MICROECONOMIC EXAM 2 (5-17-19)

Which of the following is true?

A monopoly firm is a price-maker.

Price leadership occurs if:

A. smaller firms in an industry silently agree to charge the same price as the largest firm.

If price is consistently below average total cost, then in the short run a perfectly competitive firm should:

There is not enough information given to answer this question.

If a monopolist is producing a quantity that generates MC = P, then profit:

can be increased by decreasing production.

For Heidi, the marginal cost of producing one additional photograph equals the ______ divided by ______.

change in total cost; the change in the number of photographs

Zoe's Bakery determines that P < ATC and P > AVC. Zoe should:

continue to operate even though she is enduring an economic loss

The most important source of oligopoly is:

economies of scale

(Figure: Marginal Product of Labor) Using the marginal product of labor curve in the accompanying figure, the total product of labor for 8 workers is:

96 bushels.

The pricing in monopoly prevents some mutually beneficial trades from taking place. The value of these unrealized mutually beneficial trades is called:

a deadweight loss.

The break-even price for a perfectly competitive firm is equal to:

he minimum value of average total cost.

The market structure characterized by a few interdependent firms and in which there are barriers to entry is called:

oligopoly.

Jane spends all her income on goods X and Y and is purchasing the optimal consumption bundle. If the MUX/MUY = 3 and the price of X is equal to $12, then the price of Y is equal to:

$4.

(Figure: Monopolist) If this monopolist attempts to profit-maximize, it will produce:

(Figure: Monopolist) If this monopolist attempts to profit-maximize, it will produce:

(Figure: Revenues, Costs, and Profits) In the accompanying figure, if the market price is $9, the profit-maximizing quantity of output is:

0.

(Table: Marginal Utility per Dollar) According to data in the accompanying table, if the price of clams is $3 per pound, while the price of potatoes is $1 per pound, and this consumer has $9 to spend on potatoes and clams, then the utility-maximizing combination is _____ pounds of clams and _____ pounds of potatoes.

1; 6

(Figure: Cost Curves and Profits) The market for corn is perfectly competitive, and an individual corn farmer faces the cost curves shown in the accompanying figure. If the price of a bushel of corn in the market is $10, then the farmer will produce ______ of corn and earn an economic ______ equal to ______.

3 bushels; loss; total fixed costs

(Figure: Cost Curves and Profits) The market for corn is perfectly competitive, and an individual corn farmer faces the cost curves shown in the accompanying figure. If the price of a bushel of corn in the market is $14, then the farmer will produce ______ of corn and earn an economic ______ equal to ______.

4 bushels; profit; $0.

(Figure: Monopolist) If this monopolist were forced to act like a perfect competitor, it would produce:

Q3 units and sell it at P3.

Gary's Gas and Frank's Fuel are the only two providers of gasoline in Smalltown. Gary and Frank decide to form a cartel. Later, Gary summarizes his pricing strategy as, "I'll cheat on the cartel because regardless of what Frank does, cheating gives me the best payoff." This is an example of:

a dominant strategy

If the Herfindahl-Hirschman Index (HHI) for an industry is 900, this market is considered:

a strongly competitive market.

Cindy operates Birds-R-Us, a small store manufacturing and selling 100 bird feeders per month. Cindy's monthly totals fixed cost are $500, and her monthly total variable costs are $2,500. If for some reason Cindy's fixed cost fell to $400, then her:

average total costs would decrease.

A monopoly is a market structure characterized by:

barriers to entry and exit.

Suppose that the Yankee Company is a profit-maximizing firm that has a monopoly in the production of baseball caps. The firm sells its baseball caps for $25 each. For this information, we can assume that the Yankee Company is producing a level of output at which:

marginal cost equals marginal revenue.

A wheat farmer operating in the short run produces 100 bushels of wheat. Her average total cost per bushel is $1.75, total revenue is $450, and (total) fixed costs are equal to $100. Then:

profit per bushel is equal to $2.75

(Figure and Table: Variable, Fixed, and Total Costs) In the accompanying figure, marginal cost of increasing production from 51 to 64 bushels of wheat is:

$15.38

Darren runs a barbershop with average fixed costs equal to $60 per day and a total output of 50 haircuts per day. What is his weekly total fixed cost if he is open six days per week?

$18,000

(Figure: Average Total Cost Curve) In the accompanying figure, the total cost of producing 3 pairs of boots is approximately:

$216.

Kaile Cakes is currently producing 10 cakes per day. The marginal cost of the 10th cake is $24, and average total cost of 10 cakes is $6. The average total cost of 9 cakes is:

$4.

