Econ 202M - Practice for Final Exam

(Scenario: A Small-Town Monopolist) Use Scenario: A Small-Town Monopolist. If this monopolist must choose between selling 100 or 175 subscriptions, it will choose to sell _____ units at a price of _____ and earn economic profits equal to _____. Scenario: A Small-Town Monopolist A monopolist sells cable subscriptions in a small town and finds that it can sell 100 subscriptions when the price is $15 a week and 175 subscriptions when the price is $10 a week. The MC for the provision of the cable is $5 a week. There are no fixed costs.

100; $15; $1,000

If a perfectly competitive firm decreases production from 11 units to 10 units and the market price is $20 per unit, total revenue for 10 units is:

200

Reference: Ref 5-2 (Table: Production Possibilities for Machinery and Petroleum) Look at the table Production Possibilities for Machinery and Petroleum. The opportunity cost in Mexico of producing 105 units of petroleum is _____ units of machinery.

35

A business produces 10 pairs of eyeglasses. It incurs $30 in average variable cost and $35 in average total cost. The total fixed cost of producing 10 pairs of eyeglasses is:

50

Coca-Cola's Vast Market share int he soft drink market

Brand Loyalty

Which scenario is MOST likely to cause firms to exit a perfectly competitive industry?

Consumer income falls.

Since labor is relatively scarce in Canada, free trade should cause the wages paid to Canadian labor to rise.

False

In which situation does overt collusion take place?

Firms in an industry agree openly on price and output, and they jointly make other decisions aimed at achieving monopoly profits.

_____ occurs if Coke hires Lebron James to make a commercial and Pepsi follows by hiring Peyton Manning for its commercial.

Nonprice competition

If the price is below average total cost, then in the short run a perfectly competitive firm should:

There is not enough information given to answer this question.

When perfect competition prevails, which characteristic of firms are we likely to observe?

They are all price takers.

A group of sellers who agree to restrict their collective output in order to drive up prices above marginal cost is cartel

True

Price leadership is a form of implicit (tacit) collusion.

True

You own a lemonade stand in a competitive market, and as such, you are a price-taking firm. Which event would MOST likely increase your market power?

You acquire exclusive rights to harvest lemons from all domestic citrus orchards.

To be called an oligopoly, an industry must have:

a small number of interdependent firms.

A tax on imports of foreign goods is called:

a tariff.

The demand curve for a monopoly is:

above the MR curve.

A perfectly competitive industry is said to be efficient because the:

average total cost of production of the industry's output is minimized in the long run.

(Scenario: Two Identical Firms) Use Scenario: Two Identical Firms. If one firm decides to cheat, the cheating firm will: Scenario: Two Identical Firms Two identical firms make up an industry in which the market demand curve is represented by Q = 5,000 - 4P, where Q is the quantity demanded and P is price per unit. The marginal cost of producing the good in this industry is constant and equal to $650. Fixed cost is zero.

be able to increase its profits initially.

Taken collectively, people in nations that engage in international trade are not likely to:

be made worse off.

In the classic prisoners' dilemma with two accomplices in crime, the dominant strategy for each individual is to:

confess.

If the price is greater than the average variable cost and less than the average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:

continue to produce at an economic loss.

Since the United States imports a large quantity of textiles from Asia, the overall wages of U.S. textile workers has _____, while the price of textiles in the United States has _____.

decreased; decreased

Marginal cost _____ over the range of increasing marginal returns and _____ over the range of diminishing marginal returns.

decreases; increases

Diamond rings are relatively scarce because:

diamond producers limit the quantity supplied to the market.

In the short run, the average total cost curve slopes upward because of:

diminishing returns.

A strategy that is the same, regardless of the action of the other player in a game, is a _____ strategy.

dominant

Large barriers to entry are one reason that a monopoly:

earns an economic profit in the long run.

The purpose of the trusts established in the United States in the late 1800s was to:

engage in monopoly pricing.

Figure: The Market for Tea in Sri Lanka Reference: Ref 5-17 (Figure: The Market for Tea in Sri Lanka) Look at the figure The Market for Tea in Sri Lanka. In autarky, the price is P1. When the economy is opened to trade, the price rises to PW. Sri Lanka will _____ tea and the volume of trade will equal _____.

export; QT - CT

Once diminishing returns have set in, as output increases, the total cost curve:

gets steeper.

A perfectly competitive firm will earn a profit and will continue producing the profit-maximizing quantity of output in the short run if the price is:

greater than average total cost.

To say that you can't have too much of a good thing means that, for any good that you enjoy (for example, pizza):

higher consumption will always lead to higher utility.

Price discrimination leads to a _____ price for consumers with a _____ demand.

higher; less elastic

If a perfectly competitive firm is producing a quantity where P > MC, then the firm can increase profit by:

increasing production.

If your firm is operating in the negatively sloped portion of a long-run average total cost curve, then your production exhibits:

increasing returns to scale.

Comparative advantage in international trade:

is used to determine whether trade will be beneficial to both countries involved.

The GoSports Company is a profit-maximizing firm with a monopoly in the production of school team pennants. The firm sells its pennants for $10 each. We can conclude that GoSports is producing a level of output at which:

marginal cost equals marginal revenue.

The following statement is a positive statement or normative statement? Society should take measures to prevent people from engaging in dangerous personal behavior.

normative statement

Two players in a game both have an incentive to cheat no matter what the other player does. Furthermore, if both players cheat in this manner, both players will be worse off. This is a:

prisoners' dilemma.

When marginal cost is ABOVE average variable cost, average variable cost must be:

rising.

Japan's comparative advantage in automobiles can be attributed to:

technology.

The perfectly competitive model does NOT assume:

that firms attempt to maximize their total revenue.

You own a deli. Which input of production is MOST likely fixed at your deli?

the dining room

Suppose a monopoly can separate its customers into two groups. If the monopoly practices price discrimination, it will charge the lower price to the group with:

the higher price elasticity of demand.

Perfect competition is characterized by:

the inability of any one firm to influence price.

Price discrimination can occur if:

the market structure is monopolistic competition.

The total cost curve shows how _____ cost depends on the quantity of _____.

total; output

The total product curve:

will become flatter as output increases if there are diminishing returns to the variable input.

Buford Bus Manufacturing installs a new assembly line. As a result, the output per worker increases. The marginal cost of output at Buford:

will decrease (the MC curve will shift down).