Last Microeconomics Test

Clara produces and sells tomatoes in a perfectly competitive market. This implies that Clara's marginal revenue generated from selling an additional unit of tomatoes is always equal to

price

Pure monopolies are said to be allocatively inefficient because

price is greater than marginal cost.

The short-run supply curve of a perfectly competitive firm is based primarily on its

MC curve.

Fixed costs are those costs that are

independent of the amount of output a firm produces in the short run.

One defining characteristic of pure monopoly is that the

monopoly produces a product with no close substitutes.

According to the law of diminishing marginal returns

the additional product generated by additional units of an input will eventually diminish.

Economic profit is

equal to the difference between accounting profit and implicit costs.

At any level of output

average total cost will exceed average variable cost by the amount of the average fixed cost.

Which of the following is most likely to be an implicit cost for Company X?

foregone rent from the building owned and used by Company X

Answer the next question on the basis of the following data. OutputTotal Cost(0,$24)(1,33)(2,41)(3,48)(4,54)(5,61)(6,69) The marginal cost associated with the production of the third unit of output is

$7

A pure monopoly can sell 20 toys per day for $8 each. To sell 21 toys per day, the price must be cut to $7. The marginal revenue of the 21st toy is

-$13

Assume the price of a product sold by a perfectly competitive firm is $5. Given the data in the accompanying table, at what output level is total profit highest in the short run? OutputTotal Cost(20,$70)(25,75)(30,85)(35,100)(40,125)(45,155)(50,190)

40

If the short-run average variable cost of production for a firm is decreasing, then it follows that

average variable cost must be greater than marginal cost.

Use the following graph for a perfectly competitive firm generating a loss in the short run to answer the next question. Which area in the graph represents the loss generated by the firm?

bcde

A firm sells a product in a perfectly competitive market. The marginal cost of the product at the current output level of 500 units is $1.50. The minimum possible average variable cost is $1. The market price of the product is $1.25. To maximize profits, the firm should

decrease production to less than 500 units.

To an economist, the economic costs associated with the use of resources include

explicit and implicit costs.

The main difference between the short run and the long run is that

in the short run, some inputs are fixed and some are variable.

Many people believe that pure monopolies charge any price they want to without affecting sales. Instead, the output level for a profit-maximizing pure monopoly occurs where

marginal revenue equals marginal cost.

Which idea is inconsistent with perfect competition?

product differentiation

The table below shows cost data for a perfectly competitive firm. OutputAverage Variable CostAverage Total CostMarginal Cost(0---)22.50,27.50,2.5)(42.00,14.50,1.5)(62.00,10.33,2.0)(82.13,8.38,2.5)(102.30,7.30,3.0)(122.50,6.67,3.5)(143.00,6.57,6.0)(164.00,7.13,11.0) The firm will produce output in the short run only if the market price is at least equal to

$2.00

For a pure monopoly to sell a quantity of 10 units, the price must be $8. Marginal revenue (MR) at this output level will be

< $8.

The data below relates to a pure monopoly and the product it produces. PriceQuantityTotal Cost22020201241822716332144391254810659 What is the profit-maximizing output and price for this firm?

P = $14; Q = 4

Use the following graph showing the demand and marginal revenue curves faced by a pure monopoly to answer the next question. If the pure monopoly wants to sell quantity Q1, it should charge

P1.

Use the following graph for a perfectly competitive firm to answer the next question. The vertical axis has markings from bottom to top as P1, P2, P3, and P4. Two u-shaped curves, ATC and AVC are drawn above another u-shaped curve, MC that rises high above where ATC ends. MC begins from a point between P2 and P3, reaches its minimum at a point labeled a, intersects AVC at its minimum point labeled b, and intersects ATC at its minimum point labeled c. A point near the end point of MC is labeled d. These data points connects to the vertical axis through solid straight lines as follows: from a through P1, from b through P2, from c through P3, and from d through P4. The lowest price at which the firm should produce (as opposed to shutting down) is

P2.

Answer the next question based on the following demand and cost data faced by a pure monopoly. Demand DataCost DataPriceQuantity DemandedOutputTotal Cost$2.7533$4.002.50444.502.25554.752.00665.751.75777.75 At equilibrium, the pure monopoly will generate

an economic profit of $6.50.

Average fixed cost

declines continually as output increases.

The reason the marginal cost curve eventually increases as output increases for the typical firm is because of

diminishing marginal returns.

It is a "given" that an individual firm selling in a perfectly competitive market will take the market price because

each producer supplies a negligible fraction of total market.

Use the following graph for a perfectly competitive firm to answer the next question. The firm is

earning a normal profit.

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output level of 800 units is $3.50. The minimum possible average variable cost is $3. The market price of the product is $4. To maximize profits, the firm should

increase production to more than 800 units.

Suppose that a pure monopoly calculates that at its present output level, marginal revenue is $1 and marginal cost is $2. The monopoly could maximize profits or minimize losses by

increasing price and decreasing output.

A perfectly competitive firm's output is currently such that its marginal revenue is $5 and marginal cost is $4. Assuming profit maximization, the firm should

leave price unchanged and increase output.

Use the following table to answer the next question. OutputTotal Cost(0,$10)(1,20)(2,28)(3,38)(4,53)(5,73)(6,98) The total variable cost associated with the production of 5 units of output is

$63.00

At the profit-maximizing level of output for a pure monopoly

price is greater than marginal cost.

The short-run supply curve for a perfectly competitive firm is the

segment of the MC curve lying at and above the AVC curve.

The demand curve faced by a nondiscriminating pure monopoly is

the same as the industry's demand curve.

