ECON exam 3
being a price taker essentially means
a firm cannot influence the market price
assume a factory that currently employs 25 workers and owns a factory with 10,000 square feet of floor space is considering doubling the size of its factory. economists would classify this as
a long run decision
adverse selection occurs when here is
an unobserved characteristic
Sunk costs
are costs that have already been paid and cannot be recaptured in any significant way.
At low wages, the labor supply curve for most people slopes upward because
as wages increase the opportunity cost of leisure increases.
if in the market for used bikes only sellers can distinguish between good quality and bad quality used bikes, then in that market there exists:
asymmetric information
signaling takes place in markets with
asymmetric information
A new area of economics studies situations in which people appear to be making choices that do not appear to be economically rational. This area is called
behavioral economics.
in the long run, the entry of new firms in an industry
benefits consumers y forcing prices down to the level of average costs
A duopolists' dilemma occurs when two firms in a market would be better off if
both choose the high price but instead each chooses the low price.
implicit costs and explicit costs together are what
economic costs
assume health insurance is provided universally by the government this would
force every taxpayer to bear the costs of moral hazard
The study of how people make decisions in situations where attaining their goals depends on their interactions with others is called
game theory.
Most economists believe that a small amount of the gap between the wages of white males and the wages of other groups is due to discrimination. Which of the following factors is not another factor that explains part of this gap?
geographic location
what role does a company like JD power (which provides product satisfaction reviews) serve
it provides a signal of quality
A strategy is dominant if
it yields a payoff at least as large as that from any other strategy, regardless of the actions of other players.
Bonita's Braidworks hires workers to braid hair. The store sells the service for $25 per customer. The marginal revenue product of this store's fifth worker is $50. The marginal product of the fifth worker is
2 braided customers
all of the following are possible characteristics of a monopoly except a. the firm produces a unique product. b. there is a single firm. c. the existence of some advertising. d. the firm is a price taker.
D. the firm is a price taker
buyers in the market for used guitars are getting more pessimistic about the possibility of getting a good guitar. this will cause the price of used guitars to ________ and the percentage of good used guitars to _________.
Decrease and decrease
Which of the following is true of a Nash equilibrium?
No player can improve his payoff by changing his strategy once in Nash equilibrium.
Which of the following would cause an increase in the equilibrium wage?
The demand for labor increases faster than the supply of labor.
The most important factor contributing to wage differences in the labor market is differences in the level of education and training among workers.
True
which of the following is a problem that arises in a health insurance market
a disproportionate number of high-rise individuals are attracted to buy insurance
The relationship between a pure-strategy Nash equilibrium and a dominant-strategy equilibrium is that:
a dominant-strategy equilibrium is a special case of a pure-strategy Nash equilibrium.
The substitution effect of a wage increase is observed when
leisure's higher opportunity cost causes workers to take less leisure and work more.
Alice, Bud, and Celia can produce rubber bands in a perfectly competitive market. If they enter the market, the minimum average total cost for a bundle of rubber bands, for the three of them is $2, $3, and $4, respectively. If the market price is $2.10 per bundle, then
only Alice will enter the market
if a theatre company expects 250000 in ticket revenue from five performances and 288000 in ticket revenue if it adds a sixth performance, the
marginal revenue of the sixth performance Is 38000
a person who starts practicing poisonous snake charming after signing a contract with a health insurance company is an example of
moral hazard
As the wage rate falls, other things constant, perfectly competitive firms will employ
more workers.
if, in a perfectly competitive industry, the market price facing a firm is above its average total cost at the output where marginal revenue equals marginal cost, then
new firms are attracted to the industry
If a typical firm in a perfectly competitive industry is earning profits, then
new firms will enter in the long run causing market supply to increase, market price to fall, and profits to decrease
A Nash equilibrium is
reached when each player chooses the best strategy for himself, given the other strategies chosen by the other players in the group.
which of the following is an implicit cost of production
rent that could have been earned on a building owned and used by the firm
A dominant strategy ________.
results in a higher payoff irrespective of the strategy chosen by the other player
In many business situations one firm will act first, and then other firms will respond. To help analyze these types of situations economists use
sequential games.
