ECON 205

Table: Costs of Birthday Cakes) Annie has a bakery that specializes in birthday cakes, and her variable costs of producing cakes are shown in the table Costs of Birthday Cakes. Assume that her fixed costs are $10. What is the marginal cost of the second cake?

$10

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

$220.

(Table: Variable Costs for Lots) Look at the table Variable Costs for Lots. During the winter, Alexa runs a snow-clearing service, and snow clearing is a perfectly competitive industry. The table provided shows her variable costs for snow clearing and number of lots cleared. Her only fixed cost is $1,000 for a snowplow. Her variable costs include fuel, her time, and hot coffee. If the price to clear a lot is $30, what is Alexa's profit or loss per unit at the optimal output?

-$13.75

he table describes Sergei's total costs for his perfectly competitive all-natural ice cream firm. If the market price of a tub of ice cream is $35, how many tubs of ice cream will Sergei produce in the short run?

3

A perfectly competitive industry is in a state of long-run equilibrium. Which of the following must be true?

A perfectly competitive industry is in a state of long-run equilibrium. Which of the following must be true?

Which of the following scenarios best describes an oligopolistic industry?

Coca-Cola and Pepsi sell most of the soft drinks consumed around the world.

The Orlando, Florida, theme park industry tends to follow a price leadership model. This means that:

Disney often sets a price and rival theme parks then following with similar if not identical prices.

Microsoft's Windows operating system is a standardized product, since everyone who buys a particular version of the product gets exactly the same thing. This means that Microsoft is a perfectly competitive firm.

False

A well-known example of an international cartel is:

OPEC.

In the short run, a perfectly competitive firm produces output and earns zero economic profit if:

P=ATC.

A perfectly competitive firm's supply curve is its marginal cost curve above the average variable cost curve.

True

Cindy's Nails operates in the perfectly competitive pedicure industry. The city is considering requiring nail salons to be certified by a health inspector. The certification will cost $1,000 annually and is thus a fixed cost. The certification will affect Cindy's decision to operate, not the number of pedicures she chooses to perform if she operates.

True

Each firm in a cartel has an incentive to break its word and produce more than the agreed quantity.

True

In the short run, the fixed costs of running a farm should play no role in determining the level of production.

True

Oligopolistic firms often choose not to compete on price.

True

The noncooperative equilibrium of a prisoners' dilemma kind of game can be avoided if the game is played repeatedly and firms engage in strategic behavior.

True

If the Herfindahl-Hirschman index (HHI) for an industry is 900, this market is considered:

a strongly competitive market.

If all firms in an industry are price-takers, then:

an individual firm cannot alter the market price even if it doubles its output.

In oligopoly, a firm must realize that:

another major firm may dominate choices in the industry, and it will need to behave accordingly.

Attempts by the federal government to prevent the exercise of monopoly power in the United States are known as ________ policy.

antitrust

A field of law that attempts to limit the ability of oligopolists to collude and restrict competition is called:

antitrust policy.

Large barriers to entry in the gas station business explain why the two only gas stations in a small town:

can earn an economic profit in the long run.

An extreme case of oligopoly in which firms collude to raise joint profits is known as a:

cartel.

Price discrimination is the practice of:

charging different prices to buyers of the same good.

If your farm had the only known source of a rare cocoa bean needed to make chocolate-covered peanuts, your monopoly would result from:

control of a scarce resource or input.

OPEC is:

described by all of these answer choices.

Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the short run, we expect that the typical firm is likely to begin:

earning an economic profit.

If firms are experiencing economic losses in the short run, firms will leave the industry, industry output will ________, and economic losses will ________ in the long run.

fall; fall

Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium. Subsequently, a decrease in population decreases the demand for haircuts. In the short run, we expect that the market price will ________ and the output of a typical firm will ________.

fall; fall

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

falling.

In an oligopoly:

firms recognize their interdependence.

A cost that does not depend on the quantity of output produced is called a

fixed cost....

Perfectly competitive firms will:

increase output up to the point that the marginal benefit of an additional unit of output is equal to the marginal cost.

A monopolist responds to an increase in marginal cost by ________ price and ________ output.

increasing; decreasing

A curve that shows the quantity of a good or service supplied at various prices after all long-run adjustments to a price change have been completed is a long-run:

industry supply curve.

If a perfectly competitive firm is producing a quantity where P = MC, then profit:

is maximized.

Suppose that the market for candy canes operates under conditions of perfect competition, that it is initially in long-run equilibrium, and that the price of each candy cane is $0.10. Now suppose that the price of sugar rises, increasing the marginal and average total costs of producing candy canes by $0.05. Based on the information given, we can conclude that in the short run a typical producer of candy canes will be making:

negative economic profits.

In general, economists are critical of monopoly where ________ exist(s).

no natural monopoly

If the only two firms in an industry openly agree to fix the price at a given level, then this is an example of:

overt collusion.

The competitive model assumes all of the following except:

patents and copyrights.

Microsoft sets prices for its new line of computers, and Dell and HP follow. This practice is known as________.

price leadership.

An action is a dominant strategy when it is a player's best action:

regardless of the actions by other players.

When firms in a particular industry informally agree to charge the same price as the largest firm in that industry, it is called:

tacit collusion.

One of the earliest actions of antitrust policy was the breakup of:

the Standard Oil Company.

Diminishing returns are a reason:

the marginal cost curve is upward sloping.

During the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly competitive industry. In the short run, Alex will shut down his lawn-mowing service rather than continue mowing grass if:

the total revenues can't cover the total variable costs.