Econ Midterm #4 study guide
The two types of market power that arise from barriers to entry are ____________. A. innate market power and natural market power. B. legal market power and competitive market power. C. leading market power and lagging market power. D. legal market power and natural market power.
legal market power and natural market power.
Which of the following is not one of the sources of natural market power? A. The presence of economies of scale. B. Controlling a key resource. C. Owning a firm in a small community D. Network externalities.
Owning a firm in a small community
For a market to be characterized as monopolistically competitive, there must be __________. A. differentiated products. B. many sellers. C. zero economic profits in the long run. D. all of the above. An example of a monopolistically competitive firm is the __________. A. wheat market. B. patented drug market. C. local electric company. D. fast-food industry.
all of the above. fast-food industry.
If a firm obtains market power through barriers to entry created by the firm itself, then the source of such power includes _________.
control of key resources and economies of scale
The formation of such a monopoly is practical for both producers and consumers because it offers them _____________.
cost advantages
If a firm obtains market power through barriers to entry created by the government, then the source of such power includes _______.
patents and copyrights
Which of the following statements are true regarding perfect competition? (Check all that apply.) A. The firms are price takers earning zero profits in the long-run. B. The price of a good is equal to its marginal cost. C. There are significant restrictions on entry into the industry. D. There are few firms each selling an identical product.
The firms are price takers earning zero profits in the long-run. The price of a good is equal to its marginal cost.
Consider an agricultural market with several farmers selling identical products. Which of the following statements is true in this case? A. The farmers face a perfectly inelastic demand curve. B. The prices are set such that they are equal to the marginal cost. C. The farmers are price-makers. D. An increase in price by a farmer will yield him an increase in business.
The prices are set such that they are equal to the marginal cost.
Which of the following best describes network externalities? A. They occur when a firm hires an outside company to help lower its costs. B. They occur when a product's value increases as more consumers begin to use it. C. They are the benefits to a firm from increasing its online presence. D. They are the benefits received by other firms from the actions taken by a monopolist.
They occur when a product's value increases as more consumers begin to use it.
The figure on the right shows the market for labor in a given industry. The demand curve is downward-sloping because marginal productivity _____ as more workers are employed, while the supply curve is upward-sloping since an increase in the wage increases the opportunity cost of ______. *shift d2 up* According to the graph, the consequence of the change in price is a _____ market wage and a _________ level of employment.
falls; leisure higher; higher
The exclusivity laws in the form of patents and copyrights make _____ better off and ______ worse off.
innovators; consumers
Antitrust policy started with the ____________, which prohibited any agreements or actions that would put restraints on trade. A. Sherman Act of 1890. B. Roosevelt Act of 1890. C. Monopoly Act of 1914. D. Wilson Act of 1914.
Sherman Act of 1890.
In recent years, some online firms have offered different consumers different prices for the same good. These firms use the consumer's IP address to find what city they are in and then charge a higher price to people in wealthier cities. This type of pricing behavior is ____________. A. third-degree price discrimination. B. second-degree price discrimination. C. location discrimination. D. first-degree price discrimination. Compared to a monopoly that does not price discriminate, a monopolist who engages in perfect price discrimination will produce __________ output and have _________ deadweight loss.
third-degree price discrimination. more; no
Suppose a firm produces the following products. In the above case, when the daily wage of the workers is $1400, then the firm will produce the products ________ only after reducing the number of workers employed. The firm observes with the help of the ______________ that as additional labor is employed, the quantity produced for product A increases.
A and D production function
Which of the following is not a characteristic of monopoly? A. Market power. B. A single seller. C. Price-maker. D. Produces identical goods.
D. Produces identical goods.
Which of the following statements are true regarding a monopoly? (Check all that apply.) A. The firm's equilibrium long-run profit is zero. B. The demand curve faced by a firm has a negative slope. C. The seller is concerned with the behavior of the other sellers. D. The price chosen by the firm is the one that helps the firm earn the highest profit.
The demand curve faced by a firm has a negative slope. The price chosen by the firm is the one that helps the firm earn the highest profit.
Natural monopolists worry _______ about potential entrants compared to the monopolies that arise through legal means since economic profits are _______ likely to attract potential market entrants.
less; less
Two major theories for why employers might discriminate are ____________. A. statistical discrimination and hate-based discrimination. B. social discrimination and political discrimination. C. taste-based discrimination and statistical discrimination. D. taste-based discrimination and psychological discrimination. Suppose an employer avoids hiring youthful workers because she worries that their skill level makes them unproductive. In this case, the employer is practicing _________ discrimination. If an employer's discrimination signals that he is willing to forego profits, then he is engaging in ________ discrimination.
taste-based discrimination and statistical discrimination statistical taste-based
Given the demand and marginal revenue curves from your graph, total revenue for Jones Pharmaceuticals is maximized when output is ____________. A. 200. B. 300. C. 100. D. 400.
200.
The graph on the right shows the market demand curve for a good. Use the graph to find total revenue and marginal revenue at the given output levels. If the price is $6, then total revenue is $____ thousand. If the price is $5, then total revenue is $___ thousand. If the price is lowered from $6 to $5, then the change in total revenue is $__ thousand.
24 30 6
Assume the figure on the right shows the cost structure for a monopolistically competitive firm selling a particular brand of shoes. MC is the marginal cost curve and AC is the average cost curve. If this firm produces 2 thousand pairs of shoes, does it minimize average cost? How much more would they need to produce to reach minimum average cost? The firm needs to produce an additional _______ thousand pairs of shoes to reach minimum average cost.
