will generate normal profits for firms.
In the long run, the entry and exit of firms will generate normal profits for firms.
The short-run supply curve of a perfectly competitive firm is based primarily on its
MC curve.
a firm would decide to shut down if its production resulted in
MR<AVC
Which is necessarily true for a perfectly competitive firm in short-run equilibrium?
Marginal revenue minus marginal cost equals zero.
If a perfectly competitive firm is facing a situation where the price of its product is lower than the average total cost, which of the following statements is true? Other firms will want to enter the industry because of the economic profits generated by the firm. The firm may be earning some accounting profits, but less than what it could earn elsewhere. The firm is generating a loss, and if things are not expected to improve the firm will leave the industry. The firm may earn economic profits in the long run if it expands its plant in order to exploit economies of scale.
The firm is generating a loss, and if things are not expected to improve the firm will leave the industry.
Which best expresses the law of diminishing marginal utility?
The more of a product is consumed, the smaller is the marginal utility received from the product.
Which situation is consistent with the law of diminishing marginal utility?
The more pizza Joe eats, the less he enjoys an additional slice.
Which of the following conditions does not need to occur for a market to achieve allocative efficiency? Consumers' maximum willingness to pay equals producers' minimum acceptable price for the last unit of output. The sum of producer and consumer surplus is maximized. The total revenue received by producers equals the total cost of production. The marginal benefit of the last unit produced equals the marginal cost of producing that unit.
The total revenue received by producers equals the total cost of production.
The supply of product X is elastic if
a 5% increase in price generates a 7% increase in quantity supplied.
Which of the following is an example of a public good? a weather warning system a television set a sofa a bottle of soda
a weather warning system
graphically, producer surplus is measured as the area..
above the supply curve and below the actual price
what describes a difference between allocative efficiency and productive efficiency in a perfectly competitive market?
allocative efficiency is achieved in the short AND the long run. productive efficiency is achieved only in the long run
Which of the following is an example of a positive externality (additional social benefit)? an increase in the value of land you own when a nearby development is completed the costs paid by a company to build an automated factory falling property values in a neighborhood where a disreputable nightclub is operating the higher price you pay when you buy a heavily advertised product
an increase in the value of land you own when a nearby development is completed
in a situation where an externality occurs, the "third party" refers to those who...
are not directly involved in the transaction or activity
In a situation where an externality occurs, the "third party" refers to those who
are not directly involved in the transaction or activity.
When a bakery manager reports that productivity of the 15 workers at her bakery last month was 1,800 loaves per worker, she is referring to the
average product of labor.
Assume that you are the owner of a small bakery in your home town. Which of the following would be a variable cost of production in the short run? baking ovens the interest on business loans the annual lease payment for use of the building baking supplies (flour, salt, etc.)
baking supplies
Mutual interdependence means that a firm's
behavior is affected by other firms' actions.
if marginal cost is below average cost... both ATC and AVC are decreasing AVC is less than average fixed cost both ATC and AVC are increasing ATC is increasing but AVC is decreasing
both ATC and AVC are decreasing
A public good
cannot be provided to one person without making it available to others as well.
When a competitive market maximizes economic surplus, it implies that the...
combined consumer and producer surplus is maximized.
if the price of a product increases... consumer surplus will decrease consumer surplus will increase total revenue will definitely decrease total revenue will definitely increase
consumer surplus will decrease
The decision-making process followed by consumers to maximize utility assumes that
consumers behave rationally, attempting to maximize their satisfaction.
a firm sells a product in a purely competitive market. the MC of the product at current output of 500 units is $1.50. the minimum possible AVC is $1. the market price of the product is $1.25. to maximize profits, the firm should...
continue production, but produce less than 500 units
natural monopolies result from..
control over an essential natural resource
Productive efficiency refers to
cost minimization, where P = minimum ATC.
you are the sales manager for a software company and have been informed that the price elasticity of demand for your most popular software is greater than 1. to increase total revenue from that product you should...
decrease the price of the software
The economic incentive for price discrimination is based upon
differences among buyers' elasticities of demand.
along a linear downward sloping demand curve, the price elasticity of demand will be.. greater than one across each price range different across each price range less than 1 across each price range equal to 0 across each price range
different across each price range
The reason the marginal cost curve eventually increases as output increases for the typical firm is because of
diminishing marginal returns.
