Econ final exam

Suppose a certain firm is able to produce 165 units of output per day when 15 workers are hired. The firm is able to produce 181 units of output per day when 16 workers are hired, holding other inputs fixed. The marginal product of the 16th worker is

16 units of output

When individuals are damaged by an illegal arrangement to restrain trade, which law allows them to pursue civil action and recover up to three times the damages sustained

Clayton Act

A firm is currently producing 100 units of output per day. The manager reports to the owner that producing the 100th unit costs the firm $5. The firm can sell the 100th unit for $4.75. The firm should continue to produce 100 units in order to maximize its profits (or minimize its losses).

FALSE

Suppose that antitrust laws were successful in moving the allocation of resources in the computer software industry closer to the social optimum. This situation would illustrate which of the following Ten Principles of Economics?

Governments can sometimes improve market outcomes

Which of the following could be used to calculate the profit for a firm?

Profit = (P - ATC) × Q

Which of the following statements is not correct? A. The government should always intervene to improve monopoly inefficiency. B. By regulating a natural monopoly where price equals average total cost, the monopoly earns zero profits. C. An advantage of private ownership over public ownership is that private business owners tend to fire inefficient managers. D. The government may use antitrust laws to prevent a merger if the government believes the merger will reduce competition and increase prices.

The government should always intervene to improve monopoly inefficiency

If a monopolist's marginal costs increase by $1 for all levels of output, then the monopoly price will

rise by less than $1

In choosing among alternative courses of action, Raj must consider how others might respond to the action he takes. In the language of game theory, we say that Raj must think

strategically

When entry and exit behavior of firms in an industry does not affect a firm's cost structure,

the long-run market supply curve must be horizontal

When a monopoly increases its output and sales,

the output effect works to increase total revenue, and the price effect works to decrease total revenue

Marginal cost equals

the slope of the total cost curve.

As the number of firms in an oligopoly increases,

the total quantity of output produced by firms in the market gets closer to the socially efficient quantity.

The government is proposing switching from a progressive tax system in which families pay 15% of the first $50,000 earned, 25% of the next $50,000 earned, and 35% of any income over $100,000 to a tax system in which every family pays 20% of their income less $20,000. Refer to Scenario 20-1. What would the libertarians think of the proposed policy change?

They would oppose both tax policies because both redistribute income

Which of the following statements is correct?

Welfare reform enacted in 1996 limited the amount of time recipients could stay on welfare.

For a construction company that builds houses, which of the following costs would be a fixed cost

all of the above

In the long run a company that produces and sells laundry detergent incurs total costs of $2,500 when output is 1,250 units and $2,750 when output is 1,500 units. For this range of output, the laundry detergent company exhibits

economies of scale.

Anna borrows $5,000 from a bank and withdraws $1,000 from her personal savings to start a coffee shop. The interest rate is 5 percent for both the bank loan and her personal savings. Her opportunity cost of capital is $250 (true or false)

false

At the profit-maximizing quantity of output for a monopolist, average revenue, marginal revenue, and price are all equal.

false

Average total cost reveals how much total cost will change as the firm alters its level of production.

false

There is general agreement among economists that the long-run time period exceeds one year.

false

An oligopoly would tend to restrict output and drive up price if

firms collude and behave like a monopoly

Some costs do not vary with the quantity of output produced. Those costs are called

fixed costs

According to a utilitarian, total social utility will be maximized when marginal dollars are distributed to the people with the

highest marginal utility of income

Reduced competition through merging of companies will raise social welfare

if the benefit from the synergies exceeds the social cost of increased market power.

The average-fixed-cost curve

is always decreasing

The length of the short run

is different for different types of firms

If society chose to maximize total utility rather than minimum utility,

its justice would be more utilitarian than Rawlsian.

In order to maximize profits in the short run, a firm should produce where

marginal cost equals marginal revenue

Average total cost is increasing whenever

marginal cost is greater than average total cost.

For a firm in a competitive market, an increase in the quantity produced by the firm will result in

no change in the product's market price.

In a perfectly competitive market,

no one seller can influence the price of the product

Curve D is increasing because (graph, look at aplia)

of diminishing marginal product.