4
The value of marginal product of labor (VMPL) is ____________. A. the contribution of an additional worker to a firm's revenues. B. the firm's additional profit from hiring another worker. C. given by the marginal product of labor times the price of the firm's output. D. A and C only. When the firm's VMPL is plotted in a diagram with the quantity of labor measured along the horizontal axis, the resulting curve will be ____________ and constitutes the firm's ______________.
A and C only. downward-sloping; demand curve for labor
Which of the following is a key difference between perfect competition and monopoly? A. Monopolies produce identical goods, while goods produced by perfectly competitive firms are slightly differentiated. B. In perfect competition, no one firm can influence price, but with monopoly, a single seller sets the price. C. In perfect competition, there are high entry barriers, but with monopoly, barriers to entry are low. D. With monopoly, social surplus is always maximized.
B. In perfect competition, no one firm can influence price, but with monopoly, a single seller sets the price.
A monopolist stops increasing production when it reaches the point where _________. When _______ , the monopolist would decrease production. In the long run for a quantity where MC=MR, the monopolist __________ earn profit.
MC = MR MC>MR can earn
Which of the following is not one of the sources of natural market power? A. The presence of economies of scale. B. Controlling a key resource. C. Production of a luxury good. D. Network externalities.
Production of a luxury good.
Which of the following is not a characteristic of monopolistic competition? (Check all that apply.) A. Sellers are price-makers. B. Products are perfect substitutes. C. Slope of the demand curve is negative. D. Entry and exit is not easy. Why does a monopolistically competitive industry make zero economic profit in the long-run? A. The firms produce homogeneous products. B. The firms produce similar products that are not perfect substitutes. C. The firms do not have pricing power. D. There is the free entry of many firms in the long-run.
Products are perfect substitutes;Entry and exit is not easy. There is the free entry of many firms in the long-run.
Which of the following is true regarding the differences between a monopoly and a perfectly competitive firm? A. Unlike a perfectly competitive firm, a monopoly finds profits and losses by comparing total revenue to total cost. B. Unlike a perfectly competitive firm, a monopoly faces a downward-sloping marginal revenue curve and does not have a supply curve. C. Unlike a perfectly competitive firm, a monopoly maximizes profits by producing where MR = MC and charging a price equal to firm demand at that output level. D. Unlike a perfectly competitive firm, a monopoly faces a downward-sloping marginal revenue curve and an upward-sloping demand curve.
Unlike a perfectly competitive firm, a monopoly faces a downward-sloping marginal revenue curve and does not have a supply curve.
Technologies that complement existing labor inputs are known as _____ technologies. With this type of technological change, the marginal productivity of existing labor inputs will ______. 1.) Using the line drawing tool, show the impact of this new technology. Label your curve appropriately. *shift d2 up* The consequence for workers will be a wage rate that is _____ and hours of employment that are _____.
labor-complementary increase higher; higher
Seller A increases the price of its good by 20% and still enjoys a high market demand. Due to the high demand, there is an increase in the number of similar sellers in the long-run. This is an example of _________. Which of the following is not a common characteristic between a monopoly and monopolistic competition? A. The products sold have close substitutes. B. The price set by the seller/producer will be above marginal revenue. C. The slope of the demand curve is negative. D. There is deadweight loss in the market. Suppose Good A belongs to a market where the firms earn zero economic profits in the long-run and entry of new firms will result in price changes that operate through shifts in the market supply curve for Good A. Which market structure does Good A belong to? A. The oligopolistic market with differentiated products. B. The monopolistic competitive market. C. The oligopolistic market with homogenous products. D. The perfectly competitive market.
monopolistic competition. The products sold have close substitutes. The perfectly competitive market.
Which of the following factors can be considered as a bright side to those types of laws? (Check all that apply.) A. Such laws offer incentives to innovators. B. Such laws discourage the innovators from making expensive investments in research and development. C. Such laws never allow other producers to distribute protected goods. D. Such laws do not provide permanent protection to innovators.
Such laws offer incentives to innovators. Such laws do not provide permanent protection to innovators.
Consider four market structures: perfect competition, monopolistic competition, oligopoly, and monopoly. Firms in all four market structures maximize profits by producing the quantity where ___________. A. marginal cost equals zero. B. price equals marginal cost. C. marginal revenue equals marginal cost. D. price equals marginal revenue.
marginal revenue equals marginal cost.
Suppose an increase in the price of a good from $5 to $11 caused the quantity demanded of the good to decrease from 600 million to 300 million. In this case, with an increase in the price of the good, _______________ Therefore, total revenue _____ by $____ million.
the price effect dominates the quantity effect incrases; 300
A report by the Wall Street Journal found there were several online retailers that offered customers different prices based on their browsing history and other characteristics. This is an example of ____________. A. perfect price discrimination. B. first-degree price discrimination. C. third-degree price discrimination. D. second-degree price discrimination. How can such strategies help retailers? A. Retailers can charge a price closer to each consumer's willingness to pay, thus increasing profits. B. By charging different prices to different groups, producer surplus will likely increase. C. By segmenting the market into groups, retailers can maximize profits by acting like a monopolist. D. All of the above.
third-degree price discrimination. All of the above
Consider a noncollusive duopoly model with both firms supplying ketchup. The marginal cost for each firm is $1.75. The market demand is shown by the figure on the right. Let us assume that the two firms supplying ketchup are Firm A and Firm B. The price charged by Firm A is denoted as pA and the price charged by Firm B is denoted as pB. If the firms collude, then firm A will charge a price of: pA=$________ and Firm B will charge a price of: pB=$_______
4; 4
A production function shows ____________. A. the number of workers employed and the firm's cost of production. B. the number of workers a firm will employ at different possible wage rates. C. the number of workers employed and the corresponding output levels that will be produced. D. the output levels a firm will produce at different possible prices. According to the Law of Diminishing Returns, ____________. A. as the quantity of labor increases, the quality of the labor being employed decreases. B. the ratio of output to labor rises then eventually falls. C. the total productivity of labor eventually decreases as the quantity of labor increases. D. the marginal productivity of an additional unit of labor eventually decreases as the quantity of labor increases.
the number of workers employed and the corresponding output levels that will be produced. the marginal productivity of an additional unit of labor eventually decreases as the quantity of labor increases.
