econ exam 2
I'MaPizzaCo. produces and sells specialty pizzas. Last year, it produced 8,000 mushroom, sausage and spinach pizzas and sold each one for $8. To produce these 8,000 specialty pizzas, the company incurred variable costs of $24,000 and a total cost of $40,000. I'MaPizzaCo's average fixed cost to produce 8,000 specialty pizzas was
$2.00
I'MABigCorp. produces and sells kitchen wares. Last year, it produced 7,000 can openers and sold each one for $6. To produce the 7,000 can openers, the company incurred variable costs of $28,000 and a total cost of $45,000. I'MABIGCorp.'s average fixed cost to produce the 7,000 can openers was
$2.43
Kim has $24 per week in her entertainment budget. She splits her time between going to the movies and yoga classes. Each movie costs $8 while each yoga class costs $3. The total utility from each of these activities is set out in the table below. What is Kim's total utility maximizing point? Movies Total Yoga Total 0 0 0 0 1 40 1 30 2 75 2 55 3 105 3 76 4 130 4 92 5 160 5 106 6 114 7 116 8 117
1 movie, 5 yoga classes
In the United States, a pharmaceutical company's exclusive patent rights last for
20 years.
Bob budgets $12 a week for entertainment. He splits his time between going to the movies and going to the gym. Each movie costs $3 and each session at the gym also costs $3. The total utility from each of these activities is shown in the table below. Bob's utility maximizing point is: Movies Total Gym Total 0 0 0 0 1 30 1 50 2 55 2 85 3 76 3 115 4 92 4 107 5 103 5 111 6 114 7 115
3 movies; 3 gym workout sessions
For lunch, Maria eats only salads or vegetarian burgers. Her weekly food budget is $36. Each salad costs $6 and each vegetarian burger costs $3. When deciding how much of each good to buy, Maria knows that 2 salads and 4 vegetarian burgers will give her a utility of 8. Maria's utility-maximizing point is:
3 salads, 6 vegetarian burgers
Approximately what percentage of the US labor force is employed by firms that have fewer than 100 employees?
35%
_________ arises when firms act together to reduce output and keep prices high.
A cartel
_____________________ help to explain why every economy, as it develops, has an increasing proportion of its population living in urban areas.
Agglomeration factors
_____________ occurs when circumstances have allowed several large firms to have all or most of the sales in an industry.
An oligopoly
____________ tells a firm whether it can earn profits given the price in the market.
Average cost
Which of the following would be classified as a differentiated product produced by a monopolistic competitor?
Channel No. 5
How does the U.S. Bureau of Labor Statistics gather information with regard to the typical consumption choices of Americans?
Consumer Expenditure Survey
____________________________ occur when the marginal gain in output diminishes as each additional unit of input is added.
Diminishing marginal returns
__________________ law implies ownership over an idea or concept or image
Intellectual property
______________ include all of the costs of production that increase with the quantity produced.
Variable costs
In terms of microeconomic analysis, what is the function of "utils"?
a measurement of utility
Why are the underlying economic meanings of the perceived demand curves for a monopolist and monopolistic competitor different?
a monopolist faces the market demand curve and a monopolist competitor does not
In economics, a firm that faces no competitors is referred to as _________________.
a monopoly
A firm that holds a monopoly position in the market place is
a price maker
When entry occurs in a monopolistically competitive industry,
a smaller quantity will be demanded at any given price.
Which one of the following is the most accurate description of a monopolist?
a sole producer of a product for which good substitutes are lacking in a market with high barriers to entry
Economic theory offers ____________________ about the full range of possible events and responses, which can prevent __________________ about how households will respond to changes in prices or incomes.
a systematic way of thinking; misguided conclusions
A _________ refers to a group of firms colluding with one another to produce at the monopoly output and sell at the monopoly price.
cartel
In the U.S., the amount in savings contributed to IRAs rose from $239 billion in 1992 to $3,667 billion by 2005, while overall savings actually dropped from low to lower. Evidence suggests that, in the economy as a whole, increased savings in these retirement accounts:
are being offset by negative savings or less savings in other kinds of accounts.
