econ final

Suppose that when the price of shoe laces goes from $1 to $2 per pair, production increases from 90 million pairs per year to 100 million pairs. Using the mid-point method, the price elasticity of supply would be: 6.28. 10.5 percent. 66 percent. 0.16.

0.16.

In sequential games, an especially important part of strategic behavior is to: "Think forward, act backward" "Think backward, work forward" "Think forward, work backward" "Think backward, act forward"

"Think forward, work backward"

If the price of cereal changes by 10 percent, we observe a 2 percent change in the quantity of milk demanded. The cross-price elasticity of these goods is: -0.2. -5. 5. 0.2.

0.2.

How does the long run equilibrium of a monopolistically competitive industry differ from that of a perfectly competitive industry? A firm in monopolistic competition does not take full advantage of its economies of scale but a firm in perfect competition produces at the lowest average cost possible. A firm in monopolistic competition produces an allocatively efficient output level while a firm in perfect competition produces a productively efficient output level. A firm in monopolistic competition will earn economic profits but a firm in perfect competition earns zero profit. A firm in monopolistic competition will charge a price higher than the average cost of production but a firm in perfect competition charges a price equal to the average cost of production.

A firm in monopolistic competition does not take full advantage of its economies of scale but a firm in perfect competition produces at the lowest average cost possible.

When the XYZ company is operating at the minimum point on its ATC curve, then: MC is also at its minimum AVC must be at the minimum point ATC is equal to MC AFC is also at its minimum

ATC is equal to MC

The short run: means at least one input cannot change. All of these are true. lasts until the firm can change all inputs. means the firm is fixed in scale.

All of these are true.

Suppose the market for sugar is in equilibrium at a price of $5 per pound. This means: All producers who want to sell coffee are pleased All remaining producers require less than $5 to produce coffee All consumers who want to buy coffee are satisfied All remaining consumers value a pound of coffee at less than $5

All remaining consumers value a pound of coffee at less than $5

If the 15th unit of output has a marginal cost of $29.50 and the average cost of producing 14 units of output is $30.23, what will happen to the average cost of production if the 15th unit is produced? Average cost could increase or decrease depending on what happens to fixed cost. Average cost could increase or decrease depending on what happens to variable cost. Average cost increases as more is produced. Average cost will fall.

Average cost will fall.

Which of the following is not true for a firm in perfect competition? Price equals average revenue. Profit equals total revenue minus total cost. Average revenue is greater than marginal revenue. Marginal revenue equals the change in total revenue from selling one more unit of output

Average revenue is greater than marginal revenue.

In the short run, as output increased more variable inputs are added to a given amount of fixed inputs. After some point, we expect: Marginal cost to continue its decline throughout all ranges of output Essentially no change in average fixed costs Average total cost to stop rising and begin falling Average variable cost to stop falling and to begin rising

Average variable cost to stop falling and to begin rising

In the short run, a firm that finds itself earning a loss should compare the market price to which cost in order to determine how to minimize its losses? Fixed costs Average variable costs Marginal costs Average total costs

Average variable costs

What is the dominant strategy in the prisoner's dilemma? Do not confess in the hope that the other prisoner also does not confess. Each prisoner confesses. Do not confess because the other prisoner will most likely confess. There is no dominant strategy.

Each prisoner confesses.

Marginal cost: Declines continuously as output increases Is the difference between total cost and total variable cost Equals both average variable cost and average total cost at their respective minimums Rides for a time, but begins to decline when diminishing returns set is

Equals both average variable cost and average total cost at their respective minimums

A firm's production function is best described as: Measuring the cost of producing various levels of output, given input prices and input requirements Illustrating the relationship between inputs and outputs Describing short-run production techniques but not long-run Measuring the opportunity cost of using inputs in one production technique rather than another

Illustrating the relationship between inputs and outputs

If a good has an income elasticity of 0.18, which of the following can be said about it? It is an inferior good, and a necessity. It is an inferior good, and a luxury. It is a normal good, and a luxury good. It is a normal good, and a necessity.

It is a normal good, and a necessity.

Given the shutdown rule, what does the firm's short-run supply curve look like? It is the section of the MC that lies above the AVC curve. It is the section of the MC that lies above the ATC curve. It is the section of the AVC curve to the right of its minimum. It is the section of the ATC curve to the right of its minimum.

