ECON 302 Exam 3

Short-run supply curves for perfectly competitive firms tend to be upward sloping because:

There is diminishing marginal product for one or more variable inputs & marginal costs increase as output increases.

At the profit-maximizing level of output, what is relationship between the total revenue (TR) and total cost (TC) curves?

They must have the same slope (MR = MC)

In an unregulated, competitive market producer surplus exists because some _________ (consumers/producers) are willing to:

sell at less than the equilibrium price

A few years ago, the city of Seattle, Washington considered imposing a specific tax on all espresso-based coffee drinks sold in the city. The extra tax revenue generated would have been used to fund after-school programs for low-income children. The coffee house owners (firms) agreed that this would e a good program to fund, but they argued the tax would sharply reduce their sales volume and they would pay most of the tax burden. This claim is true if:

the demand for espresso-based coffee is more elastic than supply.

If a graph of a perfectly competitive firm shows that the MR=MC point occurs where MR is above AVC but below ATC

the firm is earning negative profit, but will continue to produce where MR=MC in the short run

The market supply curve for music downloads is Q = 135(P-1) where Q is millions of downloads and P is the price in dollars per track. If the current price is $1.20 per download, what is the change in producer surplus if the price increases by $0.20 per track?

$8.1 million

Government intervention can increase total welfare when A) there are costs or benefits that are external to the market. B) consumers do not have perfect information about product quality. C) a high price makes the product unaffordable for most consumers. D) all of the above E) A and B only

E) A and B only

Which of the following conditions must hold in the equilibrium of a competitive market where the government puts a specific tax on consumers? A) the quantity sold and the price paid by the buyer must lie on the demand curve. B) the quantity sold and the seller's price must lie on the supply curve. C) the quantity demanded must equal the quantity supplied D) the difference between the price the buyer pays and the price the seller receives must equal the specific tax E) all of the above

E) all of the above

Having seen the quantity of drugs supplied by pharmaceutical companies in a competitive market, agovernment decides to force companies to sell exactly the same quantity of drugs at prevailing marketprices. The government then forbids additional drug sales and allows doctors to prescribe the drugs atno cost to patients in need. This government scheme is A) efficient as the quantity of drugs traded is the same as under a free market. B) efficient as the price of drugs paid by the government is the same as under a free market. C) efficient as consumer surplus is maximized. D) likely to be inefficient as doctors are unlikely to prescribe drugs to the consumers who are willing to pay the most for the drugs. E) likely to be inefficient as drug producers have a captive buyer

E) likely to be inefficient as drug producers have a captive buyer

The quantity associated with 𝛿𝐴𝑇𝐶𝛿𝑞=0.

Optimal firm size

Suppose a firm has unavoidable fixed costs of $500,000 per year, and it decides to shut down. What is the firm's producer surplus?

PS is positive in this case, but we cannot determine the value based on the given information

Firms which have marginal revenue equal to price.

Price taker

Revenue - variable costs.

Producer surplus

Quantity associated with marginal revenue = marginal cost

Profit maximization

An increasing-cost industry is so named because of the positive slope of which curve?

The industry's long-run supply curve

The price at which the firm will make zero profits. a. The price associated with the minimum of average variable cost (AVC). b. The price associated with the intersection of marginal cost and average variable cost (AVC). c. The price associated with the intersection of marginal cost and average total cost (ATC). d. The price associated with the minimum of marginal cost (MC). e. The price associated with the minimum of average total cost (ATC).

The price associated with the intersection of marginal cost and Average Total cost.

The price at which the firm will not produce any output in the short run.

The price at which the firm will not produce any output in the short run - minimum of AVC

If a competitive firm has a U-shaped marginal cost curve then?

The profit maximizing output is found where MC = MR and MC is increasing.

Which of the following is NOT a necessary condition for long-run equilibrium under perfect competition?A. Each firm earns zero economic profit. B. No firm has an incentive to enter the market. C. Prices are relatively low. D. No firm has an incentive to exit the market. E. Each firm is maximizing profit.

prices are relatively low

If managers do not choose to maximize profit, but pursue some other goal such as revenue maximization or growth,

they are more likely to become takeover targets of profit-maximizing firms.