Econ midterm

A consumer should increase her consumption of good Y relative to good X if

MUx/MUy < Px/Py

Tim's marginal utility of beer is 12 utils and his marginal utility of pretzels is 5 utils. The price of beer is $4 and the price of pretzels is $1, and Tim is spending all of his money. Tim can increase his utility by

buying less beer and more pretzels.

A perfectly competitive industry is in long-run equilibrium. If demand for the product increases, we can expect the price of the good to:

rise at first and then fall

A perfectly competitive firm can:

sell as much as it can produce at the market price.

A consumer maximizes her utility by?

setting the marginal utility of product A divided by the price of product A equal to the marginal utility of product B divided by the price of product B.

A firm may opt to pay millions of dollars for celebrity endorsements in order to:

signal to consumers that the advertised product is appealing and likely to be popular

Which of these is an example of a product with externalities?

Social Networks

When a monopolist sells two units of output it's total revenues are $80. When the monopolist sells three units of output, it's price per unit is $30. The monopolists marginal revenue from selling the third unit of output is:

$10

A patent gives its holder the exclusive right to a product for a period of time ______________ from the date the patent is filed with the government.

20 years

Which of the following is the best example of an oligopolistic industry?

Automobiles

Your firm is producing a good in a perfectly competitive market. If you know that when you produce 300 units per day, your total costs are $7000 and when you produce 301 units your total costs are $7001, then:

You will be able to increase firm profits by increasing output if the market price of your good is $5.

A monopoly is a market structure characterized by:

a) one seller, b) a unique product with no substitutes, c) large barriers to entry.

In general, firms in a cartel:

agree to charge the price the monopolist would charge.

natural monopoly happens when

average total cost curve is decreasing

A group of firms that colludes by agreement to restrict output to increase prices and profits is called?

cartel

An oligopoly is a market structure with?

high barriers to entry

A monopolist charges a price that is ___________ the perfectly competitive industry.

higher than

The budget line will shift parallel to the right if:

income increases

In which of the following market structures is the firms demand curve the same as the market demand for the product?

monopoly

In a kinked demand model, that part of the demand curve below the kink is

more inelastic than the region above the kink.

Claudia spends her income on two goods, DVD rentals and chewing gum. She considers both goods to be normal goods. If Claudia's income stays constant and the relative price of DVD rentals increases, she will:

rent fewer DVDs and purchase more chewing gum.

A monopoly is defined as an industry where a firm is:

the single seller of a good and there is a barrier to entry.

A natural monopoly occurs when

there is only one firm in a market and the entry of a second firm would make price less than average cost

A firm can use—— to inform consumers about its products and distinguish it from competing products

Ads

You notice that the price of butter rises and then falls, best explanation for this is:

Demand for butter increases causing price to rise which attracted other firms to enter the market causing supply to increase which caused the price to go back down

Oligopoly differs from monopoly and perfect competition in that:

Firms consider each others actions when choosing price and quantity there are few firms in the industry Firms act strategically

Which of the following is not a characteristic of a perfectly competitive market?

Firms have difficulty entering the market.

In the long run, monopolistically competitive firms produce where:

P = AC P > MC AC > minimum of AC curve

Firms price discriminate by offering customers with a _____ demand a lower price and customers with a ________ demand a higher price.

less inelastic; more inelastic

In general, the quantity of output in a monopoly market is:

lower than an oligopoly

Which of the following statements regarding natural monopoly is true?

Natural monopoly is more likely to occur in markets where fixed costs are large relative to variable costs.

Jackie can buy either video games or DVDS. If the prices of both goods double, and Jackie's income also double what will happen to Jackie's budget line?

Will not change

How do monopolies and quantities produced differ from perfectly competitive outcomes?

Monopoly prices are higher than competitive prices but quantities are lower than competitive quantities

A situation where each firm chooses the best strategy, given the strategies chosen by other firms is known as?

Nash equilibrium

Substitution effect for a normal good is———, while the substitution effect for an inferior good is——-

Inversely related to price, inversely related to price

For a monopolist, marginal revenue——— for all units of output except the first unit:

Is less than price of output

What happens if Starbucks increases the price of caffe lattes?

It will lose some but not all customers

A monopolistically competitive firm in a long-run equilibrium produces where?

It's demand curve is tangent to its average total cost curve

What is a characteristic of a perfectly competitive market?

Large number of buyers and sellers

In what ways are a monopolistically competitive firm like a perfectly competitive firm?

Long run economic profits are positice

The demand curve that a monopolist faces is

market demand curve

Marginal product in the short-run:

may initially increase, then eventually decrease

The practice of firms conspiring to set product or service prices is known as?