It is the section of the MC that lies above the AVC curve.

What is a network externality? It refers to a situation in which a product's usefulness increases with the number of people using it. It refers to a product that requires connection to a network for it to be useful. It refers to lobbying to form a public enterprise. It refers to having a network of suppliers and buyers for a good or service.

It refers to a situation in which a product's usefulness increases with the number of people using it.

Each point of a firm's supply curve represents a price-quantity pair where: MC = MR. MC = ATC. P = min ATC. P = min AVC.

MC = MR.

The monopolist and the perfectly competitive firm both choose to maximize profits by choosing the level of output where: the two types of firms make their profit-maximizing decision differently. MC equals MR and price is equal to minimum ATC. MC equals MR and price is equal to AR. MC equals AR and price is equal to minimum ATC.

MC equals MR and price is equal to AR.

A competitive firm in the short run can determine the profit-maximizing ( or loss-minimizing) output by equating: Price and marginal revenue Price and average total cost Price and average fixed cost Marginal revenue and marginal cost

Marginal revenue and marginal cost

In the short run, monopolistically competitive firms behave like______, but in the long run, the outcome is similar to that of ____. Perfectly competitive firms; monopolies Monopolies; oligopolies Oligopolies; perfectly competitive firms Monopolies; perfectly competitive firms

Monopolies; perfectly competitive firms

An industry that has a four-firm concentration ratio that is small suggests that it is: A monopoly Monopolistically competitive An oligopoly Perfectly competitive

Monopolistically competitive

If a good has an income elasticity of 1.83, which of the following can be said about it? None of these statements is true. It is an inferior good, and a necessity. It is a normal good, and a necessity. The good probably has a lot of close substitutes available.

None of these statements is true.

According to class lecture, the dynamic view of monopoly is best described by which of the following? Positive economic profits may contribute to future consumer surplus Deadweight losses from monopoly matter less over the long run than they do in the short run Monopoly industries are the most dynamic of the 4 main market structures Deadweight losses from monopoly matter moreover the long run than they do in the short run

Positive economic profits may contribute to future consumer surplus

What is the root cause of excess capacity in a monopolistically competitive industry? Inefficient producers. Product differentiation. Free entry. Rising marginal cost.

Product differentiation.

Shut down if total revenue is less than fixed costs. A firm realizes that the market price has fallen below its average total costs, and it is now earning a loss. What is the best action for the firm to take in the short run? Stay open if total revenue is greater than fixed costs. Shut down immediately and pay fixed costs only. Stay open if price is greater than average variable costs. Shut down if price is greater than average variable costs.

Stay open if price is greater than average variable costs.

Suppose two firms in a duopoly implicitly collude and charge a high price. How might each firm benefit from advertising that it will match the lowest price offered by its competitor? The offer to match prices is a way of deterring entry by other large firms, thereby keeping the market share of the existing firms intact. The advertisement ensures that the other firm does not cheat. If a firm cheats on the agreement and charges the lower price, the rival firm will retaliate by doing the same. The offer to match prices is a way of signaling to antitrust authorities that the firms are not engaged in illegal collusion. The advertisement is meant to suggest to consumers that the offered price is actually the lowest price available

The advertisement ensures that the other firm does not cheat. If a firm cheats on the agreement and charges the lower price, the rival firm will retaliate by doing the same.

If the demand curve is less elastic than the supply curve then: The sellers will bear a greater tax burden that buyers The sellers will bear a greater tax incidence The buyers will bear a smaller tax burden than sellers The buyers will bear a greater tax incidence

The buyers will bear a greater tax incidence

The monopolist's cost curves differ from those of a perfectly competitive firm in that the: average variable cost in no longer equal to marginal cost. marginal cost curve is downward sloping instead of flat. average total cost curve is not necessarily minimized where it crosses marginal cost. The cost curves are the same for a firm regardless of market structure.

The cost curves are the same for a firm regardless of market structure.