If the total cost of production increases by 10% and output increases by less than 5%, then the firm is experiencing
diseconomies of scale.
In perfect competition, the demand faced by a single firm is perfectly
elastic, because many other firms produce the same standardized product.
in long run equilibrium, a purely competitive firm will operate where price is...
equal to MR, MC, and minimum ATC
In perfect competition, each additional unit of output that a firm sells will yield a marginal revenue that is equal to price. less than price. greater than price. equal to average total cost.
equal to price.
In the long run, the representative firm in monopolistic competition tends to have
excess capacity.
Accounting profit equals total revenue minus
explicit costs.
Monetary payments a firm makes to pay for resources are called
explicit costs.
Natural monopolies result from
extensive economies of scale in production.
Which of the following is an example of a negative externality (additional social cost)? an increase in the value of land you own when a nearby development is completed the costs paid by a company to build an automated factory falling property values in a neighborhood where a disreputable nightclub is operating the higher price you pay when you buy a heavily advertised product
falling property values in a neighborhood where a disreputable nightclub is operating
If the equilibrium wage for fast-food restaurants is $8 and the government enforces a minimum wage of $15
fast-food restaurants will hire fewer workers.
Which of the following is most likely to be a variable cost of production in the short run? fuel and power payments the interest on a business loan rental payments on IBM equipment real estate taxes
fuel and power payments
Unlike a private good, a public good
has benefits available to all, including nonpayers.
The supply of cars will be more elastic
in the long run than in the short run.
Oscar makes purchases of an existing product (X) such that the marginal utility of the last unit he consumes is 10 utils and the price is $5. He also tries a new product (Y) and the marginal utility of the last unit he consumes is 8 utils and the price is $1. The equal marginal principle suggests that Oscar should
increase his consumption of product Y and decrease his consumption of product X.
If the price of product X increases, then the resulting decline in the amount purchased will
increase the marginal utility of the last unit consumed of this good
what is the most likely effect of the development of DVDS, rental movies, and online movie streaming on the movie theater industry?
increased price elasticity of demand for movie theater tickets
Suppose that a pure monopoly calculates that at its present output level, marginal revenue is $1 and marginal cost is $2. The monopoly could maximize profits or minimize losses by
increasing price and decreasing output.
Which of the following has not contributed to the development of oligopolies in the U.S. economy? mergers patents economies of scale interindustry competition
interindustry competition
A monopolistically competitive firm's marginal revenue curve
is downsloping and lies below the demand curve.
The utility of a good or service
is the satisfaction or happiness one receives from consuming it.
The problem with adopting a normal profit pricing policy for a natural monopoly is that
it is not allocatively efficient.
In many large U.S. cities, taxicab companies operate as near monopolies because of
licenses.
The strategy of establishing a price that prevents the entry of new firms is called
limit pricing.
After eating four slices of pizza, you are offered a fifth slice for free. You turn down the fifth slice. Your refusal indicates that the
marginal utility is positive for the fourth slice and negative for the fifth slice.
A major reason that firms form a cartel is to
maximize joint profits.
how is deadweight loss measured
measured as the loss of consumer surplus and producer surplus
Under monopolistic competition, entry to the industry is
more difficult than under pure competition but not nearly as difficult as under pure monopoly.
assume that the market for soybeans is purely competitive. currently, firms growing soybeans are experiencing economic profits. in the long run, we can expect...
new firms to enter causing the market price of soybeans to fall
Which of the following is true under conditions of perfect competition? there are differentiated products the market demand curve is perfectly elastic no single firm can influence the market price each individual firm has the ability to set its own price
no single firm can influence the market price
which of the following is true under conditions of pure competition? no single firm can influence the market price by changing its output each individual firm has the ability to set its own price there are differentiated products the market demand curve is perfectly elastic
no single firm can influence the market price by changing its output
The two main characteristics of a public good are
nonrivalry and nonexcludability.