A player has a dominant strategy when:
she has only one best response to every possible strategy of the other player.
consider a used car market in which half the cars are good and half are bad (Lemons) a rational buyer in this market should
offer to pay a price somewhere between the price she would pay for a good car and the price she would pay for a lemon
A best response is ________.
one player's optimal action choice taking the other player's action as given
when price is less than average variable cost the business should...
shut down
one reason why adverse selection problems arise in health insurance market is that
sick people are more likely to want health insurance than healthy people
a warranty is an example of
signaling
which of the following is a market based solution to the problem of adverse selection
signaling
of the factors that are within the control of the firms owners the most important factors that make a firm successful are
the differentiation of its products and the production of products at a lower average cost than competing firms
a teenage babysitter is similar to a firm in a perfectly competitive industry in that, for both
there are many other suppliers of similar goods or services
One reason college students do not study enough to get high grades is that they are unrealistic about their future behavior. true false
true
for a natural monopoly, the marginal cost of producing an addition unit of its product is relatively small true false
true
if a firm shuts down in the short run, it avoids its variable costs but not its fixed costs true false
true
when firms exit a perfectly competitive industry, the market supply curve shifts to the left true false
true
The simplest prisoners' dilemma is a game that, in part, requires
two players who are unable to communicate with each other.
Firms use what to turn inputs into outputs
Production technology
Suppose the market wage facing a firm in the perfectly competitive candle-making industry is $20 per hour, and the firm sells its candles for $2 each. Given this information, the firm should hire workers until the marginal product of labor equals ________.
10 candles per hour
if your business earns 20,000 in revenues, has explicit costs of 7000 and implicit costs of 5000, your accounting profit is
13000
if the total cost of producing 20 units of output is 1000 and the average variable costs is 35 what is the firms average fixed costs at that level of output
15
Other things remaining the same, which of the following is likely to cause a left shift in the supply curve for labor?
A decrease in population
Which of the following is likely to cause a decrease in the wage rate and an increase in the employment level of a country
A right shift in the supply curve for labor, without any change in the demand curve for labor
which of the following describes a situation inn hich every good or service id produced up to the point whee the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it?
Allocative efficiency
Which of the following most resembles a case of taste-based discrimination?
Austin has a deep-seeded hatred of bald-headed men and refuses to hire any to work at his car wash.
Beth is a college student looking for summer employment. She has two options. Firm X is employing lifeguards to patrol the beaches at an exclusive resort in Cancun, Mexico, while Firm Y offers her a job working in an office filing paper work and assisting with the ordering of office supplies. Given this information,
Beth is a college student looking for summer employment. She has two options. Firm X is employing lifeguards to patrol the beaches at an exclusive resort in Cancun, Mexico, while Firm Y offers her a job working in an office filing paper work and assisting with the ordering of office supplies. Given this information,
which of the following about a monopoly is false? A. A monopoly could break even in the long run. B. A monopoly status could be temporary. c. A monopoly could make profits in the long run. D. A monopoly must have some kind of government privilege or government imposed barrier to maintain its monopoly.
D. A monolopy must have some kind of government privilege or government imposed barrier to maintain its monopoly
which of the following statements if true? a. Average fixed cost does not change as output increases. b. The marginal cost curve intersects the average fixed cost curve at its minimum point. c. When marginal cost is greater than average fixed cost, average fixed cost increases. d. As output increases, average fixed cost becomes smaller and smaller.
D. as output increases, average total costs becomes smaller and smaller
Which of the following is a reason why it is difficult to estimate the extent of economic discrimination in the labor market? a. Differences in wages can be attributed to many other factors as well, such as differences in productivity and preferences. b. Employers who discriminate pay an economic penalty. c. Employers who discriminate are likely to do so in overt ways such as awarding some workers with benefits-in-kind. d. Ultimately, employers who discriminate cannot remain profitable.
Differences in wages can be attributed to many other factors as well, such as differences in productivity and preferences.
What is the dominant strategy in the prisoner's dilemma?
Each prisoner confesses because this is the rational action to pursue.
If the demand for labor is unchanged, population growth will increase the supply of labor and increase the equilibrium wage.
False
Technological advancements that increase labor's productivity shift the labor supply curve to the right.
False
firms face which two costs?
Fixed Costs and variable costs
A wheat farmer sells wheat in a perfectly competitive market and hires labor in a perfectly competitive market. The market price of wheat is $2 a bushel, the wage rate is $10, the farmer employs five workers and the marginal product of the fifth worker is 10 bushels. What would you advise this farmer to do?
Increase employment because the wage paid is less than the marginal revenue product.
what is the principal-agent problem
It is a problem caused by agents pursuing their own interests rather than the interests of the principals who hired them
what is allocative efficiency
It refers to a situation in which resources are allocated such that the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it.
Which of the following is true of a payoff matrix?
It takes into account all relevant costs and benefits associated with each action of the players.
a firm could continue to operate for year without ever earning a profit as long as it is producing an output where
MR > AVC
A situation in which each firm chooses the best strategy given the strategies chosen by other firms is called a
Nash equilibrium.
peet's coffee and teas produces some flavorful varieties of beets brand coffee. is Peet a monopoly?
