Exam #3 Econ
If a monopolist sells 100 units at $8 per unit and realizes an average total cost of $6 per unit, what is the monopolist's profit?
$200
One characteristic of an oligopoly market structure is
Firms in the industry have some degree of market power
Consider a firm operating in a competitive market. The firm is producing 40 units of output, has an average total cost of production equal to $5, and is earning $240 economic profit in the short run. What is the current market price?
$11
If Danielle sells 300 wrist bands for $0.50 each, her total revenues are
$150
Suppose a monopolist charges a price of $27 for its product and sells 10 units at that price. At 10 units of production the firm has average fixed cost equal to $10 and average variable cost equal to $12. How much total profit is the firm earning at this price?
$50
Comparing marginal revenue to marginal cost (i) reveals the contribution of the last unit of production to total profit. (ii) is helpful in making profit-maximizing production decisions. (iii) tells a firm whether its fixed costs are too high.
(i) and (ii) only
Which of the following is an example of a barrier to entry? (i) A key resource is owned by a single firm. (ii) The costs of production make a single producer more efficient than a large number of producers. (iii) The government has given the existing monopolist the exclusive right to produce the good.
(i),(ii),(iii)
Pete owns a shoe-shine business. Which of the following costs would be implicit costs? (i) shoe polish (ii) rent on the shoe stand (iii) wages Pete could earn delivering newspapers (iv) interest that Pete's money was earning before he spent his savings to set up the shoe-shine business
(iii) and (iv) only
Suppose a firm currently produces 325 units of output per day with 15 workers. The firm is able to produce 340 units of output with a 16th worker. What is the marginal product of the 16th worker?
15 units of output
Suppose a certain firm is able to produce 165 units of output per day when 15 workers are hired. The firm is able to produce 181 units of output per day when 16 workers are hired, holding other inputs fixed. The marginal product of the 16th worker is
16 units of output
Let L represent the number of workers hired by a firm, and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L = 5, Q = 125) and (L = 6, Q = 152). Then the marginal product of the 6th worker is
27 units of output
Kate is a florist. Kate can arrange 20 bouquets per day. She is considering hiring her husband William to work for her. William can arrange 18 bouquets per day. What would be the total daily output of Kate's firm if she hired her husband?
38 bouquets
Which of the following statements about a production function is correct for a firm that uses labor to produce output?
All of the above (see problem)
Which of the following is an example of price discrimination? a. Nabisco provides cents-off coupons for its products. b. Amtrak offers a lower price for weekend travel compared to weekday rates on the same routes. c. Hotel rates for AAA members are lower than for nonmembers. d. All of the above are correct.
All of the above are correct
Which of the following can defeat the profit-maximizing strategy of price discrimination?
Arbitrage
A firm that wants to achieve economies of scale could do so by
Assigning limited tasks to its employees of scale could do so by
Who is a price taker in a competitive market?
Both buyers and sellers
If Bradley's Butcher Shop sells its product in a competitive market, then
Bradley's butcher shop's total revenue must be proportional to its quantity of output
Land of Many Lakes (LML) sells butter to a broker in Albert Lea, Minnesota. Because the market for butter is generally considered to be competitive, LML
Can choose quantity of butter that it produces but not th price at which it sells its butter
Which of the following pairs illustrates the two extreme examples of market structures?
Competition and monopoly
Mrs. Smith operates a business in a competitive market. The current market price is $8.10. At her profit-maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should
Continue to operate in the short run but shut down in the long run
Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue
Does not change
A monopolist's profits with price discrimination will be
Higher than if the firm charged just one price because the firm will capture more consumer surplus
To an economist, the field of industrial organization answers which of the following questions?
How does the number of firms affect prices and the efficiency of market outcomes
Reduced competition through merging of companies will raise social welfare
If the benefit from the synergies exceeds the social cost of increased market power
An oligopoly
Is a type of imperfectly competitive market
How long does it take a firm to go from the short run to the long run?