Price fixing

If the number of people in a publishing company does not go up or down with the quantity of books it publishes, then how should we categorize the salaries and benefits paid to these employees?

As a part of fixed cost

Katie's demand curve for ice cream cones:

Assumes that the only variables that change are the price of ice c team cones and the quantity of ice cream cones demanded by katie

The short run is a period of time where——— while the long run is a period of time where———.

At least one input is fixed, all inputs are variable

——— equals the firms revenues minus all implicit and explicit costs

Economic profit

When a firm opens multiple outlets in the same city it is practicing differentiation by?

Location

One way to overcome the duopolists' dilemma is to offer?

Low price guarantee

What is the benefit you receive from the consumption of the next unit of some good or service?

Marginal benefit

Demand curve can also be called a?

Marginal benefit curve

What is the name for the additional output that a firm produces as a result of hiring one more worker?

Marginal product of labor

According to the law of diminishing marginal utility, as the consumption of a particular good increases:

Marginal utility decreases

Combo of pizza and coke is the one where?

Marginal utility per dollar spent on pizza equals the marginal utility per dollar spent on coke

Consumer optimizing requires?

Maximize total utility, subject to an income constraint

Which of the following is an effect of a monopoly?

Monopoly causes a reduction in consumer surplus.

A duopoly is a market with?

Only two firms supplying the product or service

Which of the following is known as the highest-valued alternative that must be given up in order to engage in an activity?

Opportunity cost

Which of these is most likely to be a product where a substantial competition comes from slightly differentiated goods?

Shoes

When is output lower than the efficient level?

When marginal benefit is greater than marginal cost

If senior citizen consumers are price elastic, then a senior discount at a restaurant will?

increase the firm's profits

When the marginal product of labor is greater than the average product of labor, then the average product of labor must be?

increasing

The monopolist produces an output that is ______ the perfectly competitive industry would produce.

less than

A monopolistically competitive firm is characterized by the existence of many firms in the market, differentiated products and?

low barriers to entry

The process of using public policy in order to earn economic profits is ?

rent-seeking

When the competitive market is in equilibrium, what is the economically efficient level of output?

the output level where marginal cost is equal to marginal benefit

Monopolistically competitive firms have some control over price because?

the products they produce are differentiated

Because the monopolist faces a downward sloping demand curve?

there will be dead weight loss

In the long-run, the monopolist can earn?

zero or positive economic profit

Table 7.4 represents Bruce's marginal utilities of sweaters and t-shirts. Suppose that the price of sweaters is $40 and the price of a t-shirt is $20. Bruce has $300 to purchase sweaters and t shirts. How many sweaters will Bruce purchase in equilibrium, assuming that he spends all his money?

5

If there is the legitimate threat of entry into a market, then the market is said to be:

Contestable

Which of the following would not be true of an oligopolistic market structure?

Each firm is a price taker

In the broadest sense, game theory studies the decision of firms in industries where the profits of each firm depend on?

Firms interactions with other firms

Which of the following is not a characteristic of a monopolistically competitive market?

Firms must take the market price as given.

What makes a grim trigger strategy "grim" is:

If one player underprices, then the other player drops the price so far that profits for both firms are zero forever.

Long -run equilibrium for a perfectly competitive industry occurs when:

P = MC = ATC

Roberts demand curve for pizza:

assumes that the only variables that change are the price of pizza and the quantity of pizza demanded by Robert.

The rational outcome of a guaranteed price matching or "meet-the-competition" policy is that:

both firms will sell at the high price.

If a firm perceived that the other firm in an implicit pricing agreement dropped its price in an attempt to gain market share, then its most likely response would be to:

engage in a price war.

Monopolistically competitive markets are like monopoly markets in that?

in both markets firms have some control over price.

Consumers benefit from monopolistically competitive markets because:

in this type of market, producers supply goods in a variety of locations or with a variety of characteristics.

An increase in the price of a good:

increases the opportunity cost of consuming the good.

If suppliers differentiate their products in a monopolistically competitive market by selling at a variety of locations, consumers must trade-off:

lower travel costs for higher average costs of production

A monopolist will maximize profits at the level of output when?

marginal cost=marginal revenue

Which of the following terms is defined as a market structure in which a small number of interdependent firms compete?

oligopoly

A four-firm concentration ratio measures

percentage of market output produced by the four largest firms.

As firms enter a monopolistically competitive market in the long run:

price decreases, the market quantity demanded increases, and the quantity supplied by an individual firm decreases

A graphical representation of various strategic actions and their consequences is known as?

