Micro Final

A production possibilities frontier is bowed outward when the more resources the economy uses to produce one good, the fewer resources it has available to produce the other good.

False

A production possibilities frontier is bowed outward when the rate of tradeoff between the two goods being produced is constant.

False

An oligopoly would tend to restrict output and drive up price if barriers to entering the industry are negligible.

False

Because monopolists charge a price in excess of marginal cost, it must be the case that monopolists earn a positive economic profit

False

Cartel agreements break down because parties cannot agree on the price that a monopolist would charge.

False

In the prisoners' dilemma game, self-interest juxtaposes the payoffs earned at the Nash equilibrium.

False

It is impossible for total utility to be positive when marginal utility is negative

False

Reaching an efficient bargain is difficult when the externality is large.

False

The Coase Theorem suggests that taxes should be enacted to alleviate the effects of negative externalities.

False

Utility is always an increasing function of quantity

False

The value of a worker's marginal product of labor is higher for workers with more human capital.

True

The value of a worker's marginal product of labor is higher if the net price of the good/service he produces is higher.

True

When a perfectly competitive firm sells additional units of output, total revenue always rises, and when a monopolist sells additional units of output, total revenue could rise, fall, or remain unchanged .

True

Coase Theorem

if people can negotiate the right to perform the activities that cause externalities, they can always arrive at efficient solutions to problems caused by externalities

cross-price elasticity

the % by which the quantity demanded of the first good changes in response to a 1% change in the price of the second good

Prisoners' dilemma is a game in which both players have a dominant strategy.

True

The marginal product of the 14th worker is 8 and the firm sells its output for $4 per unit. If labor is the only variable cost, then the value of the 14th worker's marginal product is...

$32

A production possibilities frontier is bowed outward when an economy is self-sufficient instead of interdependent and engaged in trade.

False

In the prisoners' dilemma game, self-interest leads each prisoner to confess.

True

It is impossible for total utility to be decreasing when marginal utility is positive.

True

A natural monopoly is a monopoly that arises from having an exclusive right to operate in a national park.

False

Monopoly outcome is not socially efficient because monopoly price is greater than marginal cost.

True

What might cause a decrease in supply today?

Sellers' expectations that the product's price will rise in the future.

Industries in which firms have high fixed costs and low marginal costs are likely to have a small number of large firms.

True

A production possibilities frontier is bowed outward when the rate of tradeoff between the two goods being produced depends on how much each good is being produced.

True

A reduction in workers' marginal productivity would result in a reduction in the equilibrium wage rate

True

As the number of firms in an oligopoly decreases, individual firms' profits increase.

True

Buyers and sellers neglect the negative effects of their actions when deciding how much to demand or supply.

True

If a firm faces a downward-sloping demand curve, then the firm's marginal revenue from selling an additional unit of output is less than price.

True

If a monopolist's marginal revenue exceeds its marginal cost at its current level of output, then to maximize its profit the monopolist should increase output until marginal revenue equals marginal cost.

True

If the demand curve facing a monopolist shifts, then the monopolist's marginal revenue curve and profit-maximizing level of output will change

True

In competitive labor markets, firms demand labor and workers supply labor.

True

market power

a firm's ability to raise the price of a good without losing all its sales

externality

activities that generate costs or benefits that affect people not directly involved in those activities

cost-benefit principle

an individual should only take action if the extra benefits from taking the action are equal to or greater than the extra costs

Nash Equilibrium

any combination of strategy choices in which each player's choice is his or her best choice, given the other players' choices

Human capital

factors such as education, experience, training, intelligence, energy, work habits, trustworthiness, and initiative; affect VMP (value of marginal product of labor)

The benefits to specialization are even greater when two trading partners have...

large differences in opportunity costs

The additional output a firm gets from hiring an additional unit of labor is the...

marginal product of labor

The value of marginal product of labor equals the...

marginal product of labor times the net price for which each unit of output sells.

law of demand

people do less of what they want to do as cost rises

rational spending rule

spending should be allocated across goods so the marginal utility per dollar is the same for each good MU of Good 1/P of good 1=MU of good 2/P of good 2

dominant strategy

strategy that yields the highest payoff no matter what the other players in a game choose

microeconomics

study of individual choice under scarcity and its implications for the behavior of prices and quantities in individual markets

utility

the satisfaction people derive from their consumption activities

In a competitive labor market, if a firm pays a worker less than that worker's VMP...

then in the long run competing firms will hire the worker away

comparative advantage

when one person has a lower opportunity cost of performing a task than another