It depends on the nature of the film
Suppose that Christine owns her own CPA firm. She uses only two inputs in her business: her hours worked (labor) and a computer (capital). In the short run, Christine most likely considers
Labor to be variable and capital to be fixed
Which of the following is an example of a barrier to entry? a. Tom charges a higher price than his competitors for his golf lessons. b.Dick charges a lower price than his competitors for his lawn-mowing services. c. Harry offers free concerts on Sunday afternoons as a form of advertising. d. Larry obtains a copy right for the new computer game that he invented.
Larry obtains a copyright for the new computer game that he invented
Suppose most people regard emeralds, rubies, and sapphires as close substitutes for diamonds. Then DeBeers, a large diamond company, has
Less market power than it would otherwise have
Which of the following is an example of a monopolistically competitive industry?
Movies
A market structure with only a few sellers, each offering similar or identical products, is known as
Oligopoly
Firms in industries that have competitors but do not face so much competition that they are price takers are operating in either a(n)
Oligopoly or monopolistically competitive market
The simplest way for a monopoly to arise is for a single firm to
Own a key resource
Which of the following conditions is characteristic of a monopolistically competitive firm in short-run equilibrium? a. P > AR b. MR > MC c. P > MC d. All of the above are correct.
P>MC
Which of the following statements is not correct? a. Part of the deadweight loss associated with monopoly is measured by the monopolist's economic profit. b. Marginal cost is always less than average total cost in a natural monopoly. c. Discount coupons available free to the public are a type of price discrimination. d. Anti-trust laws make it harder for firms to create synergies.
Part of the deadweight loss associated with monopoly is measured by the monopolist's economic profit
Which of the following conditions distinguishes monopolistic competition from perfect competition?
Product differentiation
Which of the following industries is least likely to exhibit the characteristic of free entry?
Satellite radio
If a pharmaceutical company discovers a new drug and successfully patents it, patent law gives the firm
Sole ownership of the right to sell the drug for a limited number of years
In his book, An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith credits economies of scale to
Specialization
The most likely explanation for economies of scale is
Specialization of labor
In monopolistically competitive markets, positive economic profits
Suggest that new firms will enter the market
In monopolistically competitive markets, economic losses
Suggest that some exiting firms with exit the market
When economists refer to a production cost that has already been committed and cannot be recovered, they use the term
Sunk cost
According to one theory, advertising sends a signal to consumers about the quality of the product being offered. An implication of this theory is that
The content of the advertisement is irrelevant
Which of the following statements is correct? A. The benefits that accrue to a monopoly's owners are equal to the costs that are incurred by consumers of that firm's product. B. The deadweight loss that arises in monopoly stems from the fact that the profit-maximizing monopoly firm produces a quantity of output that exceeds the socially-efficient quantity. C. The deadweight loss caused by monopoly is similar to the deadweight loss caused by a tax on a product. D. The primary social problem caused by monopoly is monopoly profit.
The deadweight loss caused by monopoly is similar to the deadweight loss caused by a tax on a product
When managers of firms in a competitive market observe falling profits, they may infer that the market is experiencing
The entry of new firms
An example of an opportunity cost that is also an implicit cost is
The value of the business owners time
The nature of a firm's cost (fixed or variable) depends on the
Time horizon under consideration
For a monopoly, the level of output at which marginal revenue equals zero is also the level of output at which
Total revenue is maximized
Which of the following is an example of public ownership of a monopoly?
U.S. Postal Service
If the profit-maximizing quantity of production for a competitive firm occurs at a point where the firm's average total cost of production is falling as production increases, then the firm
Will have economic profit less than zero at the profit-maximizing quantity
Which of the following statements comparing monopoly with competition is correct?
With perfect price discrimination, the total surplus under monopoly can be the same as under competition
When a firm operates with excess capacity,
additional production would lower the average total cost.
Patent and copyright laws encourage
creative activity and research and development
A monopolistically competitive market
is imperfectly competitive, but not all imperfectly competitive markets are monopolistically competitive