The form of legal protection intended to prevent reproduction of original works is referred to as ______________ law.
copyright
Intellectual property law is a body of law that includes
copyright legislation, as well as all of these
The ______________ of all firms can be broken down into some common underlying patterns.
cost structure
Which of the following falls outside of the classification of business expenses that fall into the category of fixed costs?
costs incurred in the act of producing
Which of the following falls outside of the classification of business expenditures that fall into the category of variable costs?
costs of research and development
It is said that in a perfectly competitive market, raising the price of a firm's product from the prevailing market price of $179.00 to $199.00, ____________________.
could likely result in a notable loss of sales to competitors
Through the process of exit, monopolistically competitive firms remaining in the market
are no longer earning losses.
The fact that a consumer is not required to buy the goods that a given firm produces, as well as the fact that the consumer might want the goods a firm produces, but may choose to buy from other firms instead
are two stark realities any business firm must recognize.
If the price that a firm charges is higher than its ________________ cost of production for that quantity produced, then the firm will earn profits.
average
If the price that a firm charges is lower than its ____________ of production, the firm will suffer losses.
average cost
In order to determine ____________, the firm's total costs must be divided by the quantity of its output.
average cost
The long-term result of entry and exit in a perfectly competitive market is that all firms end up selling at the price level determined by the lowest point on the
average cost curve.
The _____________________ curve will always lie below the curve for average cost because average cost includes _____________ in the numerator of the calculation.
average variable cost; fixed costs
Occasionally, _________________ may lead to pure monopoly; in other market conditions, they may limit competition _________________ .
barriers to entry; to a few oligopoly firms
Marginal utility can:
be positive, negative, or zero
Oligopoly firms acting individually may seek to gain profits ___________________________ .
by expanding levels of output and cutting prices
If monopolists are able to produce fewer goods and sell them at a higher price than they could under perfect competition, the result will be
abnormally high sustained profits.
An _________________ is calculated by subtracting the firm's costs from its total revenues, _______________________________ .
accounting profit; excluding opportunity cost
In order to reduce the harmful affects of recession and carbon emissions, the government provided tax incentives for manufacturing firm's to ___________________ that provide alternative, more efficient methods of combining inputs to produce output.
acquire energy efficient production technologies
The US laws dealing with original works of authorship allow the US Copyright Office to enforce protection for all but one of the following. Which one is it?
ancient Bible texts
If a monopoly or a monopolistic competitor raises their prices, then
decline in quantity demanded will be larger for the monopoly.
If a firm is experiencing _____________________, then as the quantity of output rises, the average cost of production rises.
decreasing returns to scale
The most common pattern for marginal utility is ____________________.
diminishing marginal utility
The term ___________________ is used to describe the common pattern whereby each marginal unit of a consumed good provides less of an addition to utility than the previous unit.
diminishing marginal utility
Substitution and income effects of a change in price of a good may be used to explain the:
direct relationship between income and demand.
In microeconomics, the term ___________________ is synonymous with decreasing returns of scale.
diseconomies of scale
In the competitive market for figure skate blades, manufacturers offer an array of products that are
distinctly different in a particular way.
If a solar panel manufacturer wants to look at its total costs of production in the short run, which of the following would provide a useful starting point?
divide total costs into two categories: fixed costs that can't be changed in the short run and variable costs that can be
A successful advertising campaign may allow competing monopolists to
do all of these.
According to the definition of profit, if a profit-maximizing firm will always attempt to produce its desired level of output at the lowest possible cost, then it will
do so regardless of what type of competition exists in a market.
The slope of the demand curve for a monopoly firm is
downward sloping
The demand curve as perceived by a monopolistic competitor is ______________ .
downward-sloping
Copyright protection legislation provides protection for original works
during the author's life plus 70 years
Which of the following is most likely to cause variation in American household spending patterns?
each of the above will cause a variation
If a perfectly competitive market involves many firms selling identical products, then, in the face of such competition,
each of these firms must act as a price-taker.
The term __________________ describes a situation where the quantity of output rises, but the average cost of production falls.
economies of scale
In order to calculate marginal cost, the change in ______________ is divided by the amount of change in quantity.
either total cost or variable cost
In a monopolistic competitive industry, firms can try to differentiate their products by
enhancing product's physical aspects and all of the above.