No, although Peet's coffee is a unique product, there are many different brands of coffee that are very close substitutes
Firms in a market want to maximize __________ and thus have _____________ ______________ behavior
Profit, profit maximizing.
Anchoring is more closely associated with which of the following factors?
Suggestions that affect your final decision
The difference between the salaries paid to movie stars and to actors who play supporting roles is much greater today than it was in the 1930s and 1940s. What factor explains this increase in relative salaries over time?
Technological advances in the entertainment industry increase the revenue that successful movies can earn. This has increased the movie studios' willingness to pay high salaries to movie stars.
Some superstar athletes in the sports industry earn very high levels of income relative to other occupations, and over time the wage differential has been increasing. What could have caused this?
Technological advances such as cable television has increased the demand for sports entertainment.
How will an increase in labor productivity affect equilibrium in the labor market?
The demand for labor will increase and the equilibrium wage and quantity of labor will increase.
In the legal sector, some practice areas have declined in recent years. For example, personal-injury and medical-malpractice cases have been undercut by state laws limiting class-action suits, out-of-state plaintiffs, and payouts on damages, and securities class-action litigation has declined in part because of a buoyant stock market. How does this affect the market for lawyers?
The demand for lawyers shifts to the left.
Which of the following is likely to lead to a left shift in the supply curve for labor to a firm?
The establishment of a new firm nearby that offers higher wages
What does it mean to say that a game is in "extensive form"?
The game is presented as a decision tree.
What is the difference between labor's marginal product and marginal revenue product?
The marginal product of labor is the additional labor's contribution to the firm's total output while the marginal revenue product is the additional labor's contribution to the firm's total sales revenue.
If the supply of labor decreases, which of the following events will occur?
The wage rate will increase and firms will decrease employment to the point where MRP equals the new wage rate.
profits equal what
Total revenue minus total cost
An increase in the supply of capital, which is a substitute to labor, will lead to a decrease in the demand for labor.
True
Higher wages that compensate workers for unpleasant aspects of a job are called compensating differentials.
True
Increases in population shift the market supply curve for labor to the right.
True
Which of the following is a likely reason for wage inequality between men and women?
Women tend to spend more time out of the labor force as compared to men.
Scenario: Your car broke down while you were driving to the office one morning. You took it to the nearest service center and were told by the mechanic that you need to pay $500 for the repair. You are confused whether or not to trust him. If you do not trust him, you have to take it to another service center, which is far away and inconvenient. If you trust him, he can either cooperate or defect (do an honest job or not). If he does an honest job, both of you will gain from the trade. If he does not do an honest job, he will gain $500 while you will lose your money. Clearly, he will gain more by defecting rather than cooperating with you. Refer to the scenario above. Which of the following is likely to happen if the service center has a reputation of trustworthiness? a. Only the mechanic will gain. b. You will trust the mechanic and he will cooperate. c. Neither of you will gain from trade. d. You will trust the mechanic but he will defect
You will trust the mechanic and he will cooperate.
In the prisoners' dilemma game, when each player takes the best possible action given the action of the other player
a Nash equilibrium is reached.
one result of asymmetric information about people's ability to repay a loan is that:
a bank could make many loans to people who don't pay them back
when price is equal to average total cost there is...
a break even, zero economic profit
which of the following is a long-run adjustment
a company relocate to a new headquarter in another city
Larry and Mike are equally skilled construction workers employed by the Brown and Root Company. Larry's job is riskier because he typically works on a scaffold 1,000 feet above ground. Larry's higher wage rate is the result of
a compensating differential.
Relative to a perfectly competitive market, a monopoly results in
a gain in producer surplus less than the loss in consumer surplus
compared to a perfectly competitive market, a monopoly sets
a higher price
A firm can use anchoring to influence consumer choices so as to increase sales by marking
a high "regular price" on a product, which makes the discounted "sale price" appear to be a bargain.
Consider a used car market in which half the cars are good and half are bad (lemons). if buyers are rational, the prices being offered for used cars will result in
a larger proportion of lemons being sold consequently, consumer surplus is increased
The opportunity cost of leisure is
a person's wage rate.
A dominant strategy is
a strategy that is the best for a firm no matter what strategies other firms use.
Which of the following is true of an extensive-form game? a. It involves sequential decision making by the players. b. The sum of the payoffs to the players in the game is always constant. c. The players in the game earn equal payoffs in equilibrium. d. It involves simultaneous decision making by the players.
a. It involves sequential decision making by the players.
