ECON 201 Online Exam 2

Monopoly firm, a monopolistically competitive firm, both, or neither? Earns economic profit in the long run

Monopoly

Monopoly, oligopoly, monopolistic competition, or perfect competition? Tap Water

Monopoly

Monopoly firm, a monopolistically competitive firm, both, or neither? Produces the socially efficient quantity of output

Neither

If a higher level of production allows workers to specialize in particular tasks, a firm will likely exhibit ________ of scale and ________ average total cost.

economies, falling

Perfectly competitive, monopolistic, or monopolistically competitive? Peanut butter

Monopolistically competitive

Based on your understanding of the gains from trade (discussed in Chapters 3 and 9), which of the following statements are true about these payoffs actually reflecting a nation's welfare under the four possible outcomes? Check all that apply. -The payoffs in the upper right and lower left corners of the matrix do not reflect a nation's welfare because tariffs hurt overall total surplus, so both countries' welfare should decline regardless of who charges the high and low tariffs. -The payoffs in the upper right and lower left corners of the matrix reflect a nation's welfare because the nation with lower tariffs is better off, since that nation is more open to trade. -tThe payoffs in the upper left and lower right corners of the matrix reflect a nation's welfare because they show that trade is beneficial and tariffs are a barrier to trade.

-The payoffs in the upper left and lower right corners of the matrix reflect a nation's welfare because they show that trade is beneficial and tariffs are a barrier to trade. -The payoffs in the upper right and lower left corners of the matrix do not reflect a nation's welfare because tariffs hurt overall total surplus, so both countries' welfare should decline regardless of who charges the high and low tariffs.

Raj opens up a lemonade stand for two hours. He spends $10 for ingredients and sells $60 worth of lemonade. In the same two hours, he could have mowed his neighbor's lawn for $40. Raj has an accounting profit of _____ and an economic profit of ____.

50, 10

__________is falling when marginal cost is below it and rising when marginal cost is above it.

Average Total Cost

The government imposes a $1,000 per year license fee on all pizza restaurants. Which cost curves shift as a result?

Average total cost and average fixed cost.

Monopoly firm, a monopolistically competitive firm, both, or neither? Equates marginal revenue and marginal cost

Both

Monopoly firm, a monopolistically competitive firm, both, or neither? Faces a downward-sloping demand curve

Both

Monopoly firm, a monopolistically competitive firm, both, or neither? Has marginal revenue less than price

Both

Perfectly competitive firm, a monopolistically competitive firm, both, or neither? Equates marginal revenue and marginal cost

Both

Perfectly competitive firm, a monopolistically competitive firm, both, or neither? Charges a price above marginal cost

Monopolistically competitive

Perfectly competitive, monopolistic, or monopolistically competitive? Lipstick

Monopolistically competitive

When a monopolist switches from charging a single price to perfect price discrimination, it reduces

Customer Surplus

T or F: In the short run, profits are positive for domestic producers as a result of the imports.

False

True or False: The shape of the production function reflects the law of increasing marginal returns.

False

True or False: Without government regulation, natural monopolies never earn zero profit in the long run.

False

A cost that does not depend on the quantity produced is a(n)

Fixed Cost

Which of the following conditions does NOT describe a firm in a monopolistically competitive market? It makes a product different from its competitors. It takes its price as given by market conditions. It maximizes profit both in the short run and in the long run. It has the freedom to enter or exit in the long run.

It takes its price as given by market conditions.

If an oligopoly does not cooperate and each firm chooses its own quantity, the industry will produce a quantity of output that is ________ the competitive level and ________ the monopoly level. less than, more than more than, less than less than, equal to equal to, more than

Less than, more than

A firm is producing 1,000 units at a total cost of $5,000. If it were to increase production to 1,001 units, its total cost would rise to $5,008. What does this information tell you about the firm?

Marginal cost is $8, and average total cost is $5.

Perfectly competitive, monopolistic, or monopolistically competitive? Local phone services

Monopolistic

Monopoly, oligopoly, monopolistic competition, or perfect competition? Bottled Water

Monopolistic competition

Price Discrimination? A local boutique is having a sale on sweaters, but customers are not aware of the sale until they are already in the store. In other words, there is no advertising of the sale other than signs in the back of the store that cannot be seen from the outside. All sweaters are marked as 10% off.

