Econ

Use the figure. At a price of $20, the firm earns profit of

75

In a competitive market, each unit of output is produced at the lowest marginal cost possible for that level of production, so the total industry costs of production are minimized.

True

The long run is the period after all exit and entry has occurred

True

Total cost equals the sum of fixed costs and average costs. True False

True

Refer to the figure. A monopolist who cannot price discriminate earns profit equal to area(s) ________, and a monopolist practicing perfect price discrimination earns profit equal to areas ________.

b, abc

If a firm has revenues of $100, explicit costs of $50 and implicit costs of $50, its economic profit is

0

(Table: Oil Pumps) Refer to the table. An oil producer owns two pumps: Oil Pump One and Oil Pump Two. If the market price of oil is $20 per barrel, how many barrels of oil get produced?

10

(Figure: Maximum Willingness to Pay) Refer to the figure. What is the maximum price that the consumer is willing to pay for 100 units

100

If Tom Sells 500 sandwhiches for $7 and has an average costs of $5, what is his profit?

1000

Figure: Maximum Willingness to Pay) Refer to the figure. What is the profit-maximizing quantity for this monopolist?

110

Refer to the table. The maximum profit available to the company is

224

Figure: Regulated versus Unregulated Monopolist) Refer to the figure. Calculate the change in consumer surplus from an unregulated monopoly to a regulated monopoly

2800

Refer to the table. What is the marginal cost of producing the seventh barrel of oil?

36

(Figure: Regulated versus Unregulated Monopolist) Refer to the figure. Calculate the deadweight loss when this monopoly is unregulated

400

(Table: Barrels of Oil 2) Refer to the table. What is the marginal revenue of producing the fifth barrel of oil?

50

Figure: Regulated versus Unregulated Monopolist) Refer to the figure. Calculate consumer surplus when this monopoly is regulated

6400

Refer to the table. The profit maximizing output for this firm is

7

Refer to the table. How many barrels of oil should the company produce to maximize profit?

8

In which of the following scenarios will automobile prices be the lowest

A competitive automobile company buys its steel from a competitive steel producer

To Maximize profit, a firm in a highly competitive industry should set its price

At the market price

Which of the following conditions would prevent a firm from setting different prices in different markets

possibility of arbitrage for buyers

Figure: Price-Discriminating Monopolist) Refer to the figure. In order to maximize profits, the monopolist should charge a

price of $16 in Market A and $10 in Market B.

Which of the following is an example of tying?

restrictions that prohibit patrons from bringing their own wine to restaurants

Price discrimination can be defined as:

selling the same product at two different prices in two different markets.

Which of the following is an example of price discrimination

senior citizen discounts

If markets are not competitive:

the invisible hand does not work perfectly

In a monopoly market

the lure of above-normal profits may give a firm an incentive to develop new products and technologies.

Tying is

the practice of a firm selling one product that requires the consumer to purchase another of the firm's products.

In competitive markets, the demand curve faced by the individual firm is

Perfectly elastic

The elimination principle illustrates the idea that

Above normal profits will be eliminated by the entry of new firms into the industry.

The elimination principle, a general feature of competitive markets tells us that

Above-normal profits are temporary.

"[I]n capitalist reality as distinguished from its textbook picture, it is not that kind of competition which counts but the competition from the new commodity, the new technology, the new source of supply, the new type of organization...competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives." This process is called

Creative destruction

In a competitive industry, entry and exit decisions

Ensure that labor and capital move across industries

The oil industry is an increasing cost industry because

Expanding output requires firms to use more expensive production methods to find and extract oil from less desirable locations

A perfectly competitive industry exists under which of the following conditions

I,II, and IV

Bundling is expected to provide greater profits when the two bundled goods are:

I,II,III

Which of the following statements is TRUE? I. A free Market II. In a free market III. Every firm faces the same price

I,II,III

Which of the following statements is true? I. Government II. Regulated III. Government

I,II,III

Economic profits differs from accounting profits because of its inclusion of

Implicit costs

What is the invisible hand property 1?