Women typically earn less than men, even in the same occupation. Which of the following is an explanation for this discrepancy? a. Women have, on average, less workforce experience than men of the same age. b. Women are, on average, less motivated than men and therefore tend to avoid taking on more responsibilities. c. Women tend to take riskier jobs and earn compensating wage differentials. d. Women do not work as hard as men because of cultural influences
a. Women have, on average, less workforce experience than men of the same age
which of the following is an example of signaling in a market with asymmetric information? a. Certification of used cars by third parties b. Discounts offered by sellers during the holiday season c. Taxation of alcoholic beverages d. Rent controls imposed by the government
a. certification of used cars by third parties
in long run perfectly competitive equilibrium, which of the following is false? a. Firms earn economic profit. b. Economic surplus is maximized. c. There is efficient, low-cost production at the minimum efficient scale. d. Economies of scale are exhausted
a. firms earn economic profit
which of the following statements is false a. Marginal cost will equal average total cost when marginal cost is at its lowest point. b.Marginal cost will equal average total cost when average total cost is at its lowest point. c. When marginal cost is less than average total cost, average total cost will fall. d. When marginal cost is greater than average total cost, average total cost will rise.
a. marginal cost will equal average total cost when marginal cost is at its lowest point
marginal costs is
additional costs of reducing an additional unit of output
All of the following are ways by which existing firms can deter the entry of new firms into an industry except a. threatening to raise prices. b. earning less than maximum profit. c. advertising products aggressively. d. continuously producing new and improved products.
a. threatening to raise prices.
what is the other name for explicit costs
accounting costs: because they are what shows up on an accounting balance statement
life insurance companies often give applicants a physical examination to prevent
adverse selection
without warranties, used car buyer can assume that all red cars are lemon because of
adverse selection
which one of the following is an example of asymmetric information a. A homeowner knowingly sells a house that has hidden electrical problems. b. A company hires an employee who has an addiction to sleeping pills. c. A supermarket repackages packages of stale meat and sells them. d. all of the above
all of the above
in the long run,
all of the firms costs are variable costs
To maintain a monopoly, a firm must have
an insurmountable barrier to entry
The effect of higher wages on the individual supply of labor is ________ and the effect of higher wages on the market supply of labor is ________.
ambiguous; to increase the quantity supplied
An increase in technology that enhances labor productivity will likely result in:
an increase in labor employment and an increase in the wage rate.
An increase in the supply of capital, which is a complement to labor, will lead to
an increase in the demand for labor.
An increase in the demand for orthodontic services leads to
an increase in the demand for orthodontists.
An increase in a perfectly competitive firm's demand for labor could be caused by
an increase in the market demand for the firm's product.
in recent years, amazon has lowered its profits by offering some of its customers free shipping on books and building more warehouses to hold its book inventories. which of the following explains amazon actions a. Amazon feared government regulation if its profits were too high. b. Amazon took these actions to compete more effectively with existing online booksellers. c. Amazon took these actions to deter entry into its market by new online booksellers. d. Amazon was forced to take these actions because of the bargaining power of its suppliers.
b. amazon took these actions to compete more effectively with existing online booksellers
assume a perfectly competitive firm is in long run equilibrium and there is a decrease in market demand for the firm output. which of the following will occur? a. Existing firms will raise price to cover the reduction in quantity demanded and maintain total revenue in the short run. b. Existing firms will reduce output in the short run. c. Market price will be above its original level. d. Existing firms will maintain the original level of output, but they will shift their cost functions down in the short run.
b. existing firms will reduce output in the short run
which of the following is not a characteristic of a perfectly competitive industry a. Any firm can enter or leave the industry without serious impediments. b. Sellers have better information about the product than consumers. c. The firms in the industry produce a homogeneous product. d. There are large numbers of buyers and sellers.
b. sellers have better information about the product than consumers
which of the following statements about the perfect competitor is INCORRECT a. If an individual firm raises price, it will lose business. b. The products made by a perfectly competitive firm have no close substitutes. c. The perfectly competitive firm is always a price taker. d. The perfect competitor sells a homogeneous commodity
b. the products made by a perfectly competitive firm have no close substitutes
all of the following are characteristics of a perfectly competitive industry except a. buyers and sellers have equal access to information. b. there are a large number of buyers and sellers with only a few being able to influence the market price. c. the product sold is homogeneous. d. firms in the industry are price takers
b. there are a large number of buyers and sellers with only a few being able to influence the market price
a monopoly is characterized by all of the following except a. the firm has market power. b. there are only a few sellers, each selling a unique product. c. entry barriers are high. d. there are no close substitutes to the firm's product.
b. there are only a few sellers, each selling a unique product
Scenario: Jack and Jill are two siblings. Jack's father asked him how much he would offer to Jill if he gives him $50 as pocket money. He also told Jack that if Jill refuses the offer Jack makes, neither of them will get any money. Refer to the scenario above. A player should use ________ to play this game.
