ECON 201 Exam 2

If accounting profits for a firm are 20% of output, and the opportunity cost of financial capital is 8% of output, then what do the firm's economic profits equal?

12% of output

I'MaPizzaCo. produces and sells specialty pizzas. Last year, it produced 8,000 mushroom, sausage and spinach pizzas and sold each one for $8. To produce these 8,000 specialty pizzas, the company incurred variable costs of $24,000 and a total cost of $40,000. I'MaPizzaCo's average fixed cost to produce 8,000 specialty pizzas was

$2.00

In May and June, Tammy spent all her clothing budget on bathing suits and beach bags. Each bathing suit cost $75. At Tammy's optimal choice, her marginal utility from the last bathing suit purchased is 300 and her marginal utility from the last beach bag purchased is 200. This means that each handbag must cost:

$50

n the United States, a pharmaceutical company's exclusive patent rights last for

In the United States, a pharmaceutical company's exclusive patent rights last for

__ occur when the marginal gain in output diminishes as each additional unit of input is added.

Diminishing marginal returns

A firm that holds a monopoly position in the market place is

a price maker

The ______________ curve will always lie below the curve for average cost because average cost includes ______________ in the numerator of the calculation.

average variable cost; fixed costs

Which of the following falls outside of the classification of business expenses that fall into the category of fixed costs?

costs incurred in the act of producing

Which of the following falls outside of the classification of business expenditures that fall into the category of variable costs?

costs of research and development

The slope of the demand curve for a monopoly firm is

downward sloping

Copyright protection legislation provides protection for original works

during the author's life plus 70 years

The term __ describes a situation where the quantity of output rises, but the average cost of production falls.

economies of scale

When ______________ exist, doubling of all inputs will result in more than doubling output, which means ______________.

economies of scale; a larger factory can produce at a lower average cost than a smaller company.

When J.K. Rowling exerts copyright ownership of her literary works, she creates a monopoly by restricting

entry into the market.

If the North American newsprint paper market has barriers to entry, then

entry will be blocked even if firms are earning high profits.

Why are some producers forced to sell their products at the prevailing market price?

high degree of similarity to competitor's products

In microeconomics, the term __ is synonymous with economies of scale.

increasing returns to scale

For a monopolistic firm, the demand for its product is

completely inelastic

The form of legal protection intended to prevent reproduction of original works is referred to as ______________ law.

copyright

Intellectual property law is a body of law that includes

copyright legislation, as well as all of the above

Marcella operates a small, but very successful art gallery. All but one of the following can be classified as a variable cost arising from the physical inputs Marcella requires to operate her business. Which is it?

physical space for the gallery

The use of sharp, temporary price cuts as a form of ______________ would enable traditional US automakers to discourage new competition from smaller electric car manufacturers.

predatory price

If a perfectly competitive firm is a price taker, then

pressure from competing firms will force acceptance of the prevailing market price

The largest cattle rancher in a given region will be unable to have a ______________ when sufficient numbers of smaller cattle ranchers provide sources of competition.

monopoly

A ______________ exists when the quantity demanded in the market is less than the quantity at the bottom of the long-run average cost curve.

natural monopoly

Deregulation occurs when a government eliminates or scales back rules relating to all but one of the following. Which one is it?

natural monopoly

What happens in a perfectly competitive industry when economic profit is greater than zero?

new firms may enter the industry and all of the above

As a general rule, utility-maximizing choices between consumption goods occur where the:

price ratio and marginal utilities ratio of two goods is equal.

The term ___ refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product.

price taker

Why would labor be treated as a variable cost?

producing larger quantities of a good or service generally requires more workers

A monopolist is able to maximize its profits by

producing output where MR = MC and charging a price along the demand curve.

If a firm's revenues do not cover its average variable costs, then that firm has reached its ____.

shutdown point

Whatever the firm's quantity of production, ______________ must exceed total costs if it is to earn a profit.

total revenue

n the business world, a ______________ is recognized as a legally acceptable way for any business to keep knowledge of its particular methods of production from being known by competing firms.

trade secret

A natural monopoly occurs when the quantity demanded is ______________ the minimum quantity it takes to be at the bottom of the long-run average cost curve.

less than

Which of the following is most likely to be a monopoly?

local electricity distributor

If it was possible for one company to gain ownership control all of the uranium processing plants in the US, then

that firm could set up barriers to entry to discourage competition.

