Econ Study Final

If a perfectly competitive firm sells 10 units of output at $30 per unit, its marginal revenue is: $10. more than $30. $30. $300.

$30

Mr. Porter sells 10 bottles of champagne per week at $50 per bottle. He can sell 11 bottles per week if he lowers the price to $45 per bottle. The quantity and the price effects on total revenue would be, respectively, an increase of _____ and a decrease of _____.

$45; $50

(Table: Labor and Output) Look at the table Labor and Output. The marginal product of the fifth worker is: Quantitiy of Labor 5,4 Total Output 40, 36

4

Which firm is most likely to be a natural monopoly? -a pharmaceutical company that has the exclusive right to sell a patented drug -a firm that owns nearly all the diamond mines in the world -Municipal Power Light, the local supplier of electricity -a restaurant that is unable to practice price discrimination and must charge all consumers the same price

-municipal power light, the local supplier of electricity

Price=Marginal Revenue=

Demand

Average fixed cost is always higher than average variable cost. t or f

False

The ATC curve crosses the MC curve at the lowest point on the MC curve. t or f

False

Which of the following statements about the differences between monopoly and perfect competition is INCORRECT? -A monopoly will charge a higher price and produce a smaller quantity than a competitive market with the same demand and cost structure. -A monopolist has market power, while a perfect competitor does n -Monopoly profits can continue in the long run because the monopoly produces more and charges a higher price than a comparable perfectly competitive industry. -Unlike a perfectly competitive firm, a monopoly can make positive economic profits in the long run.

Monopoly profits can continue in the long run because the monopoly produces more and charges a higher price than a comparable perfectly competitive industry

Why does total cost increase faster as output increases?

There are diminishing returns to labor.

The demand shift results in a short‑run economic profit of 0. a short‑run economic loss for the firm. a short‑run economic profit for the firm. a long‑run economic profit for the firm.

a short run economic profit for the firm

Which of the following is a likely to result from the legalization of marijuana production and consumption? a decrease in the number of marijuana growers to zero a decrease in the number of marijuana growers no change in the number of marijuana growers an increase in the number of marijuana growers

an increase in the number of marijuana growers

The total cost divided by the quantity of output:

average total cost

The sum of all costs that change as output changes divided by the number of units produced:

average variable cost

Diminishing output only occurs if the production function

decreases as inputs increase

The long run is best defined as a time period during which prices of other goods change. during which all inputs can be varied. that is longer than one year. during which at least one input cannot be changed.

during which all inputs can be varied

The large barriers to entry are a reason a monopoly:

earns an economic profit in the long run.

The VC curve is modeled as a horizontal line. t or f

false

Annual salaries of top management

fixed

Industrial equipment costs (variable or fixed)

fixed

Price discrimination leads to a _____ price for consumers with a _____ demand.

higher; less elastic

is long run curve vertical or horizontal?

horizontal

Experiences constant returns to scale what side of the graph is it on

in the middle

Change in total cost/change in quantity=

marginal cost

The amount by which total cost increases when an additional unit is produced

marginal cost

The short-run supply curve for a perfectly competitive firm is its: marginal cost curve above its average variable cost curve. demand curve above its marginal revenue curve. average total cost curve below its marginal cost curve. marginal revenue curve to the right of its marginal cost curve.

marginal cost curve above its average variable cost curve

The city bus system charges lower fares to senior citizens than to other passengers. Assuming that this pricing strategy increases the profits of the bus system, we can conclude that senior citizens must have a _____ demand for bus service than other passengers

more elastic

Given the current price, this firm will earn a zero economic profit. negative economic profit. positive economic profit.

negative economic profit

In the short run, if P = ATC, a perfectly competitive firm: does not produce output and incurs an economic loss. produces output and earns zero economic profit. produces output and incurs an economic loss. produces output and earns an economic profit.

produces output and earns zero economic profit

The relationship between the factors of production used by a firm and the maximum output possible is called the average product. production function. average total cost. profit function.

production function

consumer surplus is above what on the graph

profit

Over time, the price of the product will rise. fall. stay the same.

rise

Marginal cost is defined as the change in fixed cost from producing one more unit of output. total variable cost divided by total output. total cost divided by total output. the change in total costs from producing one more unit of output.

the change in total costs from producing one more unit of output.

Airlines are often able to price discriminate t or f

true

Suppose that a monopoly computer chip maker increases production from 10 microchips to 11 microchips. If the market price declines from $30 per unit to $29 per unit, marginal revenue for the eleventh unit is:

$19.

