micro final
Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales. If the firm increases its output to 200 units, the average revenue of the 200th unit will be
$12
Christine is an artist who creates custom cookie jars. Her annual revenue from selling the cookie jars is $90,000. The annual explicit costs of the materials used to make the cookie jars are $54,000. Christine used $5,000 from her personal savings account to buy pottery tools for her business. The savings account paid 1% annual interest. Christine could earn $6,000 per year as a tax preparer. What is the annual accounting profit of her cookie jar business?
$36,000
Suppose that Abdul opens a coffee shop. He receives a loan from a bank for $100,000. He withdraws $50,000 from his personal savings account. The interest rate on the loan is 8%, and the interest rate on his savings account is 2%. Abdul's explicit cost of capital is
$8,000
Granting a pharmaceutical company a patent for a new medicine will lead to (i) a product that is priced higher than it would be without the exclusive rights. (ii) incentives for pharmaceutical companies to invest in research and development. (iii) higher quantities of output than without the patent.
(i) and (ii) only
Which of the following are necessary characteristics of a monopoly? (i) The firm is the sole seller of its product. (ii) The firm's product does not have close substitutes. (iii) The firm generates a large economic profit. (iv) The firm is located in a small geographic market.
(i) and (iii) only
Price discrimination adds to social welfare in the form of (i) increased total surplus. (ii) reduced costs of production. (iii) increased consumer surplus.
(i) only
Suppose that a firm operating in perfectly competitive market sells 300 units of output at a price of $3 each. Which of the following statements is correct? (i) Marginal revenue equals $3. (ii) Average revenue equals $3. (iii) Total revenue equals $900.
(i), (ii), and (iii)
Consider a local, privately-owned electrical cooperative named Poweshiek Power Company (PPCo). PPCo has just completed a clean-coal-burning electrical power plant in Iowa. Currently, PPCo can meet the electricity needs of all residents in the county. In fact, its capacity far exceeds the needs of the county. After just a few years of operation, the shareholders of PPCo experienced incredibly high rates of return on their investment due to the profitability of the corporation. Which of the following statements is most likely to be true? (i) New entrants to the market know they will have a smaller market share than PPCo currently has. (ii) PPCo is most likely experiencing rising marginal cost. (iii) PPCo is a natural monopoly. (iv) PPCo is most likely experiencing declining average total cost.
(i), (iii) and (iv) only
Suppose that a firm operating in perfectly competitive market sells 50 units of output. Its total revenues from the sale are $500. Which of the following statements is correct? (i) Marginal revenue equals $5. (ii) Average revenue equals $10. (iii) Price equals $15.
(ii) only
Profit-maximizing firms enter a competitive market when existing firms in that market have
ATC less than market price
Which of the following is a characteristic of a natural monopoly?
Average total cost declines over large regions of output.
Which statement best describes the effect(s) that occur when a monopoly firm reduces the price of its product? Both a and b are correct. The "price effect" causes total revenue to fall. The "output effect" causes total revenue to rise. The "revenue effect" causes total revenue to remain constant
Both a and b are correct. The "price effect" causes total revenue to fall. The "output effect" causes total revenue to rise.
Which of the following statements is correct? Opportunity costs equal explicit minus implicit costs. All of the above are correct. Economists consider opportunity costs to be included in a firm's costs of production. Economists consider opportunity costs to be included in a firm's total revenues.
Economists consider opportunity costs to be included in a firm's costs of production.
Which of the following statements is correct? If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling fewer units at a higher price per unit. If the monopolist is earning a positive economic profit, it must be producing where MR = MC. If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling more units at a lower price per unit. When a monopolist produces where price equals the minimum of average total cost, it earns a positive economic profit.
If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling more units at a lower price per unit.
Which of the following statements is correct? When a monopolist produces where price equals the minimum of average total cost, it earns a positive economic profit. If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling fewer units at a higher price per unit. If the monopolist is earning a positive economic profit, it must be producing where MR = MC. If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling more units at a lower price per unit.
If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling more units at a lower price per unit.
To maximize total surplus with a monopoly firm, a benevolent social planner would choose the level of output where
MC intersects the demand curve
In a competitive market the current price is $6. The typical firm in the market has ATC = $5.00 and AVC = $4.50.
New firms will likely enter this market to capture some of the economic profits.
Which of the following could be used to calculate the profit for a firm?
Profit = (P - ATC) × Q
What is the shape of the monopolist's marginal revenue curve?
a downward-sloping line that lies below the demand curve
One of the defining characteristics of a perfectly competitive market is
a similar product.
In setting the production level, a firm's cost curves
by themselves do not tell us what decisions the firm will make.