Which of the following are reasons for a monopoly to not have a supply curve? (Check all that apply.) A. A monopolist is a price-maker, i.e., he sets the price. B. A monopolist's marginal revenue depends on the negatively sloped demand curve. C. A monopolist will produce a good or service depending on the positively sloped demand curve. D. A monopolist varies his production depending on the market price, but sells the good at a price set by him.
A monopolist is a price-maker, i.e., he sets the price. A monopolist's marginal revenue depends on the negatively sloped demand curve.
For a market to be characterized as a monopoly, there must be ___________. A. no barriers to entry. B. a single seller that sets the price of a good. C. identical products. D. all of the above
B. a single seller that sets the price of a good.
1) The economic profits made by a monopolistically competitive firm decreases when there is _______ and is equal to zero ______________. 2) The demand curve will __________ and its slope will be ______________ if a firm exits the market. Which of the following factors will not lead to zero economic profit in long-run equilibrium in a monopolistically competitive market? A. Advertising and innovating the product. B. Entry of many new firms in the long-run. C. Establishing the brand name of the product. D. None of the above factors.
an entry of a new firm; when in long-run equilibrium. shift right; steeper None of the above factors.
Compared to a perfectly competitive market, the price in a monopoly market is _____ and quantity is _______. If a monopolist loses its monopoly power, what happens to price and surplus? If the monopolist loses its monopoly power, price ________, consumer surplus ________, producer surplus ________, and social surplus ________. Social surplus increases because ____________. A. consumers now capture all surplus. B. the marginal cost drops. C. demand increases. D. deadweight loss is eliminated.
higher; lower decreases; increases; decreases; increases deadweight loss is eliminated.
Consider the differences, if any, between a perfectly competitive market and a monopoly market. Compared to a perfectly competitive market, consumer surplus is _____, producer surplus is _______, and deadweight loss is ________. When a firm exercises its monopoly power, social surplus is _______ when compared to a perfectly competitive market. When a firm exercises its monopoly power, the cost to society is the ____________. A. firm's economic profit. B. lost consumer surplus. C. deadweight loss. D. increased producer surplus
lower; higher; higher lower deadweight loss.
The figure on the right shows the market for labor in a given industry. The demand curve slopes downward because ________ productivity falls as more workers are employed. The supply curve slopes upward since the opportunity cost of leisure ______ following an increase in the wage. *shift S2 down According to the graph, the consequence of the change in immigration is a ________ market wage and a ________ level of employment.
marginal rises lower; higher
The graph on the right represents the demand, marginal revenue, and marginal cost curves for a monopoly. What price should this monopolist charge to maximize profits? A. $2.00. B. $5.00. C. $4.00. D. $4.50.
$5.00.
Identify the legal source of market power for each of the following examples: 1. Richard carves sculptures, for which he is granted an exclusive right. 2. Lily is granted an exclusive right to the poems written by her late father. 3. Mr. D'Souza invented product A and is granted an exclusive right to manufacture and sell it.
1. Copyright 2. Copyright 3. Patent
Suppose there are four firms in an industry, each with an equal market share. The Herfindahl-Hirschman Index (HHI) for this industry is ____. (Enter your response as an integer.) If the number of firms increases to 10, each with an equal market share, then the HHI is ______. (Enter your response as an integer.)
2500 1000
Consider the market for college textbooks. Assume this market is monopolistically competitive. A representative firm's demand (D), marginal revenue (MR), marginal cost (MC), and average cost (AC) curves are illustrated in the figure on the right. This industry ____________. A. is in long-run equilibrium, because firms are breaking even. B. is not in long-run equilibrium, because firms are incurring losses, which will result in firms exiting. C. is not in long-run equilibrium, because firms are incurring losses, which will result in firms entering. D. is not in long-run equilibrium, because firms are breaking even, which will result in firms exiting.
is not in long-run equilibrium, because firms are incurring losses, which will result in firms exiting.
Assume that Sleek is currently earning short-run economic profit in a monopolistically competitive market. On the given graph, show Sleek's profit-maximizing output and price. From, the given graph we infer that the short-run equilibrium quantity is _____ units and price is $e______ If the ATC at the profit maximizing quantity in the given graph is $2.40, then the profit made by the firm in the short-run is equal to $_________ The market for peanut butter is monopolistically competitive and in long-run equilibrium. One day, consumer advocate Jif discovers that all of the brands of peanut butter are identical. Afterwards, the market becomes perfectly competitive and again reaches its long-run equilibrium. In this situation, the price is _______ the quantity sold _______. The economic profit_________
1050; 5 2730 lower than; increases; remains the same
Which of the following statements are true regarding first-degree price discrimination? (Check all that apply.) A. The consumer surplus is zero. B. There is extreme inequity in the allocation of surplus. C. The monopolist expands production until MC=MR. D. The producer can be made better off without making consumers worse off. The consumers get charged different rates depending on their electricity consumption. Senior citizens get discounts on the purchase of medicines. A clothing store has an offer of 50 percent discount on the purchase of three shirts.