When J.K. Rowling (Harry Potter) exerts copyright ownership of her literary works, she creates a monopoly by restricting
entry into the market.
If the North American newsprint paper market has barriers to entry, then
entry will be blocked even if firms are earning high profits.
A manufacturer would likely make an ___________ in a market following the long-run process of beginning and expanding production in response to ________________ .
entry; a sustained pattern of profits
The term "constant returns to scale" describes a situation where
expanding all inputs does not change the average cost of production.
If a perfectly competitive firm raises its price, the quantity demanded of its product _____________.
falls to zero
A firm's ___________ consist of expenditures that must be made before production starts that typically, over the short run, _______________ regardless of the level of production.
fixed costs; do not change,
The demand curve as perceived by a perfectly competitive firm is __________ .
flat
An inferior good is a product:
for which demand decreases as income increases.
Even with wage increases, the supply curve of labor is most often inelastic for which of the following?
full-time workers
Economies of scale may arise from all but one of the following. Which one is it?
government economic subsidies protect firms from competition to avoid losses.
Why are some producers forced to sell their products at the prevailing market price?
high degree of similarity to competitor's products
Economic profit can be derived from calculating total revenues minus all of the firm's costs,
including its opportunity costs.
The term _____________ describes a situation where a ________________ causes a reduction in the buying power of income, even though actual income has not changed.
income effect; higher price
When economists attempt to predict the spending patterns of U.S. households, they will typically view the _____________________ as a primary determining factor that influences the individual consumption choices that each will make.
income level of each household
In microeconomics, the term _____________________ is synonymous with economies of scale.
increasing returns to scale
The key assumption that accompanies the use of numbers for measuring utility is that:
individuals choose based on their preferences.
Saving money is a(n) ____________________, because it involves less consumption in the present, but the ability to consume more in the future.
intertemporal choice
The _________________ budget constraint shows the tradeoff between present and future consumption.
intertemporal choice
I'maSolarPanelCo. manufactures and distributes solar panels in the US market. Two years ago, it had 5 US competitors, but government stimulus in the industry has encouraged 7 new US competitors to enter the market. In these circumstances, I'maSolarPanelCo.'s price for its output
is dictated by the forces of demand and supply.
When Marietta chooses to only purchase a combination of goods that lie within her budget line, she:
is maximizing utility.
The economies-of-scale curve is a long-run average cost curve, because
it allows all factors of production to change.
Kate's 24-Hour Breakfast Diner menu offers one item, a $5.00 breakfast special. Kate's costs for servers, cooks, electricity, food, etc. average out to $3.95 per meal. Her costs for rent, insurance cleaning supplies and business license average out to $1.25 per meal. Since the market is highly competitive, Kate should
keep the business open in the short-run, but plan to go out of business in the long-run.
If the CEO of I'MaBigBank is playing prisoner's dilemma then, from his perspective, the gains to be had from cooperation are
larger than the rewards from pursuing self-interest.
Which of the following is most likely to be a monopoly?
local electricity distributor
In the ________, the perfectly competitive firm will react to profits by __________________________ .
long run; increasing its production
In the ________, the perfectly competitive firm will react to losses by __________________________ .
long run; reducing production or shutting down
Refer to the table below. Qunt Cost FixCost TCost AvTCost AvVarCost MargCost 0 0 40 40 - - - - - - 5 125 40 155 25 31 35 If the firm produces 5 units (quantity) that it sells at a price of $20.00 each, what will its profits or losses equal?
losses equal $55
When a natural monopoly exists in a given industry, the per-unit costs of production will be
lowest when a single firm generates the entire output of the industry.
The term _____________ is used to describe the additional cost of producing one more unit.
marginal cost
In economics, the term "shutdown point" refers to the point where the
marginal cost curve crosses the average variable cost curve.
Under perfect competition, any profit-maximizing producer faces a market price equal to its
marginal costs
In economic terms, a practical approach to maximizing profits requires an examination of how changes in production affect ________________ and ________________ .
marginal revenue; marginal cost
The term _________________ refers to the additional utility provided by one additional unit of consumption.
marginal utility
The step-by-step process of finding the choice with highest total utility involves a comparison of the:
marginal utility gained and lost from different choices along the budget constraint.