backward induction
Scenario: You walk onto a used-car lot to buy a car. You are willing to pay up to $15,000 for a car of good quality but you value a lemon at $0.You are now wondering whether you should trust the car dealer regarding the quality of the car. If you choose to trust him, he can choose to cooperate or defect. If you do not trust him, neither will he earn money nor will you be able to buy a car and use it. If you trust him and he cooperates, both of you will gain because the dealer values a good-quality car at $13,000. However, if he defects, he will earn $15,000 while you will not derive any satisfaction. Refer to the scenario above. You should use ________ to arrive at a decision.
backward induction
Suppose you and your roommate are trying to decide how to divide up the remaining slice of pizza left over from the night before. Your roommate has the following proposal. You get to divide the remaining slice of pizza, but he gets to choose which of the two pieces of pizza to consume. As a result, you decide to cut the remaining slice of pizza into equal portions. This is an example of ________.
backward induction
The first mover in an extensive-form game should use ________ to win the game.
backward induction
Microsoft hires marketing and sales specialists to decide what prices it should set for its products, whereas a wealthy corn farmer in Iowa, who sells his output in the world commodity market, does not. why is this so?
because Microsoft could potentially lose sales if it sets prices indiscriminately
in a market with asymmetric information
buyers and sellers have different information about the good being traded
Which of the following is an example of a way in which an oligopolistic firm can escape the prisoner's dilemma? a. reneging on a previous tacit agreement with rival firms to charge identical high prices b. ignoring the pricing decisions of the other firms c. advertising that it will match its rival's price d. producing more of its product
c. advertising that it will match its rival's price
assume goods X and Y are complements and are produced in perfectly competitive markets. all else constant, an increase in demand for good x would cause a. a decrease in the number of firms that produce good X. b. a decrease in the number of firms that produce good Y. c. an increase in the number of firms that produce good Y. d. no effect on the number of firms that produce either good.
c. an increase in the number of firms that produce good Y
assume the firms in a monopolistically competitive industry initially are earning positive economic profits. which of the following will not occur over time a. New firms will enter. b. The firms' economic profits will be reduced. c. Demand for the existing firms' output will become more inelastic. d. The number of substitutes available in the industry will increase.
c. demand for the existing firms output will become more inelastic
the marginal product of labor is the
change in output resulting from adding an additional unit of labor
A truck driver getting paid more than a school teacher is due to ________.
compensating wage differentials
eBay has a seller reputation system to provide
consumers with a signal concerning seller quality
what are fixed costs
costs that remain constant as output increases
A game in which each player adopts its dominant strategy
could result in a Nash equilibrium.
Scenario: Elly owns a small coffee shop. She has only one employee. One weekend, she decides to take a break from work. She is wondering whether she should trust her employee to run the shop in her absence. If she does not trust him, she would have to keep the shop closed, in which case neither she nor her employee will be able to make money. In contrast, if she trusts him, he can either cooperate and run the shop or he can defect and steal from the shop. If he cooperates, both of them will earn money. If he steals from the shop, he will make more money while she will lose. Refer to the scenario above. Which of the following is likely to happen if Elly is known to be vengeful? a. Only Elly will make money. b. Only Elly's employee will make money. c. Neither of them will make money. d. Both Elly and her employee will earn money
d. Both Elly and her employee will earn money.
Scenario: Your car broke down while you were driving to the office one morning. You took it to the nearest service center and were told by the mechanic that you need to pay $500 for the repair. You are uncertain about whether to trust him. If you do not trust him, you have to take it to another service center, which is far away and inconvenient. If you trust him, he can either cooperate or defect (do an honest job or not). If he does an honest job, both of you will gain from the trade. If he does not do an honest job, he will gain $500 while you will lose your money. Clearly, he will gain more by defecting rather than by cooperating with you. Refer to the scenario above. Which of the following will be true if the service center has a reputation for trustworthiness? a. The equilibrium outcome will be equitable. b. A unique equilibrium will not occur. c. You will pay the mechanic $500, but he will defect. d. You will pay the mechanic $500, and he will cooperate.
d. You will pay the mechanic $500, and he will cooperate.
A more realistic theory than the traditional theory of consumer behavior would: a. introduce some rules of thumb to explain complex behavior that the basic theory cannot explain. b. take into account the fairness of an economic transaction. c. the context, or setting one is in. d. do all of the above
d. do all of the above
which of the following statements regarding the relationship between average and marginal costs is incorrect? a. When marginal costs are greater than average costs, the latter must rise. b. When marginal costs are less than average costs, the latter must fall. c. There is always a definite relationship between average and marginal cost. d. There is no way for average variable costs to fall when marginal costs are falling
d. there is no way for average variable costs to fall when marginal costs are falling
Decision trees are commonly used to illustrate how firms make business decisions that depend on the actions of rival firms. A decision tree has boxes that contain points that represent when firms must make the decisions contained in the boxes. What are these points called?
decision nodes
suppose that a perfectly competitive firm's marginal revenue equals 12 when it sells 10 units of output if the marginal cost of producing the 10th unit is 14, to maximize its profit the firm should.
decrease its production
A decrease in demand for a product, holding other things constant, will
decrease the marginal revenue product of labor.