The consumer surplus is zero. There is extreme inequity in the allocation of surplus. Second-degree price discrimination Third-degree price discrimination Second-degree price discrimination
Which of the following are properties of a monopoly? (Check all that apply.) A. There is only one seller. Your answer is correct. B. There are a few close substitutes for the goods and services produced. C. Price-maker. Your answer is correct. D. Price-taker. E. There are high barriers to entry.
There is only one seller. Price-maker. There are high barriers to entry.
Because this firm is competitive and has no control over its product's price, the declining values for VMPL are a result of diminishing _____________. When the VMPL is plotted in a diagram with the number of workers measured along the horizontal axis, the resulting curve (connecting the plotted points) is the firm's ____________. *plot the points and draw the horizontal line. whatever the intersection is, is the answer for the next question* According to your diagram, the profit-maximizing level of employment for this firm is _____ workers.
marginal productivity demand for labor 4
Fill in the type of market that matches each feature mentioned below. 1) Firm sets market price depending on other firm's market price. 2)Firms with zero ability to affect price 3) A product with no close substitutes. Which of the following is not an example of monopolistic competition? A. Toothpaste producers. B. Fashion retailers. C. Pharmaceuticals. D. Gift shop.
1) Oligopoly. 2) Perfect competition. 3) Monopoly. Pharmaceuticals.
Based on the information provided in the above chart answer the following question. A monopolist decides to sell its product at a profit-maximizing price of $5. The marginal cost of the product for the monopolist is $3. In order to restore social efficiency, the social planner chooses the monopolist's quantity and price. In this case, the social surplus increases by $_____. The monopolist's price and quantity chosen by the social planner will _______ profits for the monopolist and ______ the social surplus. A monopolist's decision to perfectly price discriminate will _________ profit and ______ the social surplus.
2 lower; maximize maximize; maximize
Firms A and B plan to collude in an economy for their similar products, which includes the grim strategy for punishment. They plan to set the price of their product at $8. The marginal cost of Firm A is $5 and Firm B is $4.50. If firm A is impatient to earn more profits and Firm B wishes to last in the business for the long-run, which of the following situations would likely occur? A. Firm B reduces the price to $7 causing Firm A to exit the market. B. Firm A reduces the price to $7 causing Firm B to exit the market. C. Firm B reduces the price to $7 causing Firm A to reduce its price to $7. D. Firm A reduces the price to $7 causing Firm B to reduce its price to $4.50.
Firm A reduces the price to $7 causing Firm B to reduce its price to $4.50.
Suppose a monopolist faces the linear demand curve: P=a−bQ, where a is the point where the demand curve touches the y-axis and b represents the slope of the demand curve. Given this equation, which of the following represents the monopolist's marginal revenue? A. MR=a−12bQ. B. MR=2a−bQ. C. MR=a−2bQ. D. MR=b−aQ.
MR=a−2bQ.
The value of marginal product of capital (VMPK) is the ____________. A. total revenue a firm earns from employing all units of physical capital. B. contribution that each additional unit of physical capital adds to a firm's revenues, all else equal. C. contribution that each additional unit of physical capital adds to a firm's output, all else equal. D. cost that a firm incurs when adding more physical capital. VMPK equals _________. A. (MPK×P)/Output per day. B. Output per day×P. C. MPK×P. D. K×P.
contribution that each additional unit of physical capital adds to a firm's revenues, all else equal. MPK×P.
When it comes to determining the appropriate quantity of physical capital to use, the firm employs a decision rule that is conceptually identical to the approach it takes in choosing the number of workers to hire. A firm will employ physical capital until ____________. A. capital's contribution to the firm's profit is maximized. B. the value of marginal product of capital (VMPK) equals the value of marginal product of labor (VMPL). C. the ratio of capital's marginal product to the rental price of capital equals 1. D. the marginal product of capital times the product's price (VMPK) equals the rental price of capital. The following table gives the marginal product of capital times the product's price (VMPK) for a competitive firm. If the rental price of capital is $45 per machine, this firm will employ ____ machines.
identicalto;the marginal product of capital times the product's price (VMPK) equals the rental price of capital. 4
Suppose you are an "all-knowing" government planner. Your goal is to regulate a monopolist's price and quantity in order to maximize social welfare but still allow the monopolist to produce. To accomplish your goal, you would have the monopoly produce where ____________. (Assume costs are such that the firm would not incur a loss) A. marginal cost equals marginal revenue, and you would price the good at demand. B. marginal cost equals demand, and you would price the good at marginal cost. C. demand is highest, and you would price the good at zero. D. marginal cost equals marginal revenue, and you would price the good at marginal cost.
marginal cost equals demand, and you would price the good at marginal cost.
Suppose you and your friends decide to go to the beach during spring break. You need to fly from Kansas City to Miami but only one airline provides the service. This market is best characterized as ___________. A. monopoly. B. oligopoly. C. perfect competition. D. monopolistic competition.
monopoly.