With a natural monopoly, the normal profit price is _________________ and the competitive price is _________________.
not allocatively efficient; allocatively efficient
External benefits in consumption refer to benefits accruing to those
other than the ones who consumed the product.
In a free-market economy, a product that entails a negative externality (additional social cost) will be
overproduced.
Which of the following is a barrier to entry? patents and licenses buyers' incomes close substitutes diminishing marginal returns
patents and licenses
We would expect the cross-price elasticity of demand between Pepsi and Coke to be
positive, indicating substitute goods.
assume that a 3% increase in income across the economy produces a 1% increase in the quantity demanded of good X. The coefficient of income elasticity of demand for good X is...and is it normal or inferior?
positive, therefore X is a normal good
In which instances will total revenues decline?
price increases and Ed equals -2.47
In monopolistic competition there is an under-allocation of resources at the profit-maximizing level of output, which means that
price is greater than MC.
Pure monopolies are said to be allocatively inefficient because
price is greater than marginal cost.
If a good that generates negative externalities were priced to take these negative externalities into account, its
price would increase and its output would decrease.
The market system does not produce public goods because
private firms cannot stop consumers who are unwilling to pay for such goods from benefiting from them.
when the marginal benefit of an output exceeds the marginal cost, what should happen to production?
production should increase in order to maximize economic surplus
Which factor could contribute to a firm experiencing economies of scale? a rising long-run average total cost the law of diminishing marginal returns productivity gains from more specialized labor deterioration of information and control within a firm
productivity gains from more specialized labor
Assume that Alex would like to purchase a combination of product A and product B such that, after he is done spending his limited income, the MUa / Pa = 8 and MUb / Pb = 4. To maximize utility without spending more money, Alex should
purchase more of product A and less of product B.
the formula for cross price elasticity of demand is % change in...
quantity demanded of X/%change in price of Y
Which of the following is a characteristic of monopolistic competition? standardized product a relatively small number of firms absence of nonprice competition relatively easy entry
relatively easy entry
The short-run supply curve for a perfectly competitive firm is the
segment of the MC curve lying at and above the AVC curve.
assume that firms in a perfectly competitive market are earning economic profits. what best describes the change in market price and output as a result of the entry of new firms into this market?
short run market supply curve shifts to the right, causing price to fall and total market output to increase
Assume that Clara purchases a combination of products Y and Z such that, after she is done spending her limited income, MUy/Py = 25 and MUz/Pz= 15. Based on the equal marginal principle, Clara
should have purchased more Y and less Z.
Which phrase would be most characteristic of pure monopoly? close substitutes efficient advertiser price taker single seller
single seller
A positive externality or spillover benefit (additional social benefit) occurs when
the benefits associated with a product exceed those accruing to people who consume it.
which of the following is not an assumption of the theory of consumer behavior described in this chapter? the consumer's tastes and preferences continually change w/n the period studied the consumer aims to get maximum total utility out of a given budget the consumer experiences diminishing marginal utility from consuming goods the consumer has to make decisions within a given budget constraint
the consumer's tastes and preferences continually change w/n the period studied
an individual seller in perfect competition will not sell at a price lower than the market price because... the seller would start a price war demand for the product will exceed supply the seller can sell any quantity she wants at the prevailing market price demand is perfectly inelastic
the seller can sell any quantity she wants at the prevailing market price
A negative externality or spillover cost (additional social cost) occurs when
the total cost of producing a good exceeds the costs borne by the producer.
which of the following conditions does NOT need to occur for a market to achieve allocative efficiency? consumers maximum willingness to pay equals producer's minimum acceptable price for the last unit of output the sum of producer and consumer surplus is maximized the marginal benefit of the last unit produced equals the marginal cost of producing that unit the total revenue received by producers equals the total cost of production
the total revenue received by producers equals the total cost of production
in a perfectly competitive industry, in the long-run equilibrium...
the typical firm earns zero profit
Mergers of firms in an industry tend to
transform monopolistic competition into oligopoly.
in a free-market economy, a product that entails a positive externality (addtional social benefit) will be...
underproduced
In a free-market economy, a product that entails a positive externality (additional social benefit) will be
underproduced.