Marginal cost can be defined as the change in

total cost resulting from the production of an additional unit of output.

A pure monopoly will generate an economic profit whenever

total revenue is greater than total cost.

If a firm operating in a perfectly competitive industry is confronted with an equilibrium market price of $5, its marginal revenue

will also be $5.

Use the following table to answer the next question. OutputTotal Cost(0,$10)(1,20)(2,28)(3,38)(4,53)(5,73)(6,98) The total fixed cost of production is

$10

Use the following table to answer the next question. PriceQuantity Demanded($7,1)(6,2)(5,3)(4,4)(3,5) The marginal revenue generated by the pure monopoly from selling the third unit of output is

$3.

Answer the next question on the basis of the following information. TFC = Total Fixed Cost MC = Marginal Cost TVC = Total Variable Cost Q = Quantity of Output P = Product Price Select the marginal cost.

Change in TVC ----------------- Change in Q

Use the following graph for a profit-maximizing pure monopoly to answer the next question. At equilibrium, the firm will be generating

an economic profit.

Use the following graph for a profit-maximizing pure monopoly to answer the next question. The horizontal axis (from left to right) lists points labeled as T, V, X, and Y and the vertical axis (from bottom to top) lists points labeled as G, H, J, and K. Two decreasing lines, MR (with greater slope) and D begins from the same point at the vertical axis. Two intersecting u-shaped curves, ATC and MC intersect both D and MR. The dotted straight lines from all the labeled points at both the axes connects to line D at following points: (T, K); (V, J); point of intersection of MC and D as (X, H); and (Y, G). MC and MR intersect at data point (V, G). The firm will set its price at

0J.

Use the following graph for a profit-maximizing pure monopoly to answer the next question. The firm will produce the quantity

0V.

Use the following graph to answer the next question. The horizontal axis lists values as 15, 20, and 35 and the vertical axis lists values as 0.60, 0.90, 1.05, and 1.25. The u-shaped curves labeled ATC and AVC are drawn above an increasing curve, MC that is near to the origin and rises high where ATC ends. MC intersects both AVC and ATC. The dotted straight lines from both the axes connects to the data points at curves as follows: data point (15, 0.60) at point of intersection of MC and AVC; (20, 1.25) at MC; (35, 0.90) at AVC; and (35, 1.05) at ATC. The graph shows the cost curves for a perfectly competitive firm. If the market price of the product is $1.25 per unit, then the firm will produce how many units to maximize profits in the short run?

20

Assume that you are the owner of a small bakery in your hometown. Which of the following would be a variable cost of production in the short run?

baking supplies (flour, salt, etc.)

Marginal product of labor refers to the

change in total product resulting from employing one more unit of labor.

Variable costs are

costs that change with the amount of output a firm produces.

Use the table below to answer the next question for a perfectly competitive firm. OutputTotal RevenueTotal Cost(0,$0,$50)(1,40,74)(2,80,94)(3,120,117)(4,160,142)(5,200,172) The marginal revenue generated from the third unit of output is

$40

Answer the next question based on the following demand and cost data faced by a pure monopolist. Demand DataCost DataPriceQuantity DemandedOutputTotal Cost$2.7533$4.002.50444.502.25554.752.00665.751.75777.75 The profit-maximizing price for the pure monopoly will be

$2.25

Use the table below to answer this question, which provides information on the production of a product that requires one variable input. InputTotal Product(0,0)(1,5,)(2,20),(3,32),(4,42),(5,50),(6,55),(7,58),(8,58),(9,56) With the addition of the second unit of input, the marginal product is ________ and the average product is ________.

15;10

Use the following graph to answer the next question. The horizontal axis from left to right lists values as 90, 160, and 195. The vertical axis from bottom to top lists values as 8, 14, and 16. Two decreasing lines MR and D are drawn from the same point. MR has a greater slope than D and meets the horizontal axis at 180. D meets the horizontal axis beyond 195. Another increasing curve, MC intersects both MR and D. The dotted straight lines from both the axes connects to the data points at D as follows: data point (90, 16); (160, 14) at point of intersection of MC and D; and (195, 8). The values used in description are approximate. If the industry were perfectly competitive, the quantity of output produced would be

160.

Use the following graph to answer the next question. The horizontal axis (from left to right) lists x1, x2, and x3 . A line, MR, parallel to the horizontal axis intersects a u-shaped curve labeled MC at two points. Three dotted straight lines from MR connects to the horizontal axis as follows: from the first point of intersection to x1, a line from MR intersects MC (at trough) and connects to x2, and from the second point of intersection to x3 at the horizontal axis. Given the graph above, which level of output should the perfectly competitive firm choose?

X3, since any increase in output beyond that point will reduce profits

A perfectly competitive firm trying to maximize profits in the short run will expand output

as long as marginal revenue is greater than marginal cost.

A firm sells a product in a perfectly competitive market. The marginal cost of the product at the current output level of 1,000 units is $2.50. The minimum possible average variable cost is $2. The market price of the product is $2.50. To maximize profits, the firm should

continue producing 1,000 units.

A pure monopoly may generate economic profits because

of barriers to entry.

T-Shirt Enterprises is operating in a perfectly competitive market. It is producing 3,000 t-shirts and selling them for $10 each. At this level of output, the average total cost is $10.50 and the average variable cost is $10.20. Based on these data, the firm should

shut down in the short run.

Which of the following would be an implicit cost for a firm?

the cost of wages foregone by the owner of the firm

One argument for having the government regulate natural monopolies is that without regulation

these monopolies produce at a level where price is greater than marginal cost.