Figure: Average Total Cost Curve) In the accompanying figure, the total cost of producing 5 pairs of boots is approximately:

$408.

(Figure and Table: Variable, Fixed, and Total Costs) In the accompanying figure, when 51 bushels of wheat are produced, average fixed cost is ______, average variable cost is ______, and average total cost is ______.

$7.84; $11.76; $19.60

Figure: Cost Curves and Profits) The market for corn is perfectly competitive, and an individual corn farmer faces the cost curves shown in the accompanying figure. If the price of a bushel of corn in the market is $4, then the farmer will produce ______ of corn and earn an economic ______ equal to ______.

0 bushels; loss; total fixed costs

(Figure: Monopoly Model) When the firm is in equilibrium (that is, maximizing its economic profit), its total revenue is the area of rectangle:

0PDJ.

(Table: Utility from Milk and Honey) Moses' marginal utilities for milk and honey are given in the table below. The price of milk is $2 and the price of honey is $4. If Max's income is $16, how much milk and how much honey does he buy to maximize his utility?

4 milks and 2 honeys

Chuck spends all his income on two goods: tacos and milkshakes. His income is $100, the price of tacos is $10, and the price of milkshakes is $2. The vertical intercept for Chuck's budget line is equal to ______ units of milkshakes.

50

(Figure: Marginal Product of Labor) Using the marginal product of labor curve in the accompanying figure, the total product of labor for 3 workers is:

51 bushels.

Table: Utility from Burgers and Milkshakes) David's marginal utilities for milkshakes and burgers are given in the accompanying table. The price of milkshakes is $2, and the price of burgers is $5. If David's income is $22, how many milkshakes and how many burgers does he buy to maximize his utility?

6 shakes and 2 burgers

Table: Labor and Output) Referring to the accompanying table, the average product when 4 workers are employed is:

9.

Figure: The Budget Line) For months now, Agnes has had $20 per month to spend on tea and scones. The price of a cup of tea and the price of a scone have been each $1. Which of the charts in the accompanying figure shows what will happen to her budget line if her income decreases to $10?

Chart C

Suzy knows she has maximized her utility, because she is on her budget constraint and:

MUx/Px = MUy/Py.

In the short run, a monopoly will stop producing if

P < AVC.

A perfectly competitive firm is definitely earning an economic profit when:

P > ATC.

(Figure: Computing Monopoly Profit) The profit-maximizing price is ________ and will generate total economic profit of ________.

P3; the rectangle P2P3EF

If Jakob knows the marginal cost of producing the 7th sports jersey is $21, then the total cost of 7 sports jerseys is:

The answer cannot be determined from the above information.

Suppose Cyd knows the average cost of producing 9 scones is $5, while the average cost of producing 10 scones is $5.20. What is the marginal cost of the 10th unit?

The marginal cost is $7.

The relationship between an individual's consumption bundle and his/her utility is called

a utility function.

Which of the following is most likely to be observed when firms engage mainly in non-price competition?

advertising and product differentiation

In perfectly competitive long-run equilibrium:

all firms produce at the minimum point of their average total cost curves.

If firms are making positive economic profits in the short run, then in the long run:

all of the above will occur.

If all firms in an industry are price-takers, then:

an individual firm cannot alter the market price even if it doubles its output.

Attempts by the federal government to prevent the exercise of monopoly power in the United States are called ________ policy.

antitrust

When marginal cost is rising:

both average variable cost and average total cost may be rising or falling.

(Figure: Payoff Matrix I for Blue Spring and Purple Rain) The figure shows the payoff matrix for two producers of bottled water, Blue Spring and Purple Rain. The Nash equilibrium in the figure is reached when:

both firms charge a low price.

If a monopolist is producing a quantity that generates MC > MR, then profit:

can be increased by increasing price.

If the government only allowed one airline to serve the entire U.S. market, there would be a ________ loss associated with ________ efficiency in the airline industry.

deadweight; reduced

Figure: Marginal Revenue, Costs, and Profits) In the accompanying figure, if market price decreases to $16, marginal revenue ______ and profit-maximizing output ______.

decreases; decreases

In a perfectly competitive industry, the market demand curve is usually:

downward sloping.

One of the major differences between a monopolist and a purely competitive firm is that the monopolist has a ________ demand curve, while the purely competitive firm has a ________ demand curve

downward-sloping; perfectly elastic

For large beer breweries, it is common for average total cost to decline as output increases. This indicates that many breweries achieve:

economies of scale.

Because tourist demand for airline flights is relatively ________, small ________ in price will result in relatively ________ in additional tourists.

elastic; reductions; large increases

An analytical approach through which strategic choices can be assessed is called:

game theory.