In situations where new technologies are considered substitutes for workers, demand for these workers will ________, resulting in ________ in the equilibrium wage.
decrease; a decrease
how do you find average. variable cost
divide variable costs by quantity
the demand curve for a monopoly is
downward sloping
both buyers and sellers are price takers in a perfectly competitive market because
each buyer and seller is too small relative to others to independently affect the market price
The word "monopolistic" in the label "monopolistic competition" refers to the fact that:
each firm produces a slightly different version of the product
a perfectly competitive industry achieves allocative efficiency in the long run. what does allocative efficiency mean?
each firm produces up to the point where the price of the good equals the marginal costs of producing the last unit
A Nash equilibrium occurs if ________.
each player chooses strategies that are mutual best responses
In a simultaneous move game, ________.
each player has to make his choice without knowing his rival's choice
when price is less then average total cost there is...
economic loss
when price is greater than average total cost there is...
economic profit
in a perfectly competitive market a ______________ occurs because _________
efficient outcome, total surplus is maximized
Assume Health Insurance is provided universally by the government. This would
eliminate the problems of adverse selection
Economic profit is
equal to the firms total revenue minus its opportunity costs
In behavioral economics, we assert that: people sometimes do things because they think it is the fair thing to do,
even if there is no financial or other material benefit.
Because of the income effect, the labor supply curve is
eventually backward bending as wage rate increases.
when economist say a market has "barriers to entry" they refer to:
factors that prevent other firms from challenging firm with market power
you cause a fire insurance company to face moral hazard problem when you take _______ you buy fire insurance from the company
fewer precautions to prevent fires after
what is the long run
firms can change their production technology or space (ie fixed costs) everything is variable
what is the short run
firms cannot change fixed costs or technology
The word "competition" in the label "monopolistic competition" refers to the fact that
firms vie against each other to get customers to buy their version of the product
a perfectly competitive industry achieves allocative efficiency when
goods and services are produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it
a patent or copyright is a barrier to entry based on
government action to protect a producer
what is the difference between perfect competition and monopolistic competition
in perfect competition, firms produce identical goods, while in monopolistic competition, firms produce slightly different goods
a profit maximizing monopoly's price is
greater than the price that would prevail if the industry was perfectly competitive.
Scenario: The market for used cell phones is very popular in Barylia. However, several phones available in this market are of inferior quality and it is often impossible to differentiate between a good-quality phone and a poor-quality phone. Refer to the scenario above. Based on the given information, we can conclude that the market for used cell phones in Barylia:
has asymmetric information
Compensating differentials are associated most closely with which of the following?
hazardous jobs
In an extensive-form game, payoff to a player is usually higher if ________.
he is the first mover
Scenario: Phillip and Joseph are two classmates who represented their college in a quiz competition as a team and won $500. However, the winning amount was handed over by the organizers to their professor who had accompanied them. The professor gave the money to Phillip and asked him to offer any amount he wants to Joseph. If Joseph accepts the offer, the money would be split in the decided proportion between them. However, if Joseph rejects the offer, the money would go to their college fund. Refer to the scenario above. If Joseph prefers fairness to money, ________.
he will accept the offer if offered an equal share of the money
Scenario: Phillip and Joseph are two classmates who represented their college in a quiz competition as a team and won $500. However, the winning amount was handed over by the organizers to their professor who had accompanied them. The professor gave the money to Phillip and asked him to offer any amount he wants to Joseph. If Joseph accepts the offer, the money would be split in the decided proportion between them. However, if Joseph rejects the offer, the money would go to their college fund. Refer to the scenario above. If Joseph prefers money to fairness, ________.
he will always accept any offer made to him
_______ discourage low risk individuals from seeking health insurance
high premiums
in the short run, average total costs is
higher than average variable costs
Compensating differentials are
higher wages that compensate workers for unpleasant aspects of a job.
the demand curve faced by the individual perfectly competitive firm is
horizontal
Firms use information on labor's marginal revenue product to determine
how many workers to hire at each wage rate.
The combined effect (both income and substitution) of a wage increase is that
if the substitution effect outweighs the income effect, the labor supply curve slopes upward, but if the income effect outweighs the substitution effect, the labor supply curve is backward bending.
