micro econ final

the market system's answer to the fundamental question "how will the goods and services be produced?" is essentially

"in ways that minimize the cost per unit of output"

refer to the data. the total cost of producing 4 units of output is

$124

the kinked demand curve model helps to explain price rigidity because

there is a gap in the marginal revenue curve within which changes in marginal cost will not affect output or price

in a purely competitive industry

there may be economic profits in the short run but not in the long run

what do the income effect, the substitution effect, and diminishing marginal utility have in common?

they all help explain the downsloping demand curve

in a competitive market economy, firms select the least cost production technique because

to do so will maximize the firms profits

suppose that as the price of Y falls from $2.00 to $1.90, the quantity of Y demanded increases from 110 to 118. then the absolute value of the price elasticity (midpoint method) is

1.37

refer to the diagram. the total utility yielded by 4 units of X is

17

refer to the diagram in which the downsloping lines are budget lines and I1, I2, I3 comprise an indifference map. the combinations of products M and N indicated by points 1, 3, and 5 are such that

3 implies a higher level of utility than does 1 or 5

refer to the short run data. the profit maximizing output for this firm is

320 units

refer to the data. suppose that firms in this industry split up such that there were 100 firms, each with a one percent market share. the four firm concentration ratio and herfindahl index respectively would be

4 percent and 100

the short run supply curve of a purely competitive producer is based primarily on its

MC curve

refer to the diagram. the firm's supply curve is the segment of the

MC curve above its intersection with the AVC curve

if a 10 percent wage increase in a particular labor market results in a 5 percent decline in employment in that market, labor demand is

inelastic

a pure monopolist should never produce in the

inelastic segment of its demand curve because it can increase total revenue and reduce total cost by increasing price

if there is a surplus of a product, its price

is above the equilibrium level

the vertical distance between the total cost and the total variable cost curves differs by an amount that

is constant as output changes

the price of product X is reduced from $100 to $90 and as a result the quantity demanded increases from 50 to 60 units. therefore demand for X in this price range

is elastic

in the short run, a purely competitive seller will shut down if product price

is less than AVC

refer to the diagram. the production of Q1 units of output at an average cost of a

is not possible, given present technology and resource prices

the use of money contributes to economic efficiency because

it promotes specialization by overcoming the problems with barter

which of the following statements applies to a purely competitive producer?

it will not advertise its product

if a purely competitive firm shuts down in the short run

it will realize a loss equal to its total fixed costs

refer to the table. over the $10-$8 price range, the elasticity coefficient of supply is

less than 1

which of the following is correct as it relates to cost curves?

marginal cost intersects average total cost at the latters minimum point

which of the following is correct??

marginal product rises faster than average product and also falls faster than average product

"income receivers should be paid in accordance with the value of output each produces" this statement is consistent with the

marginal productivity theory of income distribution

a firm will find it profitable to hire workers up to the point at which their

marginal resource cost is equal to their MRP

in the long run, a pure monopolist will maximize profits by producing that output at which marginal cost is equal

marginal revenue

refer to the diagram. the quantitative difference between areas A and C for reducing the price from P1 to P2 measures

marginal revenue

if a purely competitive firm is producing at the P=MC output and realizing an economic profit, at that output

marginal revenue exceeds ATC

if a purely competitive firm is producing at some level less than profit maximizing output, then

marginal revenue exceeds marginal cost

assuming a competitive resource market, a firm is hiring resources in the profit maximizing amounts when the

marginal revenue product of each resource is equal to its price

to maximize utility, a consumer should allocate money income so that the

marginal utility obtained from the last dollar spent on each product is the same

in the long run equilibrium, purely competitive markets

maximize the sum of consumer surplus and producer surplus

in the short run, the price charged by a monopolistically competitive firm attempting to maximize profits

may be either equal to ATC, less than ATC, or more than ATC

concentration ratios

may understate the degree of competition because they ignore imported products

the restaurant, legal assistance, and clothing industries are each illustrations of

monopolistic competition

product variety is likely to be greater in

monopolistic competition than in pure competition

when a consumer shifts purchases from product X to product Y, the marginal utility of

