Econ 4311
Suppose a spinach farmer operates in perfect competition. At the market price of $3.00 per bunch, the farmer sells 125 bunches per day. If the farmer increases her price to $3.01, she will sell _______ bunches.
0
Which of the following shows a decrease in supply?
A leftward shift of the supply curve
Which of the following describes supply and demand analysis?
A qualitative tool, a forecasting tool, used to predict pricing trends
Which of the following will cause a decrease in the supply of "farm-to-fork" vegetables?
A reduction in the number of "farm-to-fork" vegetables producers, an increase in the price of fertilizer used on these farms, an increase in government regulations on agriculture
The profit-maximizing, advertising to sales ratio is given by:
A/R = E (Q,A)/ -E (Q, P)
When firm's in monopolistic competition competition earn positive economic profits, how will additional firms react?
Additional firms enter and produce variations of the product
Suppose there is an increase in the price of pork. If chicken is a substitute for pork, what can producers and consumers of chicken expect to see in the market for chicken?
An increase in the quantity of chicken purchased, an increase in the price of chicken
Cross-price elasticity is,
B(y)
What type of analysis studies the movement from one equilibrium to another?
Comparative static analysis
The difference between what consumers are willing to pay for a good or service and the market price is known as?
Consumer surplus
The monopolist is restricted to price-quantity combinations that lie on the demand curve as a result of decisions made by ____________.
Consumers
What is the effect of a binding price floor on consumers?
Consumers pay more and purchase less
The welfare loss to society due to the level of output produced by a monopolist is called __________ loss of monopoly.
Deadweight
If demand is elastic, a(n) _________ in price will lead to an increase in total revenue.
Decrease
As market price increases, demand?
Decreases
If a product is not perishable and firms expect the market price of the product to increase in the future, then the current supply of the good __________.
Decreases
Given a profit-maximizing level of output Q^m, the monopoly price is the price on the __________ curve that corresponds to Q^m units of output.
Demand
What is the true demand for a good that has few close substitutes?
Demand is relatively inelastic
When long-run average costs increase as output increases, we say the firm experiences _________ _____ _________?
Diseconomies of Scale
Which of the following expressions best describes full economic price?
Dollar price + Nonpecuniary price
When consumers expect higher future prices, what type of goods do they tend to stockpile?
Durable goods
When long-run average costs fall as output increases, we say that the firm experiences _________ _____ _________?
Economies of Scale
When the total cost of producing two goods within the same firm is less than the cost of producing them in separate firms, _________ _____ ________ exist.
Economies of Scope
A perfectly competitive firm maximizes profits at the level of output such that market price _________ marginal cost (MC).
Equals
When demand for a good or services decreases, which of the following occurs?
Equilibrium price decreases, Equilibrium quantity decreases
Dark chocolate is in the market when the government imposes a strict tariff on imported cocoa and researchers release a credible study identifying huge health benefits to moderate, dark-chocolate consumption.
Equilibrium price increases, the effect on equilibrium quantity is unclear
Which of the following occurs when the supply of a good or service increases but the demand remains the same?
Equilibrium quantity increases, Equilibrium price decreases
When a demand for a good or service increases, which of the following occurs?
Equilibrium quantity increases, Equilibrium price increases
When a price floor applies to a product, rather than labor, the deadweight loss will always be less.
False
In the short run, when a firm shuts down, losses equal _______ costs.
Fixed
How does the U.S. patent system create monopolies?
Grants an inventor exclusive right to sell the product
The absolute value of elasticity will be ___________ 1 when the change in X is large relative to the change in Y.
Greater Than
How can cost complementarities create monopolies?
Greater capital requirements of multi product firms act as a barrier to entry
Indicate methods firms in monopolistic competition use to differentiate their products.
Green marketing and Niche marketing
The demand curve for a perfectly competitive firm is a ___________ line at the market _________.
Horizontal; price
Determine key difference between monopolistic competition and monopoly.
In monopolistic competition, there are other firms that sell similar products and there are no barriers to entry
The law of demand analyzes the relationship between price and quantity demanded holding which of the following variables constant?
Income and Prices of related goods
If demand is elastic, a(n) _________ in price will lead to a decrease in total revenue.
Increase
When a shortage exists, there is a tendency for price to _________ in order to equate quantity demanded and quantity supplied.
Increase
If E < 1, an increase in the price of the good will _________ total revenue.
Increases
When a monopolist increases output by one unit, total revenue?
Increases by less than price
In the case of yes-or-no managerial decisions, which of the following refers to the additional revenues derived from a decision?
Incremental revenues
If income elasticity of good X is negative, (E< 0), then good X is considered a(n) __________ good.
Inferior
If P exceeds AVC but is less than ATC, the firm?
Is sustaining loss; should remain open
When demand for a good decreases, then?
Less is demanded at all prices
Define the marginal net benefit of a one-unit change in output, (Q). That is, the MNB (Q).
MB(Q) - MC(Q)
When the slope of the revenue function, R(Q), equals the slope of cost function, C(Q), ?
MR = MC
A monopolist's marginal revenue (MR) is given by:
MR = P (1 + E/ E)
To maximize profits, at which level does a monopolistically competitive firm produce?