If the demand for hamburgers increases, it is likely that the demand for fast-food employees will
increase
If the price of output increases, the equilibrium wage of workers who produce that output will ________ and ________ workers will be hired.
increase; more
A decrease in the supply of labor could be caused by
increased wage rates in another industry.
which of the following helps in reducing the problem of adverse selection in health insurance markets
insurance mandates
a perfectly competitive firms marginal revenue
is equal to its price
if a perfectly competitive firm's price is less than its average total cost but greater than its average variable cost, the firm
is incurring a loss
Peters pencils is a perfectly competitive company producing pencils. suppose Peter is producing 1000 pencils an hour. if the total cost of 1000 pencils is 500 the market price per pencil is 2 and the marginal cost Is 2 then Peter
is maximizing his profit and is making economic profit
Diet Coke _______ considered a product in a monopoly market, because __________
is not; it has many substitutes
a monopoly firms demand curve
is the same as the market demand curve
from he managers perspective
it is important to treat implicit costs as explicit in order to make sound strategic decisions.
For the past year, Teddy has had a part-time job at which he is willing to work 30 hours each week. During Teddy's annual review, his boss grants him an 8 percent increase in his wage. As a result of the wage increase, Teddy is now willing to work 25 hours each week. Teddy's opportunity cost of ________ has risen and because for Teddy the substitution effect of the wage hike is ________ than the income effect.
leisure; less
one consequence of imperfect information into health insurance market is that
less healthy individuals are more likely to buy insurance, driving up the cost of insurance for everyone
the monopolist's marginal revenue curve
lies below the demand curve
The rutabaga market is perfectly competitive. Research is published claiming that eating rutabagas leads to gaining weight and so the demand for rutabagas permanently decreases. The permanent decrease in demand results in a
lower price, economic losses by rutabaga farmers, and exit from the market
a perfectly competitive market has what three conditions
many buyers and sellers, identical products, no barriers to entry
a supplier of an input is unlikely to have bargaining power if
many firms can supply the input
a market is classified as monopolistically competitive when
many firms produce a slightly differentiated product
the change in total variable costs which accompanies one extra unit of output
marginal costs
Marginal revenue product is
marginal physical product multiplied by marginal revenue.
in the case of the perfectly competitive firm
marginal revenue equals the market price
A ________ is a complete plan describing how a player will act.
strategy
A firm's demand for labor curve is also called its
marginal revenue product of labor curve.
information asymmetry in a market can lead to _________
market failure
When people who buy insurance change their behavior after the purchase because they are protected from loss by the insurance, the insurance market is said to face the problem of
moral hazard
if perfectly competitive firms are making an economic profit, then
new firms will enter the market
what are implicit costs
non monetary opportunity costs
A Nash equilibrium occurs when ________.
none of the players can increase their payoffs by choosing a different strategy
Alejandro is a computer programmer employed by XYZ Tech Corp. He is Hispanic. He gets an offer from another company that is trying to lure him away from XYZ and is willing to pay him a higher salary than XYZ pays him. Alejandro asks his boss whether the company is willing to match the offer to keep him at XYZ. His boss says, "Don't let the door hit you on your way out." Why did the boss fail to match the other firm's offer?
not clear why XYZ did not match the other firm's offer
Jennifer's bakery shop produces baked goods in a perfectly competitive market. if Jennifer decides to produce her 100th batch of cookies at a market price of 110 to maximize her profit, Jennifer should
not produce an additional batch
if marginal revenue is less than marginal costs then you should
not produce the next unit of output
when a perfectly competitive firm finds that its market price is below its minimum average variable cost, it will sell
nothin at all, the firm shuts down
The dominant strategy allows a firm to
obtain the highest benefit, regardless of its rivals' actions.
in order to identify their used cars as plums, many used car dealers
offer money-back guarantees
The highest-valued alternative that must be given up to engage in an activity is the definition of
opportunity cost.
the basic idea behind moral hazard is that ___________
people tend to take more risks if they do not have to bear the costs of their behavior
marginal revenue is constant when the demand curve is
perfectly elastic
In a Nash equilibrium,
players may or may not have dominant strategies.
firms in a perfectly competitive market are
price takers
adverse selection is created by
private information
which of the following describes a situation in which a good or service is produced at the lowest possible cost
productive efficiency
if a typical firm in a perfectly competitive industry is incurring losses, then
some firms will exit in the long run, causing market supply to decrease and market price to rise, increasing profits for the remaining firms
When expectations cause people to discriminate against a certain group, it is referred to as ________.
statistical discrimination
Discrimination that occurs when someone assigns the properties of a group to a particular individual who is a member of that group is known as
statistical discrimination.