X falls and marginal utility of Y rises

which of the following will not shift the demand curve for labor?

a change in the wage rate

if producers must obtain higher prices than before to produce a given level of output then the following has occurred

a decrease in supply

for a firm selling its product in a purely competitive market, the marginal revenue product of labor can be found by

multiplying marginal product by product price

mary says "you would have to pay me $50 to attend that pro wrestling event" for mary, the marginal utility of the event is

negative

we would expect the cross elasticity of demand between dress shirts and ties to be

negative, indicating complementary goods

refer to the payoff matrix. bob's burgers and sam's sandwiches are competing restaurants in a small town. both are considering adding pizza to their line of products. if this is a one time simultaneous game

neither firm has a dominant strategy

refer to the diagram. at output level Q1

neither productive nor allocative efficiency is achieved

the invisible hand refers to the

notion that, under competition decisions motivated by self interest promote social interest

a positive statement is one that is

objective and is based on facts

innovations that lower production costs or create new products

often generate short run economic profits that do not last into the long run

suppose that a university decides to spend $1 million to upgrade personal computers and scientific equipment for faculty rather than spend $1 million to expand parking for students. this example illustrates

opportunity costs

the conclusion that oligopoly is inefficient relative to the competitive ideal must be qualified because

over time oligopolistic industries may promote more rapid product development and greater improvement of production techniques than if they were purely competitive

refer to the diagram for a monopolistically competitive producer. the firm is

realizing a normal profit in the long run

noncash gifts

reduce recipient utility relative to a cash gift because noncash gifts often fail to match recipient preferences

production costs to an economist

reflect opportunity costs

the law of diminishing returns describes the

relationship between resource inputs and product outputs in the short run

if price and total revenue vary in opposite directions, demand is

relatively elastic

the supply curve of antique reproductions is

relatively elastic

gigantic state university raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is

relatively inelastic

the demand for a necessity whose cost is a small portion of one's total income is

relatively price inelastic

refer to the diagram. line 2 reflects a situation where resource prices

remain constant as industry output expands

which of the following is not a possible source of natural monopoly?

rent seeking behavior

in a market system

a firm's employees and suppliers are largely shielded from risk

refer to the diagram. a price of $60 in this market will result in

a surplus of 100 units

a surplus of a product will arise when price is

above equilibrium, with the result that quantity supplied exceeds quantity demanded

which of the following is a consequence of rent controls established to keep housing affordable for the poor?

all of these are consequences of rent controls

for a purely competitive seller, price equals

all of these these

refer to the diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. in this market

an increase in demand has been more than offset by an increase in supply

when the percentage change in price is greater than the resulting percentage change in quantity demanded

an increase in price will increase total revenue

if two resources are highly substitutable for one another

an increase in the price of one will increase the demand for the other

refer to the diagram. line 1 reflects the long run supply curve for

an increasing cost industry

suppose losses cause industry X to contract and as a result the prices of relevant inputs decline. industry X is

an increasing cost industry

economists would describe the US automobile industry as

an oligopoly

because of higher gasoline prices, firms using gasoline intensively in the production or distribution of their goods have experienced

an upward shift in their MC, AVC, and ATC curves

the MR=MC rule

applies both to pure monopoly and pure competition

barriers to entering an industry

are the basis for monopoly

the basic difference between the short run and the long run is that

at least one resource is fixed in the short run, while all resources are variable in the long run

which of the following is an example of creative destruction?

automobile production causes the wagon industry to shut down

other things equal, if the fixed costs of a firm were to increase by $100,000 per year, which of the following would happen?