Cold Duck Airlines flies between Tacoma and Portland. The company leases planes on a year-long contract at a cost that averages $600 per flight. Other costs (fuel, flight attendants, etc.) amount to $550 per flight. Currently, Cold Duck's revenues are $1,000 per flight. All prices and costs are expected to continue at their present levels. If it wants to maximize profit, Cold Duck Airlines should
continue flying until the lease expires and then drop the run.
Suppose that a firm's long-run average total costs of producing handcrafted chairs is $300 when it produces 10,000 chairs and $325 when it produces 11,000 chairs. For this range of output, the firm is likely experiencing
coordination problems
The social cost of a monopoly is equal to its
deadweight loss
Perfect price discrimination
decreases consumer surplus. increases total surplus. increases profits to the firm.
If the total cost curve gets steeper as output increases, the firm is experiencing
diminishing marginal product
When the marginal product of an input declines as the quantity of that input increases, the production function exhibits
diminishing marginal product
In the long run a company that produces and sells covers for cell phones incurs total costs of $2,500 when output is 1,250 covers and $4,000 when output is 1,500 covers. For this range of output, the cell phone cover company exhibits
diseconomies of scale
Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue
does not change.
marginal revenue
extra revenue from the sale of one additional unit of output
economies of scale
factors that cause a producer's average cost per unit to fall as output rises (merger)
For any competitive market, the supply curve is closely related to the
firms' costs of production in that market
constant returns long-run average is curved
horizontal
A firm that produces and sells furniture gets to choose
how many workers to hire in both the short run and the long run.
the amount that is given up is counted as part of the business's
implicit costs
The marginal product of any input is the
increase in total output obtained from one additional unit of that input.
Suppose the long-run supply curve for a good is upward-sloping. The upward slope could be explained by
increases in production costs resulting from more firms coming into the market
Diminishing marginal product explains
increasing marginal cost.
Marginal cost is
independent of fixed costs
If all existing firms and all potential firms have the same cost curves, there are no inputs in limited quantities, and the market is characterized by free entry and exit, then the long-run market supply curve
is horizontal and equal to the minimum of long-run average cost for each firm.
The total cost to the firm of producing zero units of output is
its fixed cost in the short run and zero in the long run.
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.
In the short run, a firm operating in a competitive industry will shut down if price is
less than average variable cost
Considering the relationship between average total cost and marginal cost, the marginal cost curve for this firm must
lie entirely below the average total cost curve.
Which of the following is not a characteristic of a perfectly competitive market?
many firms have market power
A monopoly chooses to supply the market with a quantity of a product that is determined by the intersection of the
marginal cost and demand curves.
In order to maximize profits in the short run, a firm should produce where
marginal cost equals marginal revenue
the socially efficient level of production occurs where
marginal cost intersects demand
A perfectly price-discriminating monopolist is able to
maximize profit and produce a socially-optimal level of output.
Deadweight loss
measures monopoly inefficiency.
who is a price taker in a competitive market?
neither buyers or sellers
In the long run, there are
no fixed costs
firms cost (fixed or variable) depends on
output (price the firm charges for 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 does not choose the
price at which it sells butter
For a monopoly, the socially efficient level of output occurs where
price=marginal cost.
A firm in a competitive market has the following cost structure: Output Total Cost 0 $5 1 $10 2 $12 3 $15 4 $24 5 $40 If the market price is $4, this firm will
produce 3 units in the short run and exit in the long run
monopolists maximize profit by
producing an output level where MR = MC charging a price equal to marginal revenue and marginal cost.
A benefit of a monopoly is
profit that can be invested in research and development.
When firms have an incentive to exit a competitive market, their exit will
raise the profits for the firms that remain in the market
If there is an increase in market demand in a perfectly competitive market, then in the short run prices will
rise
In a perfectly competitive market, the market supply curve is
the marginal cost above average total cost for a representative firm
Monopoly profit is not a social problem because
the profit represents a transfer from the consumer to the producer with no loss in total surplus.
The assumption of a fixed number of firms is appropriate for analysis of
the short run but not the long run.
One assumption that distinguishes short-run cost analysis from long-run cost analysis for a profit-maximizing firm is that in the short run,
the size of the factory is fixed.
When a competitive firm doubles the quantity of output it sells, its
total revenue doubles
When some resources used in production are only available in limited quantities, it is likely that the long-run supply curve in a competitive market is
upward sloping
A firm will shut down in the short run if the total revenue that it would get from producing and selling its output is less than its
variable costs
long run equilibrium
where all firms earn zero economic profits producing the output level where P = MR = MC and P = AC
In the long run, a firm that produces and sells textbooks gets to choose
which short-run average-total-cost curve to use. the size of its factories. how many workers to hire.
Economies of scale arise when
workers are able to specialize in a particular task.