In a free market, the total costs of producing output are minimized

Consider industries X and Y. Industry X has total revenue of $100 million and total costs of $77 million. Industry Y has total revenue of $80 million and total costs of $40 million. We should expect that

Labor and capital will move from Industry X to Industry Y

Suppose that you own two farms on which to grow corn. In order to lower the cost of production, you determine to increase production on farm 1 and reduce it on farm 2. This implies that the marginal cost of production on farm 1 is:

Less than the marginal cost

What is the profit maximization condition for a monopolist

MR=MC

Invisible Hand Property 1 says that without any single person in charge, free markets will result in equal ______ and price will be set to it.

Marginal costs

Which of the following is NOT an example of bundling

Mcdonalds value meals

When a single firm can supply the entire market at lower cost than two or more firms, we say that the industry is:

Natural monopoly

Competitive firms want to enter industries in which:

P>AC

In a constant cost industry, P=AC=$20. Which sequence of events follows an increase in demand?

P>AC, short run supply curve shifts right

Which of the following is always TRUE for monopolies?

P>MR

Refer to the four panels. Which panel shows a competitive firm making zero economic profits?

Panel B

A top-performing used-car salesman is able to sell his cars to each customer at their maximum willingness to pay, a practice known as

Perfect price discrimination

What condition is necessary in a constant cost industry?

Prices of the industry's inputs do not change as the industry expands.

Consider two farms. Farm 1 produces the first bushel for $5 each, but the marginal cost rises gradually as the quantity increases. Farm 2 produces the first bushel for $7, but marginal cost also rises gradually as the quantity increases. With a market price of $10 a bushel, how should production be allocated between these two farms?

Produce on both farms until the marginal cost rises to $10

A student trying to maximize her semester GPA already studies as many hours as possible but can perhaps use that time more efficiently. A marginal hour spent studying economics will raise her GPA by 0.05. A marginal hour spent studying literature will raise her GPA by 0.02. Should she reallocate her time?

She should spend more time studying economics and less time studying literature.

Which of the following represents the nature of a monopolist's deadweight loss

Some consumers are willing to pay more

What happens in a competitive industry when more firms enter?

Supply increases and the price declines, which in turn lowers profits.

Refer to the figure. How much profit is the firm making at the profit-maximizing quantity?

The firm is not making a profit, it is making a loss of $220

A free market can naturally allocate production across firms in an industry to minimize total costs due to

The invisible hand

If an industry is highly profitable, it is an indication that

The marginal value of resources is high and more resources need to flow into the industry.

The invisible hand property 2 maintains that

The right mix of resources will be found in each industry, maximizing the total value of production

Suppose that this market is producing six barrels of oil from Oil Pump One and two barrels of oil from Oil Pump Two. What happens to the total costs of production if we produce one less barrel of oil from Oil Pump One and more barrel of oil from Oil Pump Two?

The total costs of production fall by $16.00

Figure: Maximum Willingness to Pay) Refer to the figure. What is the profit that the monopolist is earning

There is not enough information

Table: Oil Pumps) Refer to the table. Suppose that we want to produce seven barrels of oil. To minimize costs, we should produce:

Three barrels of oil

The marginal cost of producing the first three bushels of corn on Farm 1 is $1.00, $1.25, and $1.33, respectively. For Farm 2, the marginal cost of producing the first three bushels of corn is $0.90, $1.15, and $1.30. Three bushels should be produced if the market price is $1.15 per bushel.

True

In a competitive equilibrium, firms earn ____ economic profits

Zero

If every firm knows its marginal cost but a central planner cannot know every firm's marginal cost, then:

competitive markets will outperform central planners.

Refer to the figure. Deadweight loss caused by monopoly pricing is represented by the area:

def

Under perfect price discrimination

each customer is charged his or her maximum willingness to pay.

One of the great lessons of economics is that:

good institutions channel self-interest toward social prosperity, whereas poor institutions channel self-interest toward social destruction

The more inelastic the demand curve for a product is, the

higher is the monopolist's price markup

To maximize profit the monopolist should set a:

higher price in markets with more inelastic demand

In general, price discrimination exists because:

higher prices are charged because some customers are willing to pay more

Airlines try to differentiate their customers by willingness to pay based on

how long in advance a person books their flight

Apple's iPod provides an example that market power may arise from:

innovation

The power to raise price above marginal cost without fear that other firms will enter the market is:

market power

Total surplus increases with practice of price discrimination only if

output increases.

Charging each customer his or her maximum willingness to pay is:

perfect price discrimination

When comparing a monopoly with a competitive industry, monopoly quantity

will be lower and monopoly price will be higher