Which statement describes a monopoly? Many firms produce identical products with no control over the market price. Many firms produce differentiated products with control over market price. A single firm produces a product with no close substitutes and control over the market price. A single firm produces a product with many close substitutes and limited control over the market price.

a single firm produces a product with no close substitutes and control over the market price

Interest on current debt (variable or fixed)

fixed

Liability insurance costs (variable or fixed)

fixed

the marginal revenue exceeds the marginal cost, thus

increasing profit.

Postage and packaging costs (variable or fixed)

variable

The market for breakfast cereal contains hundreds of similar products, such as Froot Loops, cornflakes, and Rice Krispies, that are considered to be different products by different buyers. This situation violates the perfect competition assumption of: ease of entry. ease of exit. many buyers and sellers a standardized product.

a standardized product

The hypothetical production data is for a profit maximizing firm. Suppose the market price falls from $200$200 to $182$182 and the firm does not shut down. Use this information and the table to match the labels. Since the firm is still operating, the firm must be earning a positive profit. t or f

false

lease on building (variable or fixed)

fixed

A firm's ___________________ are costs that are incurred even if there is no output. In the short run, these costs ___________________ as production increases. fixed costs; increase variable costs; do not change variable costs; increase fixed costs; do not change

fixed costs, do not change

Perfectly competitive firms maximize profit by producing at the point where marginal revenue equals marginal cost.

marginal revenue equals marginal cost.

At the current level of output, Becca Furniture's marginal cost curve is above the average total cost curve. This means Becca Furniture's average total cost curve: must be flat. must be rising. must be falling. may be rising, falling, or flat depending on other things.

must be rising

(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. If the market price is P4, the firm will produce quantity _____ and _____ in the short run. q5; lose fixed costs q1; break even q4; break even q3; make a profit

q3 make a profit

One thing that distinguishes the short run and the long run is the existence of at least one fixed input. the existence of marginal costs. explicit costs. the number of months considered.

the existence of at least one fixed input

Perfect competition is characterized by: fierce quality competition. the inability of any one firm to influence price. widely recognized brands. rivalry in advertising.

the inability of any one firm to influence price

The marginal cost curve often decreases at first and then starts to increase. This is explained by economies of scale. increasing ATC. the law of diminishing returns.

the law of diminishing returns

Experiences economies of scale what side of the graph is it on

the left side

In economics, the short run is defined as: the period in which some inputs are considered to be fixed in quantity. the period in which some inputs are fixed, but it cannot exceed 1 year. less than 1 year. less than 6 months.

the period in which some inputs are considered to be fixed in quantity

What is a natural monopoly? -a monopoly that results from government issuing patents -a monopoly that results when one firm is able to produce at a lower cost than multiple firms, giving large firms with higher levels of output an advantage over smaller competitors -a market in which there is only one firm -a monopoly resulting from one firm's exclusive ownership of a natural resource required to produce a good

-a monopoly that results when one firm is able to produce at a lower cost than multiple firms, giving large firms with higher levels of output an advantage over smaller competitors

Long‑run equilibrium is restored in this industry when -short‑run economic profits attract resources. In the long run, firms enter the industry, reducing market price and driving economic profit to 0. Long‑run equilibrium is restored when P=LRAC=SRATC=MCP=LRAC=SRATC=MC . -short‑run economic losses attract resources. In the long run, firms enter the industry, increasing market price and driving economic profit to 0. Long‑run equilibrium is restored when P=LRAC=SRATC=MCP=LRAC=SRATC=MC . -short‑run economic profits attract resources. In the long run, firms enter the industry, reducing market price and driving economic profit to 0. Long‑run equilibrium is restored when P>LRAC=SRATC=MCP>LRAC=SRATC=MC . -short‑run economic losses cause resources to flow to other industries. In the long run, firms exit the industry, reducing market price and driving economic profit to 0. Long‑run equilibrium is restored when P=LRAC=SRATC=MCP=LRAC=SRATC=MC .

-short‑run economic profits attract resources. In the long run, firms enter the industry, reducing market price and driving economic profit to 0. Long‑run equilibrium is restored when P=LRAC=SRATC=MCP=LRAC=SRATC=MC .

(Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue for a pay-per-view football game on cable TV. Assume that the marginal cost and average cost are a constant $40. If the cable company practices perfect price discrimination, consumer surplus will be:

0

(Table: Production Function for Soybeans) Look at the table Production Function for Soybeans. Assume that the fixed input, capital, is 10 acres of land and a tractor, which have a combined cost of $150 per day. The cost of labor is $100 per worker per day. The total cost of producing 25 bushels of soybeans is:

250

Assumed In perfect Competition or Not Assumed in Perfect Competition -Price taking behavior -a small number of producers -significant barriers to entry -firms selling a similar but differentiated good

Assumed in Perfect Competition -Price taking behavior Not Assumed in Perfect Competition -A small number of producers -significant barriers to entry -firms selling a similar but differentiated good

Determine if each example represents a barrier to entry or not. -Pfizer is the only firm that is legally allowed to produce and sell Lipitor, a best‑selling cholesterol drug. -DeBeers owns nearly all of the world's diamond mines -Boeing already serves a large fraction of the jumbo jet market and is able to produce at a lower average cost than any potential competitors -Tinseltown Theaters shows almost all the most popular newly‑released movies.

Barrier to entry -Pfizer is the only firm that is legally allowed to produce and sell Lipitor, a best‑selling cholesterol drug. -DeBeers owns nearly all of the world's diamond mines -Boeing already serves a large fraction of the jumbo jet market and is able to produce at a lower average cost than any potential competitors Not a barrier to entry -Tinseltown Theaters shows almost all the most popular newly‑released movies.

The ATC is increasing whenever the MC is increasing. t or f

False

There are many differences between a market served by a monopoly and a market that is perfectly competitive. Indicate whether each item is associated with a single-price monopoly, perfect competition, or is true of both market structures. a. The price is higher than in other market structures. b. An efficient quantity is produced c. Firms can earn positive economic profit in the long run d. There are significant barriers to entry e. Firms have no market power. f. Firms maximize profits by operating where marginal revenue equals marginal cost.

Monopoly: a. The price is higher than in other market structures. c. Firms can earn positive economic profit in the long run d. There are significant barriers to entry Perfect competition: b. An efficient quantity is produced e. Firms have no market power. Both Monopoly and Perfect Competition f. Firms maximize profits by operating where marginal revenue equals marginal cost.

Consider a perfectly competitive firm in the short run. Assume the firm produces the profit-maximizing output and earns economic profits. Which statement is FALSE? Price is equal to average total cost. Price is equal to marginal revenue. Price is equal to marginal cost. Marginal cost is greater than average total cost.

Price is equal to average total cost

Suppose that the price of corn, a crop produced in a perfectly (or purely) competitive industry, increased 208% last year as demand for corn‑based ethanol fuel increased. What do you expect to happen in the long run for the corn industry given this recent success? The price per bushel of corn will continue to increase, yielding higher profits. Thus, more firms will enter the market indefinitely. Profits will become negative due to overfarming, which will result in the corn farming industry going under. Profits will be equal to zero. None of the above.

Profits will be equal to zero

Suppose the firms in the market for bacon, also a perfectly (or purely) competitive industry, experienced losses last quarter due to people becoming increasingly concerned about how high-fat diets negatively impact health. What do you expect to happen in the long run for the bacon industry? Seeing this as an opportunity to monopolize a fledging industry, firms will enter the industry, shifting supply to the right. Profits will remain negative, which will result in the closing down of the industry as a whole. Profits will be equal to zero. None of the above.

Profits will be equal to zero

The graph shows the market demand and supply curves for oil, and assume it to be a perfectly (or purely) competitive good. Suppose that it is discovered that oil companies are earning positive economic profits. Assuming all else remains the same, show how the market responds to this discovery in the graph.

Supply curve shifts to the right

If the market price fell to $9.51, then this firm would be incurring a loss. this firm would be making an economic profit. this firm would be at its shut down price. this firm would be breaking even (zero profit).

This firm would be breaking even (which means zero profit)

Average total cost=fixed cost + variable cost/Q t or f

True

In the short run, ATC is always greater than or equal to AVC. t or f

True

The average fixed cost curve is downward-sloping. t or f

True

Fixed Cost

a cost that does not change, no matter how much of a good is produced

Variable Cost

a cost that rises or falls depending on how much is produced

If marginal cost is equal to average total cost: average total cost is at its minimum. average total cost is increasing. average total cost is at its maximum. marginal cost is decreasing.

average total cost is at its minimum

In perfectly competitive long-run equilibrium: all firms face the same price, but the value of marginal cost will vary directly with firm size. all firms produce at the minimum point of their average total cost curves. all firms make positive economic profits. the industry supply curve must be upward sloping.

all firms produce at the minimum point of their average total cost curves.