A government grants a patent to a firm for manufacturing and selling a product. The equilibrium position of the market in this case is shown in Panel (a). In the long-run, the expiration of a patent prompts entry by competitive firms. The equilibrium position of the market in this case is shown in Panel (b). In the long run, the equilibrium price falls from _______ and the equilibrium quantity rises from _________ units. The consumer surplus from a perfectly competitive market equals $______ and the consumer surplus when a monopolist maximizes profits equals $______. (Enter your answer as a whole number.) The consumer surplus that is captured by a firm due to its monopoly power is represented by the area(s) _____. The cost to society of a monopoly is represented by the area(s) W. and the equilibrium quantity rises from 220 to 440 units. The consumer surplus from a perfectly competitive market equals $17601760 and the consumer surplus when a monopolist maximizes profits equals $440440. (Enter your answer as a whole number.) The consumer surplus that is captured by a firm due to its monopoly power is represented by the area(s) U+V. The cost to society of a monopoly is represented by the area(s) _____.
$5 to $1; rises from 220 to 440 1760; 440 U+V; W
Identify the type of discrimination for the following examples: 1) In the taxi cab industry, the salary for male drivers is higher than for female drivers 2) A company has an opening for an accountant and one of the requirements is that the candidate should be a woman younger than 30 years old. 3) Robert, the son of a famous actor, starts his acting career as the lead in an upcoming Hollywood psychological thriller movie, without auditioning. Ted and Marshall have applied for a job at a video game development company as a graphic engineer. Which of the following is an example of a skill-biased technological change? A. Ted, a graduate in IT engineering is selected over Marshall, a graduate in mechanical engineering. B. Ted, a recent graduate who has won many software development competitions is chosen over Marshall who has worked on a particular software at an IT company for 15 years. C. Ted gets selected since he graduated from an ivy league university while Marshall did not. D. Ted is chosen for his high GPA relative to Marshall's who plays more video games.
1) Statistical discrimination 2) Taste-based discrimination 3) Taste-based discrimination Ted, a recent graduate who has won many software development competitions is chosen over Marshall who has worked on a particular software at an IT company for 15 years.
Milkway Company is well known for the production of ice cream cones. Suppose it is given that the company is already at equilibrium in the land market. The production schedule for an ice cream cone is given below: Suppose the equilibrium price of an ice cream cone is $5 per unit. The wage rate = the price of physical capital = $120. In equilibrium, the Milkway Company will employ __ units of physical capital and __ units of labor. In equilibrium, the marginal product of both the physical capital and the labor equals ____. In equilibrium, the value of the marginal product of labor is __________ the value of the marginal product of physical capital. Which of the following statements regarding equilibrium is not true? (Check all that apply.) A. The firm uses marginal analysis in order to optimize. B. In equilibrium, the dollar value of additional output is equalized with the market or rental price of a factor of production. C. The production schedule is of no use to a firm in arriving at profit maximizing decisions. D. The decision regarding the optimal level of output is independent of MPL and MPK.
2; 5 24 equal to The production schedule is of no use to a firm in arriving at profit maximizing decisions. and The decision regarding the optimal level of output is independent of MPL and MPK
Bessie's Burgers and Burger King are two burger suppliers. The burgers supplied by both the suppliers are assumed to be identical and consumers have no specific preference for a particular brand. The marginal cost of a Bessie's Burgers burger is $0.50 more than the marignal cost of a Burger King's burger. If the price of a Bessie's Burgers burger is $4 and that of a Burger King burger is also $4, then based on Bertrand competition, the residual demand for Bessie's Burgers will be _____% of the market demand and that for Burger King will be _____% of the market demand. Suppose the demand schedule for Commodity X is as follows: There are two suppliers of Commodity X, Supplier A and Supplier B. Assume that each supplier will produce either 5 or 10 units and they can produce Commodity X at zero cost. After considering the above demand schedule, if both of the suppliers use their dominant strategy, the combined profit is $______ Suppliers A and B realize they can do better if they collude and agree on the quantity to be supplied by each one of them. Compared to the earlier case, the profit increases by $______. It is an example of a ____________.
50; 50 800 200; Cournot oligopoly
A company hires 4, 5, 6, or 7 workers who produce a daily output of 500 units, 620 units, 705 units, and 765 units respectively. The marginal product of labor from hiring 4th worker is 135 units. If the price per product is $1.50 and the daily wage per worker is $100, then the optimal number of workers hired by the company to maximize its profits is _____. Which of the following relationships are not true in the case of a competitive firm trying to maximize its profit? (Check all that apply.) A. Wages=Marginal cost=VMPL. B. Wages=Marginal cost=Price. C. Wages=Marginal cost×Marginal product of labor. D. Wages=Price×Marginal product of labor. For Hewlett-Packard (HP), the demand for software engineers is _____ from the production of HP laptops.
6 Wages=Marginal cost=VMPL and Wages=Marginal cost=Price derived
The total number of sandwiches per week demanded by Concord University's students at $12 or under is 800 sandwiches. The total demand for sandwiches becomes zero when the price rises above $12, as students cannot afford to spend more than $12 on a sandwich. In the above scenario, there are two cafes located on the University's campus, Capriotti and Gold Apple, that sell identical sandwiches. Suppose the price of sandwiches in both of the cafes is denoted as PCA and PGA respectively. The residual demand for Capriotti is $____, if PCA=$12 and PGA=$_____. The residual demand for Capriotti is 0, if PCA=$____ and PGA=$___. The residual demand for Gold Apple is _____, if PCA=$10 and PGA =$_____.