average fixed costs and average total costs would rise

the labor demand curve of an imperfectly competitive seller is downsloping

because of both diminishing returns and the necessity to lower price to sell more output

a firms supply curve is upsloping because

beyond some point the production costs of additional units of output will rise

under pure competition in the long run

both allocative efficiency and productive efficiency are achieved

refer to the diagram, by producing at output level Q

both productive and allocative efficiency are achieved

the MRP curve is the resource demand curve for

both the purely competitive and imperfectly competitive seller

"consumer sovereignty" means that

buyers determine what will be produced based on their "dollar votes" for the goods and services offered by sellers

an effective price floor on wheat will

result in a surplus of wheat

refer to the information. for a purely competitive firm, marginal revenue graphs as a

straight line, parallel to the horizontal axis

use your basic knowledge and your understanding of market structures to answer this question. which of the following companies most closely approximates a monopolistic competitor?

subway sandwiches

the profit maximizing and the least cost combination of inputs are

such that the maximization of profits always entails the least cost combination of inputs

since their introduction, prices of Blu-ray players have fallen and the quantity purchased has increased. this statement

suggests that the supply of Blu-ray players has increased

total utility may be determined by

summing the marginal utilities of each unit consumed

any point inside the production possibilities curve indicates

that more output could be produced with the available resources

when LCD televisions first came on the market, they sold for at least $1,000 and some for much more. now many units can be purchased for under $400. these facts imply that

the LCD television industry is a decreasing cost industry

which of the following is not a precondition for price discrimination?

the commodity involved must be a durable good

if the output of product X is such that marginal benefit equals marginal cost

the correct amount of resources is being allocated to X's production

the demand for airline pilots results from the demand for air travel. this fact is an example of

the derived demand for labor

refer to the diagrams, which pertain to a purely competitive firm producing output q and the industry in which it operates. which of the following is correct?

the diagrams portray short run equilibrium but not the long run equilibrium

if a regulatory commission imposes upon a nondiscriminating natural monopoly a price that is equal to marginal cost and below average total cost at the resulting output then

the firm must be subsidized or it will go bankrupt

if a purely competitive firm is producing where price exceeds marginal cost, then

the firm will fail to maximize profit and resources will be underallocated to the product

if someone produced too much of a good this would suggest that

the good was produced past the point where its marginal cost exceeded its marginal benefit

the movement from line A to line A' represents a change in

the intercept only

if a rational consumer is in equilibrium, which of the following conditions will hold true?

the marginal utility of the last dollar spent on each good purchased will be the same

the lowest point on a purely competitive firm's short run supply curve corresponds to

the minimum point on its MC curve

refer to the diagram. this production possibilities curve is constructed so that

the opportunity costs of both bread and tractors increase as more of each is produced

if a nondiscriminating pure monopolist decide to sell one more unit of output, the marginal revenue associated with that unit will be

the price at which that unit is sold less the price reductions that apply to all other units of output

if there is a shortage of product X, and the price is free to change

the price of the product will rise

in moving along a given budget line

the prices of both products and money income are assumed to be constant

a dilemma of regulation is that

the regulated price that achieves allocative efficiency is also likely to result in losses

refer to the graph. a decrease in fixed costs is shown by

the shift of the short run average total cost curve from ATC2 to ATC1

the firm represented by the diagram would maximize profits where

the vertical distance between curves 3 and 4 is the greatest

monopolistically competitive and purely competitive industries are similar in that

there are few, if any barriers to entry

refer to the data. the four firm concentration ratio for the industry is

80 percent

refer to the diagrams. with the industry structures represented by diagram

A there will be only a normal profit in the long run, while in B an economic profit can persist

refer to the diagram. at output level Q total fixed cost is

BCDE

refer to the diagrams. the case of complementary goods is represented by figure

C

which of the diagrams illustrates the effect of an increase in automobile worker wages on the market for automobiles?