No

Price Discrimination? Hotels charge a higher price for rooms with a nicer view, such as a skyline view or a coastal view. Assume that all consumers receive a higher utility when staying in a room with a nicer view.

No

There are hundreds of colleges that serve millions of students each year. The colleges vary by location, size, and educational quality, which allows students with diverse preferences to find schools that match their needs. Competitive?

No, not an identical product

A few major airlines account for the vast majority of air travel. Consumers view all airlines as providing basically the same service and will shop around for the lowest price. Competitive?

No, not many sellers

The government has granted a patent to a pharmaceutical company for an experimental AIDS drug. That company is the only firm permitted to sell the drug. Competitive?

No, not many sellers

Monopoly, oligopoly, monopolistic competition, or perfect competition? Beer

Oligopoly

Monopoly, oligopoly, monopolistic competition, or perfect competition? Cola

Oligopoly

Why are cartel agreements often not successful? Different firms experience different costs. One party has an incentive to cheat to make more profit. All parties would make more money if everyone increased production.

One party has an incentive to cheat to make more profit.

In the long-run equilibrium of a competitive market with identical firms, what is the relationship between price, marginal cost, and average total cost?

P=MC and P=ATC

Perfectly competitive firm, a monopolistically competitive firm, both, or neither? Produces at the minimum of average total cost in the long run

Perfectly Competitive

Perfectly competitive, monopolistic, or monopolistically competitive? Copper

Perfectly competitive

Perfectly competitive, monopolistic, or monopolistically competitive? Wooden #2 pencils

Perfectly competitive

What is true of a monopolistically competitive market in long-run equilibrium? Price is greater than marginal cost. Price is equal to marginal revenue. Firms make positive economic profits. Firms produce at the minimum of average total cost.

Price is greater than marginal cost

For a profit-maximizing monopoly that charges the same price to all consumers, what is the relationship between price, marginal revenue, and marginal cost?

Price>Marginal Rev MR=MC

Which of the following goods best fits the definition of monopolistic competition? wheat tap water crude oil soft drinks

Soft Drinks

If a monopoly's fixed costs increase, its price will _____, and its profit will _____.

Stay the same, decrease

A firm is producing 20 units with an average total cost of $25 and marginal cost of $15. If the firm were to increase production to 21 units, which of the following must occur?

The average total cost would decrease

The law of diminishing marginal product of labor is demonstrated by which of the following? Total output declines as you increase the quantity of labor. Total output increases at a decreasing rate as you increase the quantity of labor. Total output increases only when you increase both labor and ovens.

Total output increases at a decreasing rate as you increase the quantity of labor.

Your aunt is thinking about opening a hardware store. She estimates that it would cost $500,000 per year to rent the location and buy the stock. In addition, she would have to quit her $50,000 per year job as an accountant. What is the opportunity cost of something? The cost to produce it What must be given up to acquire it The time it takes to do something What you pay for it

What must be given up to acquire it

Price Discrimination? Every year, Lesspay ShoeSource promotes its giant BOGO sale—buy one pair of shoes and get one half off—through commercials and other means of advertising. Note that the price of one pair of shoes is the regular retail price, so a customer must buy two pairs of shoes to receive the discount.

Yes

Price Discrimination? Last-minute "rush" tickets can be purchased for most Broadway theater shows at a discounted price. They are typically distributed via lottery or on a first-come, first-served basis a few hours before the show. Assume that the theater in question does not hold seats in reserve for this purpose, but rather offers rush tickets only for seats not sold before the day of the performance.

Yes

There are hundreds of high school students in need of algebra tutoring services in Houston. Dozens of companies offer tutoring services, and the parents who seek out tutors view the quality of the tutoring at the different companies to be largely the same. Competitive?

Yes

Compared to the social optimum, a monopoly firm chooses

a quantity that is too low and a price that is too high.

The key feature of an oligopolistic market is that each firm produces a different product from other firms. a single firm chooses a point on the market demand curve. each firm takes the market price as given. a small number of firms are acting strategically.

a small number of firms are acting strategically.

economies of scale

average total cost decreases as output increases

diseconomies of scale

average total cost increases as output increases

If advertising makes consumers more loyal to particular brands, it could ________ the elasticity of demand and ________ the markup of price over marginal cost.

decrease, increase

A firm is a natural monopoly if it exhibits the following as its output increases: decreasing marginal revenue. increasing marginal cost. decreasing average revenue. decreasing average total cost.

decreasing average total cost.