800;14 11;8 400; 10
According to the Copyright Act of 1790, a copyright's life was limited to 28 years, including extensions. Today, copyrights are valid for the entire period of the author's life plus another 70 years. A copyright for a book that was published before 1923 is likely to have expired by now, but books published after 1923 are still under copyright protection. Research has shown that, of all the books that are in print today, a larger proportion were published before 1923. This is despite the fact that the number of books being published every year has been steadily increasing. What do you think could explain the fact that most of the books available today are from the period before 1923? A. A copyright gives the owner an exclusive right to a piece of intellectual property, thus allowing them to act as a monopoly. Monopolists typically reduce quantity supplied to drive up the price of the good that they produce. B. A copyright is granted to an individual or firm by the federal government and comes with a maximum quantity that the government will allow the copyright holder to produce. C. The costs of the inputs used to make books has increased sharply over time, including paper and ink costs. D. All of the above.
A copyright gives the owner an exclusive right to a piece of intellectual property, thus allowing them to act as a monopoly. Monopolists typically reduce quantity supplied to drive up the price of the good that they produce
Which of the following is not an example of a natural monopoly? A. Gulf countries own plenty of oil resources required for crude oil exploration activities. B. Ronald's unique caricature skill is his key economic resource. C. In the case of telephone companies, network externalities and economies of scale set off a profitable cycle. D. A pizza restaurant and a burger restaurant come together in order to reduce competition and earn higher profits.
A pizza restaurant and a burger restaurant come together in order to reduce competition and earn higher profits.
Which of the following is not an important determinant of wage inequality within an economy? A. Discrimination in the job market. B. Differences in connections to influential people. C. Differences in compensating wages. D. Differences in human capital. Human capital is the __________. A. skills and knowledge that people obtain by furthering their schooling. B. experience that people derive from spending more time on a job. C. physical capital that humans are equipped with on their jobs. D. A and B only. Compensating wages are the wage premiums ___________. A. union workers receive relative to nonunion workers. B. paid to attract workers to occupations to otherwise undesirable jobs. C. public-sector workers receive compared to private-sector workers. D. college-educated workers receive for enduring four (or more) years of college.
Differences in connections to influential people. A and B only. paid to attract workers to occupations to otherwise undesirable jobs.
Consider the given market demand curve and the steps followed by a monopolist in making production and pricing decisions. Starting at MR=MC draw two arrows that show the path to the price charged by a monopolist. Using the Arrow drawing tool, draw the two arrows in the graph that a monopolist would follow to arrive at the profit-maximizing price. . Therefore, the profit-maximizing price of a monopolist for the product is $___ In the above scenario, suppose the average total cost (ATC) at the profit maximizing quantity for the monopolist is $2.05 Therefore, in this case the profit earned by the monopolist is $___
First arrow: extend the arrow from q=400 to demand curve. Second arrow: extend the arrow from this point on demand curve to the vertical axis. 4 780 Profits=Total revenue−Total cost=(P×Q)−(ATC×Q)=(P−ATC)×Q.
Which of the following statements regarding a barrier to entry is not true? (Check all that apply.) A. It can take several forms. B. It encourages the seller to compete ferociously. C. It is an obstacle that provides protection to potential competitors. D. It determines the ability of a firm to gain market power.
It encourages the seller to compete ferociously. It is an obstacle that provides protection to potential competitors.
Which of the following statements are true regarding the profit-maximizing price charged by a monopolist? (Check all that apply.) A. It occurs at the quantity where MC = D. B. It is greater than MR. C. It occurs at the quantity where MR = MC. D. It is greater than MC. E. It occurs along the elastic part of the demand curve.
It is greater than MR. It occurs at the quantity where MR = MC. It is greater than MC. It occurs along the elastic part of the demand curve.
Which of the following equations calculates economic profits for a monopoly? A. Profits=P×Q. B. Profits=(P−ATC)×Q. C. Profits=P+ATC/Q. D. Profits=ATC×Q. The graph on the right illustrates the demand (D), marginal revenue (MR), marginal cost (MC), and average total cost (ATC) curves for a monopoly. Use these curves to show a firm's profits. 1.) Using the point drawing tool, place a point at the output and price combination that would maximize profits for this monopoly. Label your point 'A.' 2.) Using the point drawing tool, place a point on the average total cost curve at the profit-maximizing output level. Label your point 'B.' 3.) Using the rectangle drawing tool, depict the area that would represent the profit this monopoly is earning. Label your area 'Profit.'
Profits=(P−ATC)×Q. A at 6 on demand B at 3.5 in ATC profit, box created by this within dotted lines
Which of the following statements regarding price regulation is not true? (Check all that apply.) A. Setting an efficient price always results in economic profits. As a result, the monopolist will never leave the industry. B. Setting a fair-returns price does not maximize surplus. However, the monopolist can stay in business without the government making up for the losses incurred. C. The price regulation results in no incentives for firms to minimize costs and innovate new goods or services. D. The regulated monopoly results in no costs to consumers as they benefit from a lower price. What is the purpose of antitrust policy? (Check all that apply.) A. To regulate and prevent anticompetitive pricing. B. To prevent the use of questionable methods and unfair practices resulting in a monopoly. C. To keep markets anticompetitive and increase deadweight losses. D. To allow lower quantities resulting from monopoly pricing.
Setting an efficient price always results in economic profits. As a result, the monopolist will never leave the industry. The regulated monopoly results in no costs to consumers as they benefit from a lower price. To regulate and prevent anticompetitive pricing. To prevent the use of questionable methods and unfair practices resulting in a monopoly.
Two firms are planning to sell 10 or 20 units of their goods. The firms face the payoff matrix illustrated on the right. What is the Nash equilibrium if both firms make their decisions simultaneously? A. The Nash equilibrium is for Firm 1 to produce 20 units and Firm 2 to produce 10 units. B. The Nash equilibrium is for Firm 1 to produce 10 units and Firm 2 to produce 20 units. C. The Nash equilibria are for Firm 1 to produce 10 units and Firm 2 to produce 20 units and for Firm 1 to produce 20 units and Firm 2 to produce 10 units. D. The game does not have a Nash equilibrium.