A family's ability to buy goods and services depends largely on the family'

permanent income

The poverty rate is the percentage of the population that have a family income level below the

poverty line

For a monopoly firm, which of the following equalities is always true

price = average revenue

As the number of firms in an oligopoly increases, the

price approaches marginal cost, and the quantity approaches the socially efficient level.

Raiman's Shoe Repair produces custom-made shoes. When Mr. Raiman produces 12 pairs per week, the marginal cost of the 12th pair is $84, and the marginal revenue of the 12th pair is $70. What would you advise Mr. Raiman to do?

produce fewer custom-made shoes

The prisoners' dilemma game

provides insight into why cooperation is difficult.

Which of the following characteristics of competitive markets is necessary for firms to be price takers? (i) There are many sellers. (ii) Firms can freely enter or exit the market. (iii) Goods offered for sale are largely the same

(i) and (iii) only

The study by economists Cox and Alm found that the 2006 after-tax income of the richest fifth of U.S. households is

...

When regulators use a marginal-cost pricing strategy to regulate a natural monopoly, the regulated monopoly

...

Price Quantity $30 0 $25 2.5 $20 5 $15 7.5 $10 10 $5 12.5 $0 15

10

The amount of power that a monopoly has depends on whether there are close substitutes for its product.

true

The maximin criterion is the idea that the government should aim to maximize the well-being of the worst-off person in society.

true

If the profit-maximizing quantity of production for a competitive firm occurs at a point where the firm's average total cost of production is falling as production increases, then the firm

will have economic profit less than zero at the profit-maximizing quantity

Economies of scale arise when

workers are able to specialize in a particular task.

Ellie has been working for an engineering firm and earning an annual salary of $80,000. She decides to open her own engineering business. Her annual expenses will include $15,000 for office rent, $3,000 for equipment rental, $1,000 for supplies, $1,200 for utilities, and a $35,000 salary for a secretary/bookkeeper. Ellie will cover her start-up expenses by cashing in a $20,000 certificate of deposit on which she was earning annual interest of $500.

$55,200.

Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue

does not change.

For a large firm that produces and sells automobiles, which of the following costs would be a variable cost? A. the unemployment insurance premium that the firm pays to the state of Missouri that is calculated based on the number of worker-hours that the firm uses B. the cost of the electricity of running the machines on the factory floor C. the cost of the steel that is used in producing automobiles D. All of the above are correct.

all of the above are correct

When regulators use a marginal-cost pricing strategy to regulate a natural monopoly, the regulated monopoly A. may rely on a government subsidy to remain in business. B. will experience a price below average total cost. C. will experience a loss. D. All of the above are correct.

all of the above are correct

The theory of oligopoly provides another reason that free trade can benefit all countries because

as the number of firms within a given market increases, the price of the good decreases.

Because natural monopolies have a declining average cost curve, regulating natural monopolies by setting price equal to marginal cost would

cause the monopolist to operate at a loss.

Suppose a firm in each of the two markets listed below were to increase its price by 25 percent. In which pair would the firm in the first market listed experience a dramatic decline in sales, but the firm in the second market listed would not?

corn and satellite radio

A monopolist that practices perfect price discrimination

creates no deadweight loss.

In a competitive market, a firm's supply curve dictates the amount it will supply. In a monopoly market the

decision about how much to supply is impossible to separate from the demand curve it faces

The socially efficient level of production occurs where the marginal cost curve intersects

demand

Consider a local, privately-owned electrical cooperative named Poweshiek Power Company (PPCo). PPCo has just completed a clean-coal-burning electrical power plant in Iowa. Currently, PPCo can meet the electricity needs of all residents in the county. In fact, its capacity far exceeds the needs of the county. After just a few years of operation, the shareholders of PPCo experienced incredibly high rates of return on their investment due to the profitability of the corporation

there are no new entrants to the market

Cartels are difficult to maintain because

there is always tension between cooperation and self-interest in a cartel

A goal of libertarians is to provide citizens with equal opportunities rather than to ensure equal outcomes.

true

Because there are many buyers and sellers in a perfectly competitive market, no one seller can influence the market price

true

In a competitive market, strategic interactions among the firms are not important.

true

In the long run, when price is less than average total cost for all possible levels of production, a firm in a competitive market will choose to exit (or not enter) the market.

true

Price discrimination can increase both the monopolist's profits and society's welfare

true