Which of the following statements is correct? The long-run supply curve for a perfectly competitive industry will be less elastic than the industry's shortrun supply curve. The long-run supply curve for a perfectly competitive decreasing-cost industry will be upsloping. The long-run supply curve for a perfectly competitive increasing-cost industry will be upsloping. The long-run supply curve for a perfectly competitive increasing-cost industry will be perfectly elastic.

The long-run supply curve for a perfectly competitive increasing-cost industry will be upsloping.

What does MES (minimum efficient scale) refer to? The biggest-size plant that is capable of achieving economies of scale. The marginal efficient size of a firm. The biggest-size plant that is capable of achieving diseconomies of scale. The smallest-size plant capable of achieving the lowest long-run average cost of production.

The smallest-size plant capable of achieving the lowest long-run average cost of production.

For a natural monopoly to exist, a firm's long-run average cost curve must exhibit diseconomies of scale beyond the economically efficient output level. a firm must have a government-imposed barrier. a firm must continually buy up its rivals. a firm's long-run average cost curve must exhibit economies of scale throughout the relevant range of market demand.

a firm's long-run average cost curve must exhibit economies of scale throughout the relevant range of market demand.

Compared to a monopolistic competitor, a monopolist faces a more elastic demand curve. a demand curve that has a price elasticity coefficient of zero. a more inelastic demand curve. a more elastic demand curve at higher prices and a more inelastic demand curve at lower prices.

a more inelastic demand curve.

In a graph with output on the horizontal axis and total revenue on the vertical axis, what is the shape of the total revenue curve for a perfectly competitive seller? a horizontal line inverted U-shaped U-shaped a ray from the origin

a ray from the origin

Average variable costs: decrease when marginal product rises, and increase when marginal product declines. decrease when output declines, and increase when output declines. increase when output declines, and decrease when output rises. increase when marginal product rises, and decrease when marginal product declines.

decrease when marginal product rises, and increase when marginal product declines.

A small member of a cartel like OPEC (imagine Nigeria) has an incentive to argue for the dissolution of the cartel. agree to a low cartel production level and then produce more than its quota. argue for larger production quotas for each member of the cartel. abide by its individual production quota.

agree to a low cartel production level and then produce more than its quota.

In an oligopoly, when the quantity effect outweighs the price effect: keeping output constant and lowering price will increase the firm's profits. keeping output constant and raising price will increase the firm's profits. a decrease in output may increase the firm's profits. an increase in output may increase the firm's profits.

an increase in output may increase the firm's profits.

Assuming elasticity is reported in absolute value, a measured price elasticity of demand of 0.4 would indicate: an inelastic demand, meaning the percentage change in quantity demanded will be greater than the percentage change in price. an elastic demand, meaning the percentage change in quantity demanded will be less than the percentage change in price. an elastic demand, meaning the percentage change in quantity demanded will be greater than the percentage change in price. an inelastic demand, meaning the percentage change in quantity demanded will be less than the percentage change in price.

an inelastic demand, meaning the percentage change in quantity demanded will be less than the percentage change in price.

Economies of scale exist as a firm increases its size in the long run because of all of the following except the firm can afford more sophisticated technology in production. as a firm expands its production, its profit margin per-unit of output increases. labor and management can specialize even further in their tasks. as a larger input buyer, the firm can purchase inputs at a lower per unit cost.

as a firm expands its production, its profit margin per-unit of output increases

When a firm's long-run average cost curve is horizontal for a range of output, then that range of production displays increasing returns to scale. constant average fixed costs. decreasing returns to scale. constant returns to scale.

constant returns to scale.

Average variable costs: increase when output declines, and decrease when output rises. decrease when output declines, and increase when output declines. increase when marginal product rises, and decrease when marginal product declines. decrease when marginal product rises, and increase when marginal product declines

decrease when marginal product rises, and increase when marginal product declines

Average variable costs: decrease when output declines, and increase when output declines. decrease when marginal product rises, and increase when marginal product declines. increase when marginal product rises, and decrease when marginal product declines. increase when output declines, and decrease when output rises.

decrease when marginal product rises, and increase when marginal product declines.