The Nash equilibria are for Firm 1 to produce 10 units and Firm 2 to produce 20 units and for Firm 1 to produce 20 units and Firm 2 to produce 10 units.
Two firms are planning to sell 10 or 20 units of their goods. Suppose Firm 1 decides how much to produce first. The game tree is illustrated in the figure on the right. What is the Nash equilibrium? A. The Nash equilibrium is for Firm 1 to produce 20 units and for Firm 2 to produce 10 units. B. The Nash equilibrium is for Firm 1 to produce 10 units and for Firm 2 to produce 20 units. C. The Nash equilibrium is for Firm 1 to produce 20 units and for Firm 2 to produce 20 units. D. The game does not have a Nash equilibrium.
The Nash equilibrium is for Firm 1 to produce 20 units and for Firm 2 to produce 10 units.
Star Solutions Ltd is a business consultancy firm that uses custom software made by the company for each of its 3 clients and the off-shelf software for its remaining 3 clients. The firm has a workforce of 50 employees with similar annual salaries of which 25 employees work on the custom software and the remaining employees work on the off-shelf software. The firm faces similar costs for implementing the two types of software and it incurred a one-time similar cost for training the employees for either software. If the firm plans to expand its business and hire a larger workforce, which of the following strategies should it prefer? A. The firm should only expand the workforce for the custom software and train them. B. The firm should be indifferent between training the workforce on custom software and off-shelf market software. C. The firm should only expand the workforce for the off-shelf market software and train them. D. The firm should be indifferent between training the workforce on custom software and hiring experienced employees working on off-shelf market software. Sam and Jacob are two friends who graduated from high school as part of the class of 2015. Now one year later, Sam works as a cashier at a hardware store and Jacob works at a glass manufacturing factory with more dangerous conditions. Therefore, we can conclude that Sam would earn _________ Jacob because of the _____________________.
The firm should only expand the workforce for the custom software and train them. less than; compensating wage differentials
A consumer stops to buy an ice cream from Gene's Ice Cream Stand who charges $2 more per ice cream than the general market price of similar ice cream stands. All of the ice cream stands incur the same costs. However, the quantity of ice cream supplied by Gene's Ice Cream Stand is exhausted for the day. Based on the given scenario, which of the following statements is not true about Gene's Ice Cream Stand? A. The quantity produced is limited to earn higher economic profits. B. The quantity produced is less than the socially efficient production level causing it to create a deadweight loss. C. The quantity produced was at the minimum of the average total cost curve. D. The price charged is above the marginal cost. Firms A and B sell similar products in the market and decide to merge. If the market shares of firms A and B are 82% and 18% respectively, then, according to the Herfindahl-Hirschman Index, the two firms are deemed to be _______ by the Department of Justice. Therefore, the DOJ will infer that the main objective of this merger is to increase ______ and as a result is ______ to allow the merger.
The quantity produced was at the minimum of the average total cost curve. concentrated market power; less likely
Which of the following statements are true after considering the given graph? (Check all that apply.) A. The total revenue of the good is maximized at a quantity of 400 million. B. The marginal revenue of the good is zero at a quantity of 800 million. C. The marginal revenue of the good is positive for a quantity below 400 million. D. The total revenue of the good is negative for any quantity above 400 million. From the given graph, it is observed that at $4 the total revenue of the good is maximized. Therefore, price elasticity of demand at a price above $4 is _________. At $4, the price elasticity of demand for the good is _____.
The total revenue of the good is maximized at a quantity of 400 million. The marginal revenue of the good is positive for a quantity below 400 million. elastic one
In the United States in 2011, there were 104 fatalities per 100,000 workers in the logging industry. This is the second-highest rate after the fisheries industry. Although the fatality rate in this industry is so high, many workers still choose to work as loggers. What could explain this? A. Workers choose these high-risk jobs because they are willing to bear an occupational risk to earn a higher wage. B. Loggers must be indifferent between low-risk and high-risk jobs. C. Low-risk jobs are already taken, so workers must choose their next-best alternative, which in this case is logging. D. Workers in these industries lack human capital and must choose to work as loggers.
Workers choose these high-risk jobs because they are willing to bear an occupational risk to earn a higher wage.
You are hired as the consultant to a monopolistically competitive firm. The firm reports the following information about its price, marginal cost, and average total cost. Case A: P>MC, P=ATC Case B: P>MC, P<ATC Case A shows ________ of a monopolistically competitive firm. The Case B shows a monopolistically competitive firm in the _________. Which of the following is true in Case A? A. The firm is earning a supernormal profit. B. The markup over marginal cost is highest. C. The firm is just covering its costs of operations. D. The demand curve becomes perfectly inelastic. Which of the following firms would be more likely to engage in advertising? A. A family-owned farm. B. A manufacturer of forklifts. C. A hotel or pub. D. A company that invented a less comfortable razor
a long-run equilibrium position; short-run making losses. The firm is just covering its costs of operations. A hotel or pub.