The US laws dealing with original works of authorship allow the US Copyright Office to enforce protection for all but one of the following. Which one is it?

ancient Bible text

____ refers to the additional revenue gained from selling one more unit.

marginal revenue

Government ______________ regulations specify that inventors will maintain exclusive legal rights to their respective inventions for ______________.

patent; a limited time

Firms operating in a market situation that creates __, sell their product in a market with other firms who produce identical or extremely similar products.

perfect competition

The US government has registered ______________ on behalf of business firms to protect a particularly distinct element each has selected for its ability to aid consumers to easily ______________.

800,000 trademarks; identify the source of goods

Todd is a cattle rancher. In June and July he spent his clothing budget on jeans and cowboy hats. Each pair of jeans cost $50 and each hat cost $100. At Todd's optimal choice, his marginal utility from the last pair of jeans purchased is 200. This means that his marginal utility from the last cowboy hat purchased is:

400

The term _ refers to the additional utility provided by one additional unit of consumption.

Marginal Utility

Which one of the following is the most accurate description of a monopolist?

a sole producer of a product for which good substitutes are lacking in a market with high barriers to entry

If monopolists are able to produce fewer goods and sell them at a higher price than they could under perfect competition, the result will be

abnormally high sustained profits.

An _ is calculated by subtracting the firm's costs from its total revenues, ___.

accounting profit; excluding opportunity cost

The marginal revenue curve for a monopolist ______________ the market demand curve.

always lies beneath

If the price that a firm charges is lower than its __ of production, the firm will suffer losses.

average cost

In order to determine __ , the firm's total costs must be divided by the quantity of its output.

average cost

By 2007, US market deregulation has proven to be most toxic to the overall health of the US economy in the ______________ .

banking sector

Occasionally, ______________ may lead to pure monopoly; in other market conditions, they may limit competition ______________ .

barriers to entry; to a few oligopoly firms

A situation where the level of output, scale and average costs are all rising is called

both a and b are correct

A situation known as ______________ occurs when all production inputs are allowed to expand, but that expansion does not result in much of a change in the average cost of production.

constant returns to scale

The two primary factors determining monopoly market power are the firm's

demand curve and its cost structure

Which of the following is most unlikely to present a barrier to entry into a market?

deregulation

A firm's __ consist of expenditures that must be made before production starts that typically, over the short run, __ regardless of the level of production.

fixed costs; do not change,

A perfectly competitive industry is a

hypothetical extreme

When Marietta chooses to only purchase a combination of goods that lie within her budget line, she:

is maximizing utility

The economies-of-scale curve is a long-run average cost curve, because

it allows all factors or production to change

Kate's 24-Hour Breakfast Diner menu offers one item, a $5.00 breakfast special. Kate's costs for servers, cooks, electricity, food, etc. average out to $3.95 per meal. Her costs for rent, insurance cleaning supplies and business license average out to $1.25 per meal. Since the market is highly competitive, Kate should

keep the business open in the short-run, but plan to go out of business in the long-run.

When a natural monopoly exists in a given industry, the per-unit costs of production will be

lowest when a single firm generates the entire output of the industry.

Roughly speaking, patent law covers ______________ and ______________ law protects an author's original books.

original inventive creations; copyright

Following the assumption that firms maximize profits, how will the price and output policy of an unregulated monopolist compare with ideal market efficiency?

output will be too small and its price too high.

In the event that Only1Corp. obtains control of all the natural gas producers in the US, it would most likely

raise prices, cut production, and realize positive economic profits.

During a severe recession, the government issued food stamps that could only be used to acquire food to a greater number of families. The budget line graph shows food on the horizontal axis and everything else on the vertical axis. The government expects that issuing the food stamps will cause each family's budget constraint line to:

shift to the right

In the ___, the perfectly competitive firm will seek out ___.

short run; the quantity of output where profits are highest

What qualities would ideally suit a monopolistic firm with regard to barriers to entry?

sufficient strength to prevent or discourage potential competitors from entering the market

Which of the following will present the least amount of concern to a firm that has a monopoly over a particular industry?

the competitive actions of other business firms

For a pure monopoly to exist,

there is a single seller in a particular industry

The marginal cost curve is generally __, because diminishing marginal returns implies that additional units are ____.

upward-sloping; more costly to produce

The marginal cost curve is generally ______________ , because diminishing marginal returns implies that additional units are ______________ .

upward-sloping; more costly to produce