Game tree

A firm announces it will refund the difference between its price and any price of a competitor that is lower, this is an example of:

Guaranteed price matching

A Nash equilibrium is where each firm chooses the best strategy?

given the strategies chosen by other firms

A consumer's budget set:

is the set of all affordable combinations of two goods.

The supply curve for a perfectly competitive market:

is the summation of all the marginal cost curves, above the minimum of the average variable cost curve, from all the individual firms in the market

Which of the following best describes the additional revenue associated with selling an additional unit of output?

marginal revenue

A monopolist maximizes profits by setting:

marginal revenue equal to marginal cost

A monopolistically competitive firm produces where?

marginal revenue equals marginal cost

Another measure of industry concentration is the:

Herfindahl-Hirschman Index

What is the Herfindahl-Hirschman Index with 3 firms that have market shares of 20%,50%,30% respectively?

3800

At a price of $10, the marginal revenue of a monopolist is $6. If the marginal cost of production is $8, what should the monopolist do in order to max profits?

Increase price

All of the following are examples of possible barriers to entry, EXCEPT:

All of the above are barriers to entry (Patents to produce a particular product; the American Bar Association's rule that lawyers must pass an exam before practicing law; average cost in the industry decreases as a firm's output increases).

Which of the following statements are true about an individual demand curve?

An individual demand curve is negatively sloped and shows the price of a good and the quantity that a single consumer is willing to buy during a particular time period.

Which of the following statements is false?

Cartels and price fixing are both legal under US antitrust laws

Change in the relative prices of two goods is represented by:

Change in the slope of the budget line

The change in quantity consumed that is caused by a change in real income, with the relative prices held constant, refers to the:

Income effect

A firm will not shut down in the short-run as long as:

Price exceeds average variable cost at the level of output where marginal revenue equals marginal cost.

You are an economist working for the monopolist whose marginal cost curve and associated demand curve are depicted in Figure 10.1. Suppose that the monopolist is currently charging a price of $5 per unit of output and selling 15 units. What would you recommend to the firm?

Raise the price, but sell fewer units.

Firms in perfectly competitive markets:

Sell homogeneous products,like wheat / corn

In the short-run, ——— factors of production are fixed, while in the long-run, ——— of them are.

Some;none

As the market demand shifts to the left, how will the firm's level of output change?

The firm will decrease its output and suffer losses

For normal goods, the substitution effect and the income effect work in——— generating a ——— slopes demand curve?

The same direction;downward

Average variable cost equals:

Total variable cost divided by output

Monopolistically competitive firms do not differentiate their products by:

charging different prices to different groups of consumers

Suppose in the city of Blacksburg, music stores operate in a monopolistically competitive market. If the price of CDs in Blacksburg is currently equal to $20 per CD and the average cost of CDs is $15, in the long run we expect the price of CDs to:

decrease, and the average cost of producing CDs to increase.

Diminishing marginal returns imply that firms

require more and more workers to produce each additional unit of output

What is the definition of market power?

the ability of a firm to charge a price greater than marginal cost

Marginal cost is defined as:

the change in total variable cost resulting from a one unit increase in the change in quantity

If a regulatory agency mandates that a natural monopoly charge a price equal to its average cost:

the firm will earn economic profits equal to zero.

Which of the following is a long run adjustment?

the number of professional baseball teams increases by two.

Diminishing returns:

the property whereby the benefit from an extra unit of an input declines as the quantity of the input increases

If the price in an oligopoly market is the same as that of a monopoly with identical cost and demand conditions then:

there may be collusion between firms.

Average total cost is defined as:

total cost divided by quantity

Average fixed cost is defined as:

total fixed cost divided by quantity

Average variable cost is defined as:

total variable cost divided by quantity

What happens when network externalities are present?

usefullness of a product increases with number of consumers using it

in which of the following statements can a firm be considered a monopoly?

when a firm can ignore all actions of other firms

If the market demand increases for a good sold in a perfectly competitive market, individual firms in the market:

will be able to charge a higher price for their product

If a monopolistically firm maxes profit by producing 600 units per hour, it must be true that at 600 units per hour:

Marginal revenue equals marginal cost

When a second firm enters a monopolist's market:

Market price will drop

In Sioux Falls, SD there are many pizza restaurants, each offering similar types of pizza but located in a different place. It is likely a pizza restaurant in Sioux Falls operates in a?

Monopolistically competitive market

The change in the quantity consumer that is caused by a change in the relative price of a good, with real income held constant, refers to the:

Sub effect

What is the term given to a cost that has already been paid but cannot be recovered?