MR(Q) = MC(Q)
When you compare the improvement in your grade that results from an additional hour of study, you have engaged in which of the following?
Marginal Analysis
If demand is elastic,
Marginal revenue is positive
Which of the following is an example of a price floor?
Minimum wage
Fast-food hamburgers are characterized by a large group of sellers producing slightly different goods. What type of market is this?
Monopolistic Competition
Economies of scale and scope, cost complementarity, and patents are all sources of ________?
Monopoly
The market structure where a firm has a large degree of market power is called ________.
Monopoly
When price (P) exceeds minimum average variable cost (AVC), each unit of out put sold generates ________ revenue than the cost per unit of the variable inputs.
More
Since a monopolist is the sole provider of a good or service, it has?
More market power than if it faced competition
What do the key assumptions of a perfectly competitive market imply?
No one firm can influence market price
Comparative static analysis assumes which of the following?
No price floors, Goods are allocated by price, Goods are allocated by quantity
In order to maximize profits in the short run, a manager must determine how much output to produce given?
Only variable inputs within his control
If demand is perfectly inelastic, which of the following is correct?
Own-price elasticity equals zero
A firm should shut down when P _____ AVC ?
P < AVC
Q(s) = 15P - 300 Determine the inverse supply function.
P = 20 + 1/15 Q(s)
Q(d) = 20 -3P Q(s) = 2 + 3P Determine the equilibrium price (P) and quantity (Q).
P = 3 Q = 11
Demand Function: Q(d) = 900 -15P
P = 60 - 1/15 Q(d)
In the long run, firms in monopolistic competition produce a level of output where?
P = ATC > minimum average costs P> MC
Assuming P > AVC, a profit-maximizing firm, in a perfectly competitive market, produces a level at which?
P = MC P = MR MR = MC
To maximize profits, a perfectly competitive firm should produce in the range of increasing marginal cost where P = MC and ?
P >_ AVC (greater than or equal to)
Which of the following is an inverse linear demand function?
P(Q) = a + bQ
If the market for corn contains many buyers and sellers (none of whom can influence price), a homogeneous product, and free entry in the market, we consider the market to be _________.
Perfect Competitive Market
In a perfectly competitive market, the individual producer's demand curve is the market __________.
Price
In perfect competition, marginal revenue is equal to market _________.
Price
What type of price control will the government impose if it considers the equilibrium price to be to high?
Price ceiling
If the marginal cost of producing in Plant 1 exceeds the marginal cost of producing in Plant 2, the monopolist should ?
Produce more in Plant 2 and less in Plant 1
Scarce customers with a high quality, lower price product engage in ?
Producer - Producer Rivalry
Determine a fundamental difference between monopolistic competition and perfect competition.
Products in monopolistic competition are differentiated
As firms exit a perfectly competitive industry in the long run, what happens to the profits of the remaining firms?
Profits increase due to increased market price
On a graph, profits are given by the vertical distance between the cost function and the __________ line.
Revenue
Managers structure incentives in order to overcome which economic condition?
Self Interest
A period of time during which at least one input is fixed is called the _______ run.
Short
In a monopoly, where the firm chooses output based on marginal revenue (which is less than price), ?
Supply curves do not exist
If the price of a good or service exceeds the equilibrium price, a _______ exists. As a result, price tends to _______.
Surplus, decrease
A monopolist faces a downward-sloping demand curve. As a result,
The monopolist can only determine price
The demand function indicates that the quantity of a good consumed depends on?
The price of the good, the income of buyers, the effect of the demand shifters
Which of the following does a market supply curve show?
The quantity that all producers are willing and able to produce at all prices
The demand curve faced by a monopolist is?
The same as the market demand curve
Q(d) = 20 -3P Q(s) = 2 + 3P If the government imposes a $2.50 price ceiling on this market, then the full economic price paid by the consumers is equal to $________.
$3.50
A function that describes the relationship between output and various prices of that output, prices of inputs, and values of other variables is called _________.
The supply function
In perfect competition, profits are maximized at a level of output such that?
The vertical distance between the revenue line and the cost curve is greatest
What is the key difference in determining the profit-maximizing price and output under monopoly versus monopolistic competition?
There is no difference
What can be said about goods X and Y if the cross-price elasticity between X and Y is positive?
They are substitutes
If E = 1, then demands is said to be _________ elastic.
Unitary
In long run profits in a perfectly competitive industry are _________.
Zero
If elasticity is unitary, marginal revenue is __________ and total revenue is _________.
Zero, maximized
If a firm's benefit and cost structure are given by B(Q) and C(Q), then marginal benefit and marginal cost are equal to:
dB(Q)/d(Q) ; dC(Q)/d(Q)
Maximizing short-term profits is the same as maximizing long-term profits when the growth rate in profits is
less than the interest rate and both are constant
Where Py is the price of related goods, M is income, and H is other factors, the value of a(o) is?
negative if goods X and Y are complements
When consumers have more time to react to a price change for a good,
the demand for the good becomes relatively more elastic, the consumers are able to locate more substitutes
Advertising elasticity measures,
changes in consumption due to to changes in advertising