In the long run, firms will exit the market. enter the market.

exit the market

If a monopolist is producing a quantity that generates MC > MR, then profit: is maximized. can be increased by decreasing production. can be increased by increasing production. is maximized only if MC = P.

can be increased by decreasing production

Which of the statements is not true? Costs that are small and unimportant with little impact on profits are called marginal costs. A marginal cost curve will always intersect the average total cost curve at the minimum average total cost. Marginal cost is the change in a firm's total cost due to a one‑unit change in output. Marginal cost and marginal productivity are inversely related.

costs that are small and unimportant with little impact on profits are called marginal costs.

If the cost and revenue numbers in the table will continue forever (permanently), what is the best option for this firm? minimize losses shut down maximize production at 10 units of goods exit the market

exit the market

(Figure: Costs and Profits for Tomato Producers) Look at the figure Costs and Profits for Tomato Producers. The market for tomatoes is perfectly competitive. The market price of a bushel of tomatoes is $18. If the market price increases to $20, the farmer's marginal revenue _____ and the profit-maximizing output _____. increases; increases Production and Profits decreases; increases decreases; decreases increases; decreases

increases, increases

Price in a perfectly competitive industry: is indeterminate in the short run. must be greater than average total cost or the firm will shut down in the short run. is determined by each firm, depending on its costs of production. is always equal to marginal revenue for the firm.

is always equal to marginal revenue for the firm

In the short run, perfectly (or purely) competitive firms will maximize their profit by producing which of the choices? any quantity where marginal revenue > marginal cost the quantity where marginal revenue = marginal cost the largest quantity possible, not considering costs or revenues a small quantity to drive up the price the quantity where price equals marginal cost

the quantity where marginal revenue=marginal cost the quantity where price equals marginal cost

where firms diseconomies of scale what side of the graph is it on

the right side of the graph.

If the price is consistently below average total cost, then in the short run a perfectly competitive firm should: raise the price. shut down. There is not enough information given to answer this question. continue to produce to minimize losses.

there is not enough information given to answer this question

Which of the choices best explains why this price will cause the firm to shut down instead of continuing to operate at a loss? total revenue > total variable costs total revenue > total fixed costs total variable costs > total fixed costs total revenue < total variable costs total revenue < total fixed costs total variable costs < total fixed costs

total revenue < total variable costs

All costs are either fixed or variable t or f

true

All else being equal single price monopolistic competitors earn lower profits than firms than can price discriminate. true or false

true

Marginal cost refers to the change in total cost associated with the production of another unit. t or f

true

Oligopolies exist in a market that has a small number of producers that may or may not exhibit product differentiation. true or false

true

The hypothetical production data is for a profit maximizing firm. Suppose the market price falls from $200$200 to $182$182 and the firm does not shut down. Use this information and the table to match the labels. If the price increases to $200$200, then the firm will earn a positive economic profit. t or f

true

Marginal revenue is zero if producing a

unit means that there is no associated change in total revenue (when total revenue is at a maximum). This occurs at 𝑄2.

Cost of metal used in manufacturing (variable or fixed)

variable

Cost of wood used in manufacturing (variable or fixed)

variable

A firm's ___________________ are costs that increase as quantity produced increases. These costs often show ___________________ illustrated by the increasingly steeper slope of the total cost curve. variable costs; diminishing marginal returns fixed costs; opportunity costs fixed costs; technological changes variable costs; constant returns to scale

variable costs; diminishing marginal returns

is the short run curve vertical or horizontal

vertical

Perfectly competitive firms maximize their profits by producing at the

where marginal revenue equals marginal cost

If two firms are identical in all respects except that one has more of the fixed input capital than another, the total product curve for the firm with more capital: must equal the total product curve for the firm with less capital. will show no diminishing marginal returns. will lie above the total product curve for the firm with less capital. will lie below the total product curve for the firm with less capital.

will lie above the total product curve for the firm with less capital

You own a lemonade stand in a competitive market, and as such, you are a price-taking firm. Which of the following events would most likely increase your market power? The government abolishes the system of patents and copyrights. You own exclusive rights to harvest lemons from all domestic citrus orchards. A booming economy increases the demand for lemonade and attracts entry into the market. The average total cost curve for firms in the industry is horizontal.

you own exclusive rights to harvest lemons from all domestic citrus orchards.

For firms in perfectly competitive markets, long‑run economic profits are _________ because firms will _________the market if profits are negative and _____________the market if profits are positive.

zero, exit, enter