When expectations cause people to discriminate against a certain group, it is referred to as:
statistical discrimination.
when price is greater than average variable cost the business should...
stay in business in the short run
Economically rational means that consumers and firms
take actions that are appropriate to reach goals given available information.
Discrimination that occurs when people's preferences cause them to discriminate against a certain group is referred to as:
taste-based discrimination.
The process a firm uses to turn inputs into outputs of goods and services is called
technology
a natural barrier to entry is defined as a barrier that arises because of
technology that allows one firm to meet the entire market demand at lower average total cost than could two or more firms.
Economists generally define the show run as being
that period of time in which at least one of the firms inputs, usually plant size, is fixed
In 2017, the Educational Testing Service (ETS) charged $54.50 to take the Scholastic Aptitude Test (SAT) but $205 to take the Graduate Record Exam (GRE). One reason for this difference in price is
the ETS faces competition in the market for the SAT but no competition for the GRE
which of the following I an example of a factor that a firm's owners and managers can control in making the firm successful
the ability to produce the product a a lower cost
Marginal revenue is equal to
the change in P x Q due to a one unit change in output
how do you find the marginal costs
the change in total cost divided by the change in quantity
which of the following is likely to be used as a signal in the job market
the degree obtained by the applicant
by continuing to operate when price is greater than average variable cost but less than average total cost, a firm limits its losses to
the difference between its total fixed cost and the amount by which total revenue exceeds total variable costs
what is likely to happen in a used car market if the buyers feel that they best they can do is buy a lemon
the entire market shuts down
Assume that the 4K and OLED television sets industry is perfectly competitive. Suppose a producer develops a successful innovation that enables it to lower its cost of production. What happens in the short run and in the long run?
the firm will be able to increase its economic profits temporarily, but in the long run its economic profits will be eliminated as other firms copy the innovation
what is one of the most important benefits of the internet
the internet has reduced asymmetric information
One reason why the average salary of Major League Baseball players is higher than the average salary of college professors is
the marginal revenue product of baseball players is greater than the marginal revenue product of college professors.
Applied to perfectly competitive labor markets, the marginal principle tells firms to hire workers until:
the marginal revenue product of the last worker hired equals the wage.
what is explicit costs
the money that the firm spends on buying things like, wages for workers or a lease payment on a store
if productive efficiency characterizes a market
the output is being produced at the lowest possible cost
If a doctor knows that an insurance company will pay for most of a patient's bill, the doctor has more of an incentive to require additional medical procedures and tests, even if the patient may not require them. This is an example of
the principal- agent problem
what point has a business reached when price equals average variable cost
the shutdown point
total cost is what
the total of fixed and variable costs
economic profits are how you find what?
the true profit of the firm
Which of the following factors will not cause the labor demand curve to shift?
the wage rate
variable costs
things that do change, like hiring ore workers or buying more raw material
if a monolopists marginal revenue is 35 per unit and its marginal cost is 25, then
to maximize profit the firm should increase output
The function of the agent in the principal-agent relationship is
to perform tasks for te principal
health insurance companies impose deductibles on policies and co-payments on claims
to reduce moral hazard problems.
The basic activity of a firm is
to use inputs to produce outputs of a good and service
Moral hazard refers to the actions people take after they have entered into a transaction that make the other party to the transaction worse off. true false
true
how do you calculate profit
total revenue minus total cost
marginal cost is defined as the change in ________ costs when output changes by one unit. in the short run, marginal cost can also be measured by the change in _______ costs when output changes by one unit
total, variable
Scenario: Jack and Jill are two siblings. Jack's father asked him how much he would offer to Jill if he gives him $50 as pocket money. He also told Jack that if Jill refuses the offer Jack makes, neither of them will get any money. Refer to the scenario above. This is an example of a(n) ________.
ultimatum game
Scenario: Robert and Alice are participating in a reality show on television. Robert is offered an amount of $500 and told that he can keep the money provided he shares some of it with Alice. Robert can offer Alice as much or as little as he likes, but if Alice rejects his offer, neither of them will get to keep any money. Refer to the scenario above. This is an example of a(n) ________.
ultimatum game
Game theory is applicable to oligopoly behavior because oligopolists
use strategic behavior.
for a hotdot vender, the hotdog buns represent his
variable input
economies of scale is
when long run average costs fall as quantity increases
when is the markets optimum point reached
when marginal revenue equals marginal costs
when is the average total cost curve intersected by the marginal cost curve
when the average total costs is at its minimum
a monolopist's profit- maximizing price and output correspond to the point on a graph
where marginal revenue equals marginal cost and charging the price on the market demand curve for that output
how do you find average total cost
you divide total costs by quantity