As the number of firms in an oligopoly grows large, the industry approaches a level of output that is ________ the competitive level and ________ the monopoly level. less than, more than more than, less than less than, equal to equal to, more than

equal to, more than

The Prisoners' Dilemma is a two-person game illustrating that -the cooperative outcome could be worse for both people than the Nash equilibrium. -even if the cooperative outcome is better than the Nash equilibrium for one person, it might be worse for the other. -even if cooperation is better than the Nash equilibrium, each person might have an incentive not to cooperate. -rational, self-interested individuals will naturally avoid the Nash equilibrium, because it is worse for both of them.

even if cooperation is better than the Nash equilibrium, each person might have an incentive not to cooperate.

If a profit-maximizing, competitive firm is producing a quantity at which marginal cost is between average variable cost and average total cost, it will keep producing in the short run but exit the market in the long run. shut down in the short run but return to production in the long run. shut down in the short run and exit the market in the long run. keep producing both in the short run and in the long run

keep producing in the short run but exit the market in the long run.

If an oligopolistic industry organizes itself as a cooperative cartel, it will produce a quantity of output that is ________ the competitive level and ________ the monopoly level. less than, more than more than, less than less than, equal to equal to, more than

less than, equal to

The cost of producing an extra unit of output is the

marginal cost

A competitive firm maximizes profit by choosing the quantity at which average total cost is at its minimum. marginal cost equals the price. average total cost equals the price. marginal cost equals average total cost.

marginal cost equals the price.

A monopolistically competitive firm will increase its production if marginal revenue is greater than marginal cost. marginal revenue is greater than average total cost. price is greater than marginal cost. price is greater than average total cost.

marginal revenue is greater than marginal cost.

A competitive firm's short-run supply curve is its ________ cost curve above its ________ cost curve. average total, marginal average variable, marginal marginal, average total marginal, average variable

marginal, average variable

Monopoly firm, a monopolistically competitive firm, both, or neither? Faces the entry of new firms selling similar products

monopolistically competitive

Perfectly competitive firm, a monopolistically competitive firm, both, or neither? Has marginal revenue less than price

monopolistically competitive

Perfectly competitive firm, a monopolistically competitive firm, both, or neither? Sells a product differentiated from that of its competitors

monopolistically competitive

Perfectly competitive firm, a monopolistically competitive firm, both, or neither? Earns economic profit in the long run

neither

Pretzel stands in New York City are a perfectly competitive industry in long-run equilibrium. One day, the city starts imposing a $100 per month tax on each stand. How does this policy affect the number of pretzels consumed in the short run and the long run? down in the short run, no change in the long run up in the short run, no change in the long run no change in the short run, down in the long run no change in the short run, up in the long run

no change in the short run, down in the long run

What you give up for taking some action is called the

opportunity cost

The anti-trust laws aim to facilitate cooperation among firms in oligopolistic industries. encourage mergers to take advantage of economies of scale. discourage firms from moving production facilities overseas. prevent firms from acting in ways that reduce competition.

prevent firms from acting in ways that reduce competition.

New firms will enter a monopolistically competitive market if marginal revenue is greater than marginal cost. marginal revenue is greater than average total cost. price is greater than marginal cost. price is greater than average total cost.

price is greater than average total cost.

Explicit costs

refer to all costs that require an outlay of money by the firm. i.e. The wages and utility bills that Shen pays

implicit costs

refer to all costs the firm incurs in production that do not involve any monetary transactions. i.e. The rental income Shen could receive if he chose to rent out his showroom

The deadweight loss from monopoly arises because

some potential consumers who forgo buying the good value it more than its marginal cost.

A perfectly competitive firm chooses its price to maximize profits. sets its price to undercut other firms selling similar products. takes its price as given by market conditions. picks the price that yields the largest rhare.

takes its price as given by market conditions.

Diminishing marginal product explains why, as a firm's output increases,

the production function gets flatter, while the total cost curve gets steeper.

Profits equal total revenue minus

total cost

economic profit

total revenue-total cost

Accounting profit

total revenue-total explicit cost

In the ice-cream industry in the short run, ____________ includes the cost of cream and sugar but not the cost of the factory.

variable cost

A monopolistically competitive market is characterized by the following attributes:

• Many sellers • Product differentiation • Free entry