Micro Econ test 3

Which of the following statements is (are) true of a monopoly?

(i) A monopoly has the ability to set the price of its product at whatever level it desires.

Suppose a certain firm is able to produce 165 units of output per day when 15 workers are hired. The marginal product of the 16th worker is

11 units of output.

Grace is a self-employed artist. She can make 20 pieces of pottery per week. She is considering hiring her sister Kate to work for her. Both her and Kate can make 35 pieces of pottery per week. What is Kate's marginal product?

15 pieces of pottery.

Economies of scale occur when a firm's

Long-run average total costs are decreasing as output increases.

Which of the following is necessarily a problem with antitrust laws?

They may target a business whose practices appear to be anti-competitive but in fact have legitimate purposes.

What are four ways that government policymakers can respond to the problem of monopoly?

Use anti-trust laws like the Sherman Act---Regulate monopoly behavior---take it over---do nothing

The Sherman Act made cooperative agreements

a criminal conspiracy

When we compare economic welfare in a monopoly market to a competitive market, the profits earned by a monopolist represent

a transfer of benefits from the consumer to the producer.

A movie theater can increase its profits through price discrimination by charging a higher price to adults and a lower price to children if it

all of the above are correct.

If a firm in a monopolistically competitive market successfully uses advertising to decrease the elasticity of demand for its product, the firm will

be able to increase its markup over marginal cost.

When a firm operates under conditions of monopoly, its price is

constrained by demand.

Defenders of advertising

contend that firms use advertising to provide useful information to consumers.

Critics of advertising argue that advertising

creates desires that otherwise might not exist.

Some firms have an incentive to advertise because they sell a

differentiated product and charge a price above marginal cost.

As Bubba's Bubble Gum Company adds workers while using the same amount of machinery......When this occurs , Bubba's Bubble Gum Company encounters

diminishing marginal product

If we observe a great deal of advertising of dog food, we can infer that

dog food is a highly-differentaied product.

When firms have an incentive to enter a competitive market, their entry will

drive down profits of existing firms in the market.

As a general rule, when accountants calculate profit they account for explicit costs but usually ignore

implicit costs.

If a profit-maximizing firm in a competitive market discovers that, at its current level of production, price is greater than marginal cost, it should

increase its output.

According to the Clayton Act,

individuals can sue to recover damages from illegal cooperative agreements.

Marginal Product

is the change in output resulting from employing one more unit of a particular input

For a firm to price discriminate,

it must have some market power.

A monopolist produces

less than the socially efficient quantity of output but at a higher price than in a competitive market.

Diseconomies of scale occur when

long-run average total costs rise as output increases.

In order to sell more of its product, a monopolist must

lower its price.

A monopoly firm is a price

maker and has no supply curve.

Because a monopolist must lower its price in order to sell another unit of output,

marginal revenue is less than price.

Deadweight loss

measures monopoly inefficiency

For a monopolist, when the output effect is greater than the price effect, marginal revenue is

positive

The relationship between advertising and product differentiation is

positive; the more differentiated the product, the more a firm is likely to spend on advertising.

When a local grocery store offers discount coupons in the Sunday paper it is most likely trying to

price discriminate.

The primary purpose of antitrust legislation is to

protect the competitiveness of U.S. markets.

For a firm, the production function represents the relationship between

quantity of inputs and quantity of outputs

The marginal product of an input in the production process is the increase in

quantity of output obtained from an additional unit of input.

When firms have an incentive to exit a competitive market, their exit will

raise the profits of the firms that remain in the market

Price discrimination is the business practice of

selling the same good at different prices to different customers.

Price discrimination requires the firm to

separate customers according to their willingness to pay.

The most likely explanation for economies of scale is

specialization of labor

The Clayton Act

strengthened the Sherman Act.

Entry into a market by new firms will increase the

supply of the good.

In a perfectly competitive market, the market supply curve is

the horizontal sum of all the individual firms' supply curves.

When a monopoly increases its outputs and sales,

the output effect works to increase total revenue, and the price effect works to decrease total revenue.

One assumption that distinguishes short-run cost analysis from long-run cost analysis for a profit-maximizing firm is that is the short-run

the size of the factory is fixed.

Many movie theaters allow discount tickets to be sold to senior citizens because

the theaters are profit maximizers.

In a market that is characterized by imperfect competition,

there are at least a few firms that compete with one another.

Since the 1980s, Wal-Mart stores have appeared in almost every community in America ......this story demonstrates that

there are economies of scale in retail sales.