Sunken costs

Which of the following statements about a customers budget line is correct?

The budget line shows all the combinations of two goods that exhaust the consumers budget and the slope of the budget line shows the market trade off between two goods

A natural monopoly occurs when

price exceeds average cost when a single firm is in the market, but is less than average cost when more than one firm is in the market.

Because individual firms cannot affect the market price of their good, for each firm in a competitive market:

price is equal to marginal revenue

If marginal utility is negative, then

Total utility falls

The monopolistically competitive firm sells a ——- product and faces a ——— demand curve

Differentiated, downward aloping

A strategy that is best for a firm, no matter what strategies other firms use is known as?

Dominant strategy

Suppose you are eating hot dogs. The marginal utility of the first hot dog is 15 utils, the marginal utility of the second hot dog is 12 utils and the third hot dog brings your total utility up to 35 utils. What was the marginal utility of the third hot dog?

8 utils

Which statement is true?

Accounting profit is larger than economic profit

The law of diminishing marginal utility states:

As a consumer consumes more of a product, they progressively get less satisfaction out of each incremental good.

When network externalities are present, it may create a:

Barrier to entry for competing technologies due to high switching costs.

According the to US department of justice, an industry is unconcentrated if the HHI is?

Below 1000

Which of the following types of firms use the marginal revenue equals marginal cost approach to max profits?

Both perfectly competitive and monopolistically competitive

When a group of firms, even countries, coordinate price and quantity decisions it is known as?

Cartel

A customer maximizes total utility when?

Choosing more of one good and less of another no longer increases utility

What trade offs do customers face when buying a product from a monopolistically competitive firm?

Consumers pay a price greater than marginal cost but also have a wider array of choices

The downward sloping part of the long run average total cost curve is where the firm is achieving?

Economies of scale

Which of the following are sometimes called accounting costs?

Explicit costs

In the short-run, the cost that is independent of the amount of output produced is called?

Fixed cost

——— is the additional cost to the firm of producing one more unit of a good or service.

Fixed cost

Which are implicit costs?

Foregone salary and foregone interest

The four-firm concentration ratio is the percentage of sales accounted for by the largest?

Four firms in the industry

A ——- pricing strategy is one where a firm responds to a competitors low price by pricing the same product so low that both firms earn zero economic profit

Grim trigger

If the average total cost is above the demand curve then this firm is?

Having economic losses

A duopolists dilemma occurs when the only two sellers in a market would be better off if they both chose the ——— price, but instead the players choose?

High, low price

According to the graph, the firm in question is a monopolistically competitive firm:

In long run equilibrium as indicated by the equality of price and average cost

For what type of market is the demand curve the same as marginal revenue?

Perfect competition

Which of the following types of firms use the marginal revenue equals marginal cost approach to max profits?

Perfectly competitive and monopolistically competitive

If the total utility increases with an additional consumption of a good, then the marginal utility is?

Positive

In perfect competition, the marginal revenue is the same as?

Price

——— occurs when one firm in the market changes prices and the other firm follow suit and match the price change

Price leadership

A buyer/seller that is unable to affect the market price is called a?

Price taker

The process firms use to make one product distinct from competing products is known as?

Product differentiated

Which of the following best describes how the product differentiation of monopolistically competitive firms may benefit customers?

Product differentiation can locate firms more conveniently to consumers and offer versions of a product that better fits their needs

The utility generated by consuming a good is

The satisfaction or pleasure the consumer experiences when he or she consumes the good.

A ——— pricing strategy occurs when one firm selects the same price its competitor selected in the previous period?

Tit for tat

The total utility of consuming two slices of pizza is?

Total satisfaction you get from consuming the two slices of pizza

Minimum efficient scale is the level of output at which?

all economies of scale have been exhausted

When firms agree to act as a monopoly and set prices they are called?

cartel

Price discrimination is the act of?

dividing customers into two or more groups and charging different prices/

The only legal restriction concerning price discrimination is that firms cannot use it to:

drive rivals out of business

Which of the following rights is given to the holder of a patent?

exclusive right to a new product

In the short run the firm should

operate if price > average variable cost

For what type of market structure is the demand curve the same as marginal revenue?

perfect competition

If the monopolistically competitive firms demand curve is above its average total cost curve then this firm is making?

positive economic profit

A firm in perfect competition earns profit if:

price is greater than average total cost

A game where pursuing dominant strategies results in noncooperation that leaves everyone worse off is called a

prisoner's dilemmas