Micro exam 3

Suppose that in a competitive market the equilibrium price is $2.50. What is marginal revenue for the last unit sold by the typical firm in this market?

exactly 2.50

For a typical natural monopoly, average total cost is

failing, and marginal cost is below average total cost

If regulators required firms in monopolistically competitive markets to set price equal to marginal cost,

firms would most likely experience economic losses

Monopolistic competition is characterized by which of the following attributes?

free entry, product differentiation and many sellers

Encouraging firms to invest in research and development and individuals to engage in creative endeavors such as writing novels is one justification fo

government created monopolies

A similarity between monopoly and monopolistic competition is that in both market structures

sellers are price markers rather than price takers

In a monopolistically competitive market,

there may be too few or too many firms in the market, despite free entry.

the average fixed cost curve

is always decreasing

A firm's marginal cost has a minimum value of $80, its average variable cost has a minimum value of $90, and its average total cost has a minimum value of $100. Then the firm will shut down in the short run once the price of its product falls below

$90

Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit.

1,000

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 = 12, Q = 122) and (L = 13, Q = 130). Then the marginal product of the 13th worker is

10 units of output

Barney builds custom wooden birdhouses. He can make 150 birdhouses per month and sell them for $50 each. His average total cost is $30 per birdhouse. Refer to Scenario 13-16. Barney is considering hiring his best friend Fred to work for him. Fred can build 125 birdhouses per month. If Barney hires Fred, what will be the monthly marginal product?

125 birdhouses

Assume a firm in a competitive industry is producing 800 units of output, and it sells each unit for $6. Its average total cost is $4. Its profit is

1600

Kelly has decided to start his own business giving sailing lessons. To purchase equipment for the business, Kelly withdrew $1,000 from his savings account, which was earning 3% interest, and borrowed an additional $2,000 from the bank at an interest rate of 7%. What is Kelly's annual opportunity cost of the financial capital that has been invested in the business?

170

Suppose that a firm in a competitive market is currently maximizing its short-run profit at an output of 50 units. If the current price is $9, the marginal cost of the 50th unit is $9, and the average total cost of producing 50 units is $4, what is the firm's profit?

250

Barney builds custom wooden birdhouses. He can make 150 birdhouses per month and sell them for $50 each. His average total cost is $30 per birdhouse. Refer to Scenario 13-16. Barney is considering hiring his best friend Fred to work for him. Fred can build 125 birdhouses per month. If Barney hires Fred, what will be the monthly total output of his birdhouse business

275 birdhouses

Ziva is an organic lettuce farmer, but she also spends part of her day as a professional organizing consultant. As a consultant, Ziva helps people organize their houses. Due to the popularity of her home-organization services, Farmer Ziva has more clients requesting her services than she has time to help if she maintains her farming business. Farmer Ziva charges $25 an hour for her home-organization services. One spring day, Ziva spends 10 hours in her fields planting $130 worth of seeds on her farm. She expects that the seeds she planted will yield $300 worth of lettuce.

300

Walter builds birdhouses. He spends $5 on the materials for each birdhouse. He can build one in 30 minutes. He is semi-retired but earns $8 per hour at the local hardware store. He can sell a birdhouse for $20 each.

4

Bubba is a shrimp fisherman who catches 4,000 pounds of shrimp per year. He can sell the shrimp for $5 per pound. His average total cost of catching shrimp is $3 per pound. Bubba's annual total profit is

8,000

accounting profit +explicit costs

= economic profit

Which of the following statements is correct?

Assuming that implicit costs are positive, accounting profit is greater than economic profit.

Which of the following statements regarding brand names in advertising is not correct?

Brand names allow firms to produce and sell inferior products in the long run since people will continue to purchase the brand-name product

In a competitive market with free entry and exit, if all firms have the same cost structure, then

all firms will operate at their efficient scale in the long run

Which of the following firms is the closest to being a perfectly competitive firm?

a wheat farmer in kansas

For a particular competitive firm, the minimum value of average variable cost (AVC) is $12 and is reached when 200 units of output are produced. For the same firm, the minimum value of average total cost (ATC) is $15 and is reached when 230 units of output are produced. Which of the following statements is correct?

all the above

Which of the following is not an argument made by critics of advertising?

adverting promotes economies of scale

An entrepreneur's motivation to start a business arises from

an innate love for the type of business that he or she starts. a desire to earn a profit. an altruistic desire to provide the world with a good produc

In the long run, a firm in a perfectly competitive market operates

at its efficient scale, and a monopolistically competitive firm operates with excess capacity.

who is the price takers in competitive market

buyers and sellers

Price discrimination

can maximize profits if the seller can prevent the resale of goods between customers.

Suppose that a firm's long-run average total costs of producing an individual income tax return is $75 when it produces 1,000 returns and $75 when it produces 1,200 returns. For this range of output, the firm is experiencing

constant returns to scale

If a monopolist is able to perfectly price discriminate

consumer surplus and deadweight losses are transformed into monopoly profits.