If, when a firm doubles all its inputs, its average cost of production increases, then production displays diseconomies of scale. diminishing returns. declining fixed costs. economies of scale.

diseconomies of scale

The demand curve in a perfectly competitive industry is ______, while the demand curve to a single firm in that industry is ______. perfectly elastic, downsloping downsloping, perfectly inelastic downsloping, perfectly elastic perfectly inelastic, perfectly elastic

downsloping, perfectly elastic

If firms are producing at a profit‐maximizing level of output where the price is equal to the average total cost: economic profits must be zero. accounting profits may be negative. accounting profits must be zero. economic profits may be positive.

economic profits must be zero.

In the long run, a profit-maximizing monopolistically competitive firm sells at a price that is: equal to demand, but higher than average total cost and marginal cost. equal to average total cost, but lower than marginal cost. equal to average total cost, but higher than marginal cost. equal to marginal cost and marginal revenue.

equal to average total cost, but higher than marginal cost.

The law of diminishing marginal returns causes the difference between average total cost and average variable cost to get smaller as output increases. explains why the average total cost and marginal cost curves are U-shaped in the short run. explains why the average total cost, average fixed cost and the marginal cost curves are U-shaped in the short run. causes average total costs to rise at a decreasing rate as output increases.

explains why the average total cost and marginal cost curves are U-shaped in the short run.

The demand curve facing the monopolistically competitive firm is: steeper than that of a monopolist. flatter than that of a monopolist. flatter than that of a perfectly competitive firm. steeper than that of their competition.

flatter than that of a monopolist.

Positive analysis: weighs the fairness of a policy. involves the formulation and testing of hypotheses. involves value judgments concerning the desirability of alternative outcomes. examines if the outcome is desirable.

involves the formulation and testing of hypotheses.

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. is earning a profit. should shut down. is breaking even

is incurring a loss.

If a perfectly competitive firm shuts down in the short run: it will realize a loss equal to its total variable costs. it will realize a loss equal to its total fixed costs. its loss will be zero. it will realize a loss equal to its total costs.

it will realize a loss equal to its total fixed costs.

For a monopoly producing any output level greater than one, the marginal revenue curve: is minimized when total revenue is maximized. lies above the average revenue curve. lies below the demand curve. is the same as the demand curve.

lies below the demand curve.

In the short run the individual competitive firm's supply curve is that segment of the: average variable cost curve lying below the marginal cost curve. marginal cost curve lying between the average total cost and average variable cost curves. marginal revenue curve lying below the demand curve. marginal cost curve lying above the average variable cost curve.

marginal cost curve lying above the average variable cost curve.

In the short run, if marginal product is at its maximum, then average variable cost is at its minimum. marginal cost is at its minimum. total cost is at its maximum. average cost is at its minimum.

marginal cost is at its minimum.

Long-run cost curves are U-shaped because of the law of diminishing returns. of the law of supply. of economies and diseconomies of scale. of the law of demand.

of economies and diseconomies of scale.

When a monopolistically competitive firm cuts its price to increase its sales, it experiences a gain in revenue due to the substitution effect. output effect. income effect. price effect

output effect.

A sequential game is one where: there is never a winner if players act rationally. players take turns making moves/decisions. players make their moves/decision at the same time. players act together to achieve a common goal.

players take turns making moves/decisions.

Competition between oligopolists drives: price and profits down to below the monopoly level. some firms out until the market becomes a monopoly. collusion to happen frequently. price and profits down to the perfect competition level.

price and profits down to below the monopoly level.

Total revenues increase as output increases along sections of the demand curve that are: price inelastic. downward sloping. upward sloping. price elastic

price elastic

Total revenue decreases as output increases when demand is: downward sloping. perfectly elastic. price elastic. price inelastic.

price inelastic.

A firm finds that at its MR = MC output, its TC = $1,000, TVC = $800, TFC = $200, and total revenue is $900. This firm should: shut down in the short run. produce because the resulting loss is less than its TFC. produce because it will realize an economic profit. liquidate its assets and go out of business.

produce because the resulting loss is less than its TFC.

The government imposing a minimum wage is an example of an attempt to: discourage the consumption of inferior goods. redistribute surplus in a market. correct a market failure. encourage the consumption of inferior goods.

redistribute surplus in a market.