D onlyS -decrease in supply from S1 to S2

in the short run, a purely competitive firm will always make an economic profit if

P > ATC

refer to the diagram for a pure monopolist. suppose a regulatory commission is created to determine a legal price for the monopoly. if the commission seeks to provide the monopolist with a "fair return" it will set price at

P1

refer to the diagram. this firm will earn only a normal profit if product price is

P3

refer to the budget line shown in the diagram. the absolute value of the slope of the budget line is

PC|PD

if a monopolist engages in price discrimination, it will

charge a higher price where individual demand is inelastic and a lower price where individual demand is elastic

the regulatory mechanism of the market system is

competition

which of the following outcomes is consistent with a purely competitive market in long run equilibrium?

consumer and producer surplus will be maximized

the advent of DVDs has virtually demolished the market for videocassettes. this is an example of

creative destruction

the marginal rate of substitution

declines as one moves southeast along an indifference curve

average fixed cost

declines continually as output increases

private property

encourages owners to maintain or improve their property so as to preserve or enhance value

diminishing marginal utility explains why

demand curves are downsloping

the state legislature has cut gigantic state university's appropriations. GSU's board of regents decides to increase tuition and fees to compensate for the loss of revenue. the board is assuming that the

demand for education at GSU is inelastic

if the price of hand calculators falls from $10 to $9 and, as a result, the quantity demanded increases from 100 to 125 then

demand is elastic

the automobile, household appliance, and automobile tire industries are all illustrations of

differentiated oligopoly

the price elasticity of a monopolistically competitive firm's demand curve varies

directly with the number of competitors but inversely with the degree of product differentiation

the total revenue test for elasticity

does not apply to supply because price and total revenue always move together

the MR=MC rule can be restated for a purely competitive seller as P=MC because

each additional unit of output adds exactly its price to total revenue

if a competitive industry is neither expanding nor contracting, we would expect

economic profits to be zero

if a firm doubles its output in the long run and its unit costs of production decline, we can conclude that

economies of scale are being realized

if production is occurring where marginal costs exceed price, the purely competitive firm will

fail to maximize profit and resources will be overallocated to the product

a market system tends to restrict business risk to owners and investors. this results in which of the following benefits?

firms focus attention on prudent risk management as it is profitable to manage risk

a significant difference between a monopolistically competitive firm and a purely competitive firm is that the

former sells similar, although not identical products

the less elastic a monopolistic competitor's long run demand curve, the

greater its excess capacity

the larger the positive cross elasticity coefficient of demand between products X and Y, the

greater their substitutability

assume a purely competitive increasing cost industry is initially in long run equilibrium and that an increase in consumer demand occurs. after all economic adjustments have been completed, product price will be

higher and total output will be larger than originally

an increasing cost industry is the result of

higher resource prices that occur when the industry expands

the copper, aluminum, cement, and industrial alcohol industries are examples of

homogenous oligopoly

"consumer sovereignty" refers to the

idea that the decisions of producers must ultimately conform to consumer demands

the MR=MC rule applies

in both the short run and the long run

interindustry competition means that

in some markets the producers of a particular product might face competition from products produced by other industries

to economists, the main differences between the short run and the long run is that

in the long run all resources are variable, while in the short run at least one resource is fixed

which of the following is true concerning purely competitive industries?

in the short run, firms may incur economic losses or earn economic profits, but in the long run they earn normal profits

refer to the diagram. if price is reduced from P1 to P2, total revenue will

increase by C - A

suppose capital and labor are used in fixed proportions so that each machine requires only one worker. if a decline in the price of capital occurs, then the demand for labor will

increase solely because of the output effect

a decline in the price of resource A will

increase the demand for complementary resource B

refer to the diagram. total utility

increases at a diminishing rate, reaches maximum, and then declines

the invisible hand promotes society's interests because

individuals pursuing their self interest will try to produce goods and services that people in society want and are willing to purchase

a firm can sell as much as it wants at a constant price. demand is thus

perfectly elastic

if quantity demanded is completely unresponsive to price changes, demand is

perfectly inelastic

the supply curve of a one of a kind original painting is

perfectly inelastic

the supply of known monet paintings is

perfectly inelastic

which of the following goods (with their respective income elasticity coefficients in parentheses) will most likely suffer a decline in demand during a recession?

