Econ Exam #2

Refer to Figure 15-11. If the monopoly firm is not allowed to price discriminate, then the deadweight loss amounts to

$1,000.

Given the data provided in the table below, what will the amount of profit be for production at quantity (Q) level 7?

-$10.00

Refer to Table 15-2. What is the average revenue when 7 shirts are sold?

100$

Refer to Table 15-1. If the monopolist sells 8 units of its product, how much total revenue will it receive from the sale?

112

Refer to Figure 16-2. How much output will the monopolistically competitive firm produce in this situation?

20 units

Neil's Bakery is famous for its giant cinnamon buns. The bakery has fixed costs of $100. Neil must pay each worker a wage of $10.00 per hour and each works an 8 hour shift. He earns $2 for each cinnamon bun that is sold. The following table shows how many cinnamon buns he can sell, depending on the number of workers he hires. Refer to the table below. To maximize his profits in this competitive market, how many workers should he hire?

3 workers

Refer to Table 15-1. What is the marginal revenue for the monopolist for the sixth unit sold?

5

Refer to Table 15-1. If the monopolist wants to maximize its revenue, how many units of its product should it sell?

6

Refer to Table 15-2. Which of the following quantities will achieve the maximum profit?

6

Refer to Figure 15-10. Which area represents the consumer surplus resulting from the profit maximizing price charged by this monopolist?

A + B

Mindy's company manufactures rubber balls used by elementary schools for playground activities. The table above sets out her firm's production cost information. Some values are missing. Which of the following statements is correct?

A = 20; E = 5

The table above sets out cost information for the production of volley balls. Some values are missing. Which of the following statements is correct?

A = 42, E = 12

Refer to Table 17-18. What is Amy's dominant strategy?

Amy should always choose Don't Clean.

Refer to Table 17-18. What is the Nash Equilibrium in this dorm room cleaning game?

Amy: Don't Clean Heather: Don't Clean

__________ refers to the additional revenue gained from selling one more unit.

Marginal revenue

Refer to Figure 16-5. Which of the graphs depicts a monopolistically competitive firm in long-run equilibrium?

None of the above is correct.

For a profit-maximizing monopolist,

P > MR = MC.

Refer to Table 15-1. Assume this monopolist's marginal cost is constant at $12. What quantity of output (Q) will it produce and what price (P) will it charge?

Q = 4, P = $26

Refer to Figure 15-5. A profit-maximizing monopoly will produce an output level of

Q3.

Refer to Figure 17-1. Which of the following statements is correct?

Regardless of the strategy pursued by ABC, XYZ's best strategy is to produce a high level of output, and for that reason producing a high level of output is a dominant strategy for XYZ.

include all spending on labor, machinery, tools, and supplies purchased from other firms.

Total costs

__________ include all of the costs of production that increase with the quantity produced.

Variable costs

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

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

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 total

If the price that a firm charges is lower than its __________ cost of production for that quantity produced, then the firm will earn profits.

average total cost

When a firm has a natural monopoly, the firm's

average total cost curve is downward sloping.

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

The free entry and exit of firms in a monopolistically competitive market guarantees that

both economic profits and economic losses disappear in the long run.

A situation known as __________ occurs when all production inputs are allowed to expand, but that expansion does not result in much of a change in the average cost of production.

constant returns to scale

If a firm is experiencing _____________________, then as the quantity of output rises, the average cost of production rises.

decreasing returns to scale

For a perfectly competitive firm, the marginal cost curve is identical to the firm's __________.

demand curve

Which of the following is least likely to present a barrier to entry into a market?

deregulation

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

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

The term "constant returns to scale" describes a situation where

expanding all inputs does not change the average cost of production.

A firm's __________ consist of expenditures that must be made before production starts that typically, over short run, __________ regardless of the level of production

fixed costs; do not change

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.

Refer to Figure 15-4. If the monopoly firm is currently producing Q3 units of output, then a decrease in output will necessarily cause profit to

increase as long as the new level of output is at least Q2

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 firm produces 5 units that it sells at a price of $30.00 each, what will its profits or losses equal?

losses equal $5

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

One difference between a perfectly competitive firm and a monopoly is that a perfectly competitive firm produces where

marginal cost equals price, while a monopolist produces where price exceeds marginal cost.

If marginal cost is rising in a competitive firm's short-run production process and its average variable cost is falling as output is increased, then

marginal cost is below average variable cost

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

Refer to Table 17-18. If Amy chooses to clean, then Heather will

not clean, and Heather's payoff will be 100.

A reduction in a monopolist's fixed costs would

not effect the profit-maximizing price or quantity.

Refer to Figure 16-4. Which of the graphs depicts a short-run equilibrium that will encourage the exit of some firms from a monopolistically competitive industry?

panel b only

Refer to Figure 16-4. Which of the panels depicts a firm in a monopolistically competitive market earning positive economic profits?

panel c only

Refer to Figure 16-5. Which of the graphs shown would be consistent with a firm in a monopolistically competitive market that is earning a positive profit?

panel c only

Firms operating in a market situation that creates __________, sell their product in a market with other firms who produce identical or extremely similar products.

perfect competition

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

If a perfectly competitive firm is a price taker, then

pressure from competing firms will force acceptance of the prevailing market price.

Customers who purchase a book from Dave's Bookstore are charged 20% more than customers who purchase the same book from the Dave's Bookstore website. This is an example of

price discrimination.

The deadweight loss that is associated with a monopolistically competitive market is a result of

price exceeding marginal cost.