One reason why, in the short run, the marginal product of labor might increase initially as more workers are hired is that the best workers are hired first and later hires are not as skillful. the first workers hired get to use the best equipment. beyond some point, a firm has hired too many workers. specialization allows a worker to focus on one task, thereby increasing her proficiency at that task.

specialization allows a worker to focus on one task, thereby increasing her proficiency at that task.

A firm's cost of production is determined by all of the following except the amount of corporate taxes it must pay on its profit. the technology used to produce its output. the cost of raw material used in production. the productivity of its workers.

the amount of corporate taxes it must pay on its profit.

If a monopolistically competitive firm is suffering losses in the short run: the exit of competing firms will shift the firm's demand to the right. the exit of competing firms will shift the firm's demand to the left. the exit of competing firms will cause price to rise, but not affect the firm's demand curve. the exit of competing firms will cause price to drop, but not affect the firm's demand curve.

the exit of competing firms will shift the firm's demand to the right.

Sanford wants to start up his own business, and needs $50,000 to get it off the ground. He can either withdraw it from his savings account, where he currently earns 2 percent, or he can take out a loan for $50,000 and pay 2 percent interest. Sanford should compare: the explicit cost of $1,000 to the implicit cost of $1,000 and realize it will cost the same whether he borrows it or uses his savings for the venture. the implicit cost of $1,000 to the explicit cost of $51,000 and choose to use his savings. the implicit cost of $51,000 to the explicit cost of $1,000 and choose to borrow the money. the explicit cost of $1,000 to the implicit cost of $51,000 and choose to borrow the money.

the explicit cost of $1,000 to the implicit cost of $1,000 and realize it will cost the same whether he borrows it or uses his savings for the venture.

A very large number of small sellers who sell identical products imply chaos in the market. a downward sloping demand for each seller's product. a multitude of vastly different selling prices. the inability of one seller to influence price.

the inability of one seller to influence price.

In perfect competition the market demand curve is perfectly elastic while demand for an individual seller's product is perfectly inelastic. the market demand curve is downward sloping while demand for an individual seller's product is perfectly elastic. the market demand curve and the individual's demand are identical. the market demand curve is perfectly inelastic while demand for an individual seller's product is perfectly elastic.

the market demand curve is downward sloping while demand for an individual seller's product is perfectly elastic.

Which of the following is important in determining the extent of competition in an industry? whether or not the industry product is differentiated or standardized the minimum efficient scale of production relative to market demand the minimum level of short run average total costs of production the level of market demand for the industry's product

the minimum efficient scale of production relative to market demand

If a monopolistically competitive firm's demand curve is shifting left, it will stop shifting when: the price is equal to the firm's average total cost. the price is equal to the firm's marginal cost. there is no deadweight loss. the price is the same as what a perfectly competitive firm's price would be.

the price is equal to the firm's average total cost.

A feature that is unique to the perfectly competitive firm is that: the price of the product equals the marginal cost of producing an extra unit in equilibrium. product price always equals average total cost. the marginal cost of producing an extra unit of the good equals the average total cost of production. economic profits will always be earned in the long run.

the price of the product equals the marginal cost of producing an extra unit in equilibrium.

A production function represents: the relationship between the cost of the inputs and the revenue generated by the outputs. the relationship between the quantity of inputs and the quantity of outputs. the relative values of the inputs and modes of production. the relative costs of the inputs across various modes of production.

the relationship between the quantity of inputs and the quantity of outputs.

The cross‐price elasticity of two goods is ‐2. This tells us that: the two goods are inelastic. the two goods are substitutes. the two goods are complements. the two goods are unrelated.

the two goods are complements.

In the long run, if price is less than average cost, there is no incentive for the number of firms in the market to change. there is an incentive for firms to exit the market. there is profit incentive for firms to enter the market. the market must be in long-run equilibrium.

there is an incentive for firms to exit the market.

A competitive firm will maximize profits at that output at which: price exceeds average total cost by the largest amount total revenue and total cost are equal total revenue exceeds total cost by the greatest amount the difference between marginal revenue and price is at a maximum

total revenue exceeds total cost by the greatest amount

Average variable cost can be calculated using any of the formulas below except (TC - FC)/Q. (TC/Q) - AFC. TVC/Q. Δ(TC - FC)/ΔQ

Δ(TC - FC)/ΔQ