plasma screen and LCD tv (+4.2)

when total product is increasing at an increasing rate, marginal product is

positive and increasing

if a firm is confronted with economic losses in the short run, it will decide whether or not to produce by comparing

price and minimum average variable cost

which of the following statements is true about price ceilings?

price ceilings cause goods to be rationed by some other means than legally determined market prices

refer to the budget line shown in the diagram. if the consumer's money income is $20, the

price for C is $4 and the price of D is $2

resources are efficiently allocated when production occurs where

price is equal to marginal cost

assume that society places higher value on the last unit of X produced than the value of the resources used to produce that unit. with no spillovers, this information means that

price is greater than marginal cost

for a monopolistically competitive firm in long run equilibrium

price will equal average total cost

the fact that a purely competitive firm's total revenue curve is linear and upsloping to the right implies that

product price is constant at all levels of output

suppose for a regulated monopoly that price equals minimum ATC but price exceeds MC. this means that

productive efficiency is being achieved, but not allocative efficiency

if the several oligopolistic firms that comprise an industry behave collusively, the resulting price and output will most likely resemble those of

pure monopoly

if the long run supply curve of a purely competitive industry slopes upward, this implies that the prices of relevant resources

rise as the industry expands

a product has utility if it

satisfies consumer wants

according to the concept of the "invisible hand" if Susie opens and operates a profitable childcare center then

she has served society's interests by providing a desired good or service

refer to the diagram. a decrease in demand is depicted by a

shift from D2 to D1

if the price of product L increases, the demand curve for close substitute product J will

shift to the right

other things equal an increase in a consumer's money income

shifts the individual's budget line rightward because she can now purchase more of both products

refer to the diagram. a price of $20 in this market will result in a

shortage of 100 units

suppose a firm in a purely competitive market discovers that the price of its product is above its minimum AVC point but everywhere below ATC. given this the firm

should continue producing in the short run but leave the industry in the long run if the situation persists

the labor demand curve of a purely competitive seller

slopes downward because of diminishing marginal productivity

which of the following statements is true? other things equal, the demand for labor will be less elastic the

smaller the ratio of labor costs to total costs

a single price monopoly is economically inefficient because at the profit maximizing output

society values additional units of the monopolized product more highly than it does the alternative products those resources could otherwise produce

a leftward shift of a product supply curve might be caused by

some firms leaving an industry

which of the following goods will least likely suffer a decline in demand during a recession?

toothpaste

curve 3 in the diagram is a purely competitive firm's

total revenue curve

refer to the diagram, which pertains to a purely competitive firm. curve A represents

total revenue only

at each point on an indifference curve

total utility is the same

which of the following most closely relates to the idea of opportunity costs?

trade offs

which of the following is most likely to be an inferior good?

used clothing

which of the following is correct?

when MP is rising MC is falling, and when MP is falling MC is rising

for a pure monopolist, marginal revenue is less than price because

when a monopolist lowers price to sell more output, the lower price applies to all units sold

a product market is in equilibrium

where the demand and supply curves intersect

which of the following is not correct?

where total product is at a maximum, average product is also at a maximum

in the short run, a purely competitive firm that seeks to maximize profit will produce

where total revenue exceeds total cost by the maximum amount

the kinked demand curve model of oligopoly is useful in explaining

why oligopolistic prices might change only infrequently

economies and diseconomies of scale explain

why the firm's long run average total cost curve is U-shaped

if a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue

will also be $5

if a nondiscriminating imperfectly competitive firm is selling its 100th unit of output for $35, its marginal revenue

will be less than $35

a pure monopolist's short run profit maximizing or loss minimizing is such that price

will vertically intersect demand where MR=MC

creative destruction is least beneficial to

workers in the destroyed industries

the incentive problem under communist central planning refers to the idea that

workers, managers, and entrepreneurs could not personally gain by responding to shortages or surpluses or by introducing new and improved products