You observe a market where in the long run firms earn zero economic profit, consumer and producer surplus is not maximized, and when a new firm enters the market, the price of similar products decrease. You are most likely observing _______________. An industry has the following characteristics: -The consumers are price-takers. -The price is set above marginal cost and marginal revenue. - There are more than zero profits in the long-run. - The product has no close substitutes. The market conditions of this industry are those of: a) a monopoly. b) an oligopoly with homogeneous products. c) monopolistic competition. d) perfect competition. Consider a market structure in which there are only a few firms. These firms face a downward sloping residual demand curve with some entry barriers in the long-run. These conditions are satisfied by ____________ market structure. In this market, if there are zero economic profits, then it reflects a situation of ____________. If there are more than zero economic profits, then it depicts a case of ____________.
a monopolistically competitive market. a monopoly an oligopolistic; homogenous products in the long-run; differentiated products in the long-run
Using the graph, a firm with that type of cost curve is best suited to be ___________. A. a competitive firm, since it faces economies of scale, which gives it an advantage over small competitive firms. B. a natural monopoly, since it faces economies of scale and can produce at a lower cost if done by one firm. C. a monopoly based on legal market power, since it faces diseconomies of scale and can produce at a lower cost if done by one firm. D. a competitive firm, since it faces diseconomies of scale, which gives it an advantage over small competitive firms.
a natural monopoly, since it faces economies of scale and can produce at a lower cost if done by one firm.
Mermaid Corporation had employed some number of workers at an equilibrium given by point E in the graph. In the following year, the firm implemented a labor-saving technology that is a substitute for labor. As a result, the equilibrium wage rate _____. It was observed that the poor marketing skills of a toy company named Hamleys decreased the demand for their toys, which caused the leftward shift in the demand curve of toys. This shift ________ the equilibrium price of the toys. Such a change in the price of toys will cause the VMPL and wages to ____________, leading to the __________ in the demand curve for labor.
falls decreases decrease; leftward shift
This question deals with oligopolists that offer differentiated products. Consider a mile-long beach. People are distributed uniformly along the beach. Two firms sell ice cream and are trying to decide where on the beach to build their ice cream stands. People will buy ice cream cones from the nearest stand. Each company would like to maximize the number of ice cream cones it sells. If the two companies choose their locations simultaneously, the Nash equilibrium is ____________. A. for each firm to locate in the middle of the beach. B. for one firm to locate at the end of the beach and for the other firm to locate in the middle of the beach. C. for one firm to locate at the west end of the beach and for the other firm to locate at the east end of the beach. D. there is no Nash equilibrium. How could you use this model to help explain other decisions that oligopolists face? For example, does this model help us understand how television broadcasters target different demographic groups? A. Firms increase demand by targeting ages. B. Firms promote collusion with punishments. C. Firms increase supply by minimizing costs. D. Firms maximize revenue by colluding.
for each firm to locate in the middle of the beach. Firms increase demand by targeting ages
The graph on the right illustrates a marginal cost (MC) curve and marginal revenue (MR) curve for a monopolist. If the firm produces at a quantity of 70 units, then marginal revenue would be ____________ marginal cost, and this firm would ____________. A. equal to; produce more to enhance profits. B. less than; reduce output to enhance profits. C. greater than; not change production levels. D. greater than; reduce output to enhance profits.
less than; reduce output to enhance profits.
The Department of Justice filed a lawsuit against Microsoft claiming it was engaging in unfair practices by ____________. A. monopolizing the market by bundling its operating system with its Internet Explorer browser. B. producing less than the efficient amount of its operating system and charging above the competitive market price. C. selling its operating system at different prices to different people based on consumer characteristics. D. keeping the software code behind its operating system secret from users and competitors. Some economists believe the threat of unfair monopolies is greater today than when the Sherman Act was first enacted. They argue that modern software can gain monopoly status and establish a barrier to entry through ____________. A. network externalities B. greater costs in applying for patents and copyrights. C. increased access to venture capital money. D. the ability to raise money from the stock market.
monopolizing the market by bundling its operating system with its Internet Explorer browser network externalities
Derived demand is the demand a firm has for ____________. A. one factor of production because the price of another factor of production has changed. B. the factors of production that enable it to produce output that is sold in product markets. C. advertising to increase the sales of its products. D. lower taxes and fewer regulations. Suppose the demand for economics courses at your school increases, all else constant. In this case, the school's administrators will seek to hire _______ economics instructors.
the factors of production that enable it to produce output that is sold in product markets. more
John will continue to consume leisure up to the point at which _______ A. the marginal benefit of leisure is equal to the marginal cost. B. the wage rate is equal to the total cost. C. the marginal benefit of leisure is equal to the total cost. D. the wage rate is equal to the marginal cost. The substitution effect implies there is __________ relationship between the wage rate and the quantity of labor supplied. While the income effect implies there is _________ relationship between wage rate and the quantity of labor supplied. Which of the following statements is not correct? A. The work preference of labor affects the supply curve. B. Equilibrium is obtained at the intersection of the demand and supply curves. C. An increase in the price of a product increases demand for labor. D. At all times an increase in wage increases labor supply
the marginal benefit of leisure is equal to the marginal cost. a positive; an inverse At all times an increase in wage increases labor supply
A natural monopoly may develop because ___________ make(s) it efficient to have only one provider of a good or service. It is characterized by fixed costs that are ___________.
economies of scale; substantial
Suppose the government grants an individual or company the sole right to produce and sell a good or service. In this case, the government is granting a ______. Which of the following is not likely covered by a copyright? A. A piece of poetry. B. A way to improve an existing machine. C. A new song. D. Architectural drawings Which of the following is not likely covered by a copyright? A. A new song. B. A photocopier. C. A work of art. D. A photograph.
patent A way to improve an existing machine. A photocopier.
As a result of barriers to entry, there are ____ main types of market power.
two