Entry and exit drive each firm in a monopolistically competitive market to a point of tangency between its

demand curve and its average total cost curve

If Farmer Brown plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 5 bushels of wheat. If he plants 2 bags, he gets 9 bushels. If he plants 3 bags, he gets 12 bushels. A bag of seeds costs $120, and seeds are his only cost.

diminishing marginal product

If a production function shows declining marginal product of an input as the quantity of the input increases, then the production function exhibits

diminishing marginal product

product differentiation causes the sellers of a good to face what types of demand curve

downward sloping

total revenue minus both explicit and implicit

economic profit

In both perfect competition and monopolistic competition, each firm

has many competitors

For a particular competitive firm, the minimum value of average variable cost (AVC) is $12 and is reached when 200 units of output are produced. For the same firm, the minimum value of average total cost (ATC) is $15 and is reached when 230 units of output are produced. Which of the following statements is correct?

in the long run the firm will shut down if the price of its product is $11

The output effect describes the situation when a monopolist sells more output and, all else equal, total revenue

increases

If Farmer Brown plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 5 bushels of wheat. If he plants 2 bags, he gets 9 bushels. If he plants 3 bags, he gets 12 bushels. A bag of seeds costs $120, and seeds are his only cost.

increasing at increasing rate

a firm has market power if it can

influence the market price of the good it sells

Firms may experience diseconomies of scale when

large management structures are bureaucratic and inefficient

Suppose a firm has a monopoly on the sale of a computer game and faces a downward-sloping demand curve. When selling the 50th game, the firm will always receive

less marginal revenue on the 50th game than it received on the 49th game

A study sponsored by the Food Consumer Safety Board found that consumption of irradiated tomatoes increased the health of laboratory rats. As a result of national press coverage of the report, the demand for irradiated tomatoes increased dramatically. Organic farmers were able to switch from organic production of tomatoes to irradiated production with no additional cost. Assume that the tomato market satisfies all of the assumptions of perfect competition.

long-run market supply of irradiated tomatoes would be upward sloping.

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

lower its price

diminishing marginal product suggests that

marginal cost is upward sloping

To maximize its profit, a monopolistically competitive firm chooses its level of output by looking for the level of output at which

marginal rev equals marginal costs

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

marginal rev is less than price

The efficient scale of the firm is the quantity of output that

minimizes average total cost

Under which of the following market structures would consumers likely receive the most product variety?

monopolistic competition

When a single firm can supply a product to an entire market at a lower cost than could two or more firms, the industry is called a

natural monopoly

For a monopolist, when does marginal revenue exceed average revenue?

never

for a firm in a competitive market, an increase in the quantity produced by the firm will result in

no change in the products market price

in a competitive market

no single buyer or seller can influence the price of the product

If a competitive firm is currently producing a level of output at which profit is not maximized, then it must be true that

none of the above

Which of the following conditions is characteristic of a monopolistically competitive firm in both the short-run and the long run

p>mc

in the short run a firm operating in a monopolistically competitive market can earn

positive economic profits, economic losses and zero economic profits

A rational pricing strategy for a profit-maximizing monopolist is

price discrimination

Monopolistic competition is an inefficient market structure because

price exceeds marginal cost. it has a deadweight loss, just as monopoly does. at the equilibrium, some consumers will value the good at more than the marginal cost of production

Consider a firm that operates in a perfectly competitive market. The firm is producing at its profit maximizing output level. If this is true, then

price must be equal to marginal cost

A monopolist maximizes profits by

producing an output level where marginal revenue equals marginal cost. charging a price that is greater than marginal revenue.

Among the following situations, which one is least likely to apply to a monopolistically competitive firm?

profit is positive in the long run

A law that restricts the ability of hotels/motels to advertise on billboards outside of a resort community would likely lead to

reduced efficiency of local lodging markets

A local playground equipment company plans to operate out of its current factory, which is estimated to last 30 years. All cost decisions it makes during the 30-year period

short run decisions

competitive firms that earn a loss in the short run should

shut down if P<AVC

Two bottles of over-the-counter pain reliever sit side-by-side in a grocery store: Advil (a brand name) sells for $5.00, while Feel Better (not a brand name) sells for $2.50. In a typical day the store sells some of each type of pain reliever, which suggests that

some consumers must perceive that advil is a higher quality product

One problem with government operation of monopolies is that

the government typically has little incentive to reduce costs

When entry and exit behavior of firms in an industry does not affect a firm's cost structure

the long run market supply curve must be horizontal

if a monopolist has zero marginal costs it will produce

the output at which total revenue is maximized

The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above average

total cost

Sebastian decides to open a tree farm. When deciding to open his own business, he turned down two separate job offers of $25,000 and $30,000 and withdrew $20,000 from his savings. Sebastian's savings account paid 3 percent interest. He also borrowed $20,000 from his brother, whom he pays 2 percent interest per year. He spent $15,000 to purchase supplies and earned $50,000 in revenue during his first year. Which of the following statements is correct?

total explicit cost are 15,400