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

Refer to Figure 17-1. The dominant strategy for ABC is to

produce high output, and the dominant strategy for XYZ is to produce high output.

Why would labor be treated as a variable cost?

producing larger quantities of a good or service generally requires more workers

A monopolist is able to maximize its profits by

producing output where MR = MC and charging a price along the demand curve.

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.

A similarity between monopoly and monopolistic competition is that in both market structures

sellers are price makers rather than price takers

When a new firm enters a monopolistically competitive market, the individual demand curves faced by all existing firms in that market will

shift to the left

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

Which of the following should typically be ignored because spending has already been made and cannot be changed?

sunk costs

The more firms an oligopoly has,

the more likely the firms will charge a price closer to the perfectly competitive price.

Refer to the diagram above. Based on the information illustrated in the graph, which of the following is correct?

the transition point between where MC is pulling down and pulling up AC always occurs at the minimum point of the AC curve

An oligopoly is a market in which

there are only a few sellers, each offering a product similar or identical to the products offered by other firms in the market.

Additional firms often do not try to compete with a natural monopoly because

they know they cannot achieve the same low costs that the natural monopolist enjoys.

Whatever the firm's quantity of production, __________ must exceed total costs if it is to earn a profit.

total revenue

The marginal cost curve is generally ______________, because diminishing marginal returns implies that additional units are ________________________.

upward-sloping; more costly to produce

If I'maJuiceCo. establishes a bottling plant in Delaware, it will most likely

use production technologies that conserve on the number of workers.

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

I'MaGadgetCo. produces and sells widgets. Last year, it produced 9,000 widgets and sold each one for $8. To produce the 9,000 widgets, the company incurred variable costs of $27,000 and a total cost of $36,000. I'MaGadgetCo's average fixed cost to produce 9,000 widgets was

$1.00

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

Given the data provided in the table below, the total revenue (TR) for production at quantity (Q) level 4 equals

$20.00

Refer to Figure 16-2. How much consumer surplus will be derived from the purchase of this product at the monopolistically competitive price?

$200

In order to produce 100 pairs of oven gloves, Marcia incurs an average total cost of $2.50 per pair. Marcia's marginal cost is constant at $10.00 for every pair of oven gloves produced. The total cost to produce 50 pairs of oven gloves is

$200.00

Refer to Table 15-2. What is the total variable cost of production when six units are produced?

$295

Table 15-2 Dreher's Designer Shirt Company, a monopolist, has the following cost and revenue information.

$295

Scenario 15-2 A monopoly firm maximizes its profit by producing Q = 500 units of output. At that level of output, its marginal revenue is $30, its average revenue is $60, and its average total cost is $34. Refer to Scenario 15-2. At Q = 500, the firm's total revenue is

$30,000.

Scenario 15-2 A monopoly firm maximizes its profit by producing Q = 500 units of output. At that level of output, its marginal revenue is $30, its average revenue is $60, and its average total cost is $34. Refer to Scenario 15-2. At Q = 500, the firm's marginal cost is

$30.

Scenario 15-2 A monopoly firm maximizes its profit by producing Q = 500 units of output. At that level of output, its marginal revenue is $30, its average revenue is $60, and its average total cost is $34. Refer to Scenario 15-2. At Q = 500, the firm's marginal cost is

$30.

Given the data provided in the table below, what will the marginal cost equal for production at quantity (Q) level 4?

$4.00

Given the data provided in the table below, what will the marginal revenue equal for production at quantity (Q) level 4?

$5.00

Refer to Table 15-2. What is the marginal cost of the 6th shirt?

$60

Scenario 15-2 A monopoly firm maximizes its profit by producing Q = 500 units of output. At that level of output, its marginal revenue is $30, its average revenue is $60, and its average total cost is $34. Refer to Scenario 15-2. The firm's profit-maximizing price is

$60.

Refer to Figure 15-3. What area measures the monopolist's profit?

(B-G)*K

In 1971, Congress passed a law that banned cigarette advertising on television. After the ban it is most likely that the (i) profits of cigarette companies increased. (ii) prices of cigarettes increased. (iii) total costs incurred by cigarette companies increased.

(i) only

Refer to Figure 15-4. Profit can always be increased by increasing the level of output by one unit if the monopolist is currently operating at (i) Q0. (ii) Q1. (iii) Q2. (iv) Q3.

(i) or (ii) only

__________ tells a firm whether it can earn profits given the price in the market.

Average cost

Refer to Figure 15-3. What price will the monopolist charge?

B

__________ occur when the marginal gain in output diminishes as each additional unit of input is added.

Diminishing marginal returns

Refer to Table 17-17. What is grocery store 1's dominant strategy?

Grocery store 1 should always set a low price.

Refer to Table 17-17. What is grocery store 2's dominant strategy?

Grocery store 2 should always set a low price

Refer to Table 17-18. What is Heather's dominant strategy?

Heather should always choose Don't Clean.

Refer to Figure 15-3. How much output will the monopolist produce?

K

Refer to Table 17-17. If grocery store 1 sets a low price, what price should grocery store 2 set? And what will grocery store 2's payoff equal?

Low price, $500

If grocery store 1 sets a high price, what price should grocery store 2 set? And what will grocery store 2's payoff equal?

Low price, $800

An equilibrium in which each firm in an oligopoly maximizes profit, given the actions of its rivals, is called

a Nash equilibrium.

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

In order to determine __________ the firm's total costs must be divided by the quantity of its output.

average cost

If the average product for six workers is fifteen and the marginal product of the seventh worker is eighteen, then

average product is rising.

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

Which of the following is most likely to be a monopoly?

local electricity distributor