A decrease in consumer preference for a product, other things being equal, will cause:
market demand to shift to the left.
The perceived demand curve for a group of competing oligopoly firms will appear kinked as a result of their commitment to
match price cuts, but not price increases.
Shopping malls typically lease retail space to a large number of clothing stores. When this group of retailers competes to sell similar but not identical products, they engage in what economists call ________________________.
monopolistic competition
The largest cattle rancher in a given region will be unable to have a __________ when sufficient numbers of smaller cattle ranchers provide sources of competition.
monopoly
As the name monopolistic competition implies, a firm's decisions in this setting will in certain ways resemble ______________ and in other ways resemble________________ .
monopoly; perfect competition
Deregulation occurs when a government eliminates or scales back rules relating to all but one of the following. Which one is it?
natural monopoly
If one firm operating in an oligopoly raises its price and other firms do not do so,
the sales of the firm that increased its price will decline sharply.
For a pure monopoly to exist,
there is a single seller in a particular industry
The first step to be undertaken by a profit-maximizing monopolistic competitor wanting to decide what price to charge is to
select the profit maximizing quantity to produce
The shape of the perceived demand curve for a perfectly competitive firm reflects that firm's ability to
sell any quantity it wishes at the prevailing market price.
What role can advertising play with respect to differentiated products?
shapes consumers intangible preferences
If monopolistic competitors must expect a process of entry and exit like perfectly competitive firms,
they will be unable to earn higher-than-normal profits in the long run.
Fixed costs are important because, at least in the ___________, the firm _______________.
short run; cannot alter them
In the _________, if profits are not possible, the perfectly competitive firm will seek out the quantity of output where _____________________ .
short run; losses are smallest
In the _________, the perfectly competitive firm will seek out ________________________ .
short run; the quantity of output where profits are highest
A monopolistically competitive firm may earn abnormally high profits in the
short term, but the process of entry will drive those profits to zero in the long run.
If a firm's revenues do not cover its average variable costs, then that firm has reached its _________________ .
shutdown point
In the highly competitive setting in which oligopoly firms operate, which of the following are considered to be typical temptations each may face?
to cooperate to act as a single monopoly and all of the above
When a firm pursues a predatory pricing strategy, it does so
to maximize profits in the long run.
Why would a profit-seeking firm need to tailor its decisions about the quantity of labor inputs that it purchases?
to produce the profit-maximizing quantity of output at the lowest possible average cost
Garth inherited $25,000. He needs to decide now much to spend now and how much to save for later. If he saves the money, then he can earn 15% interest on the total before he spends it. Using the information about his marginal utility in the table below, Garth should: % con. M ut. F con. M ut. 0 - 0 - $5000 500 $5750 900 $10000 400 $11500 800 $15000 300 $17250 700 $20000 200 $23000 600
spend nothing now and $28,750 in the future
Whatever the firm's quantity of production, _____________ must exceed total costs if it is to earn a profit.
total revenue
Which of the following should typically be ignored because spending has already been made and cannot be changed?
sunk costs
The typical pattern revealed in a budget constraint model shows that as the quantity consumed rises,
total utility rises, but marginal utility falls.
In the business world, a _________________ is recognized as a legally acceptable way for any business to keep knowledge of its particular methods of production from being known by competing firms.
trade secret
In microeconomic terms, the ability of a good or a service to satisfy wants is called:
utility.
If a paper mill shuts down its operations for three months so that it produces nothing, its __________________ will be reduced to zero?
variable costs
In a free market economy, firms operating in a perfectly competitive industry are said to have only one major choice to make. Which of the following correctly sets out that choice?
what quantity to produce
The perceived demand for a monopolistic competitor
takes competitors into account.
Approximately what portion of annual consumption is typically spent by American households on shelter?
one-third
Jay and Jen are married with two children. They are preparing a household budget for the coming year. Based on statistical information for American households, approximately what portion of this family's annual consumption will most likely be budgeted for food and vehicle expenses?
one-third
Perfect competition and monopoly stand at _____________ of the spectrum of competition.
opposite ends
Roughly speaking, patent law covers __________ and __________ law protects an author's original books.
original inventive creations; copyright
Following the assumption that firms maximize profits, how will the price and output policy of an unregulated monopolist compare with ideal market efficiency?
output will be too small and its price too high.
If it was possible for one company to gain ownership control all of the uranium processing plants in the US, then
that firm could set up barriers to entry to discourage competition.
Government ______________ regulations specify that inventors will maintain exclusive legal rights to their respective inventions for ______________ .
patent; a limited time
Marcella operates a small, but very successful art gallery. All but one of the following can be classified as a variable cost arising from the physical inputs Marcella requires to operate her business. Which is it?
physical space for the gallery
Which of the following will present the least amount of concern to a firm that has a monopoly over a particular industry?
the competitive actions of other business firms
Which of the following best identifies what the concept of differentiated products is closely related to?
the degree of product variety that is available.
The use of sharp, temporary price cuts as a form of _________________ would enable traditional US automakers to discourage new competition from smaller electric car manufacturers.
predatory pricing
When a business adopts a strategy of reducing and/or discontinuing production in response to a sustained pattern of losses, it is
preparing to exit operations.
If a perfectly competitive firm is a price taker, then
pressure from competing firms will force acceptance of the prevailing market price.
If the quality differences of similar products are mostly imperceptible to the average consumer's eyes, which of the following will most likely play a major role in influencing the decisions of purchasers?
price of competing products
As a general rule, utility-maximizing choices between consumption goods occur where the:
price ratio and marginal utilities ratio of two goods is equal.
The term _________________ refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product.
price taker
Why would labor be treated as a variable cost?
producing larger quantities of a good or service generally requires more workers
Refer to the table below. 2 35 40 75 17.5 37.5 20 If the firm produces 2 units that it sells at a price of $40.00 each, what will its profits or losses equal?
profits equal $5
Idaho farmers can sell as large a quantity of their potato crop as they wish,
provided each is willing to accept the prevailing market price.
In the event that Only1Corp. obtains control of all the natural gas producers in the US, it would most likely
raise prices, cut production, and realize positive economic profits.
If the firm is producing at a quantity of output where marginal revenue exceeds marginal cost, then,
the firm should keep expanding production.
Which of the following is considered to be a tell-tale signal that the point with the highest total utility has been found?
the marginal utility per dollar is the same for both goods
Product differentiation may occur in _______________ because ____________________ created strong preferences for certain brands.
the minds of buyers; past habits and advertising
In order to determine the average variable cost, the firm's variable costs are divided by _______________________.
the quantity of output
________________________ arises where many firms are competing in a market to sell similar but differentiated products.
Monopolistic competition
___________ include all spending on labor, machinery, tools, and supplies purchased from other firms.
Total costs
_____________ is calculated by taking the quantity of everything that is sold and multiplying it by the sale price.
Total revenue
Which of the following occurs simultaneously with an income effect?
substitution effect
What qualities would ideally suit a monopolistic firm with regard to barriers to entry?
sufficient strength to prevent or discourage potential competitors from entering the market
Economists are able to determine total utility by:
summing up the marginal utilities of each unit consumed.
In the US economy, nearly half of all the workers employed by private firms work at
18,000 large firms that employ more than 500 workers.
______________________ refers to the additional revenue gained from selling one more unit.
Marginal revenue
Which of the following is most unlikely to present a barrier to entry into a market?
deregulation
In economics, labor demand is synonymous with
derived demand.
Monopolistic competitors in the food industry will often include a recyclable symbol on packaging used for their product as a means to
differentiate their product.
A perfectly competitive industry is a
hypothetical extreme.
The ________________ arises when a price changes because consumers have an incentive to consume less of the good with a relatively higher price and more of the good with a relatively lower price.
substitution effect
If a monopolistic competitor raises its price, it _________ customers than a perfectly competitive firm, but ________________ customers compared to the number that a monopoly that raised its prices would.
will lose fewer; it will lose more
The marginal utility of two goods changes ______________.
with the quantities consumed
Would raising the price for a product create a larger decline in quantity demanded for a monopolistic competitor's than it would for a monopoly?
yes; consumers will buy from competitors offering lower priced substitutes