To say that you can't have too much of a good thing means that for any good that you enjoy (say pizza)

higher consumption will always lead to greater utility.

In perfect competition, the assumption of easy entry and exit implies that:

in the long run all firms in the industry will earn zero economic profits.

Jessica spends all her income on two goods, A and B. The price of A is $5, and the price of B is $7. At the current consumption bundle, the marginal utility of A is 10, and the marginal utility of B is 21. To maximize utility given her income, Jessica should:

increase her consumption of B and decrease her consumption of A.

A competitive firm operating in the short run is producing at the output level at which ATC is at a minimum. If ATC = $8 and MR = $9, in order to maximize profits (or minimize losses), this firm should:

increase output.

Figure: Marginal Revenue, Costs, and Profits) In the accompanying figure, if market price increases to $20, marginal revenue ______ and profit-maximizing output ___

increases; increases

The market demand curve:

is the horizontal summation of the individual demand curve of all consumers.

In oligopoly, a firm must realize that:

it is in an industry in which another major firm may dominate, and the firm will need to judge its actions accordingly.

An individual gets 5 units of utility from 1 slice of pizza and 9 units of utility from 2 slices of pizza. The principle of diminishing marginal utility implies that the total utility from 3 slices of pizza will be:

less than 13 units of utility.

Assume an industry is dominated by a few firms. Each of these firms acknowledges that its own choices affect the choices of its rivals. Each firm also recognizes that its rivals' choices affect the decisions it makes. This industry is an example of a(n):

monopoly.

The largest HHI possible is in the case of ________ and the index is ________ .

monopoly; 10,000

The existence of a buyer with significant buying power in an industry would make a tacit agreement:

more difficult to achieve.

Rebecca knows that Becca Furniture's marginal cost curve is above the average total cost curve. This means Becca Furniture's average total cost curve:

must be rising.

Situations in which the more users of a product there are, the more useful the product becomes are called:

network effects.

The HHI for ________ where ________ have (has) ________ of the market is ________

oligopoly; two firms each; 50%; 5,000

If the only two firms in an industry openly agree to fix the price at a given level, then this is an example of:

overt collusion.

The demand curve for a perfectly competitive firm is:

perfectly elastic.

When most cars sold in the United States were produced by the Big Three auto companies, General Motors would announce its prices for the new model year first and then the other companies would match it. This practice was an example of:

price leadership.

According to the kinked demand model of oligopolies, oligopolistic firms often choose not to compete much on:

price.

A situation in which a player has an incentive to cheat regardless of what the other player does, and in which, if both players act in this manner, both players will be worse off, is referred to as:

prisoners' dilemma.

Suppose that a profit-maximizing monopoly firm experiences a substantial technological change that reduces its marginal and average total costs by $40. If in response to its reduction in cost the firm changes its price in a profit-maximizing way, then we can predict that its total output will:

rise.

A perfectly competitive firm operating in the short run producing 100 units of output has ATC = $6 and AFC = $2. The market price is $3 and is equal to MC. In order to maximize profits (or minimize losses), this firm should:

shut down.

If price is consistently below average variable cost, then in the short run a perfectly competitive firm should:

shut down.

In the short run:

some inputs are fixed and some inputs are variable.

Unwritten or unspoken understandings through which firms collude to restrict competition are called:

tacit collusion.

If a local California avocado stand operates in a perfectly competitive market, that stand owner will be a price:

taker.

A monopoly can be temporary because of:

technological change

Which of the following curves is not affected by the existence of diminishing returns?

the average fixed cost curve

When Aishe's Bar-B-Que produces 10 pork sandwiches, the total cost is $5.00. When 11 pork sandwiches are produced, the total cost rises to $6.00. From this we know that:

the marginal cost of the 11th pork sandwich is greater than the average cost of 11 pork sandwiches.

The demand curve for a normal good will always slope downward because:

the substitution effect and the income effect reinforce each other, and the substitution effect always displays an inverse relation between price and quantity demanded.

Figure: Payoff Matrix for Gehrig and Gabriel) The figure shows the payoff matrix for two producers, Gehrig and Gabriel, who sell handmade Davy Crockett figurines in San Antonio. Both Gehrig and Gabriel have two strategies available to them: to produce 5,000 figurines each month or to produce 7,000 figurines each month. If both follow a tit-for-tat strategy, equilibrium will be reached when:

they each produce 5,000 figurines.

Chuck spends all his income on two goods: tacos and milkshakes. His income is $100, the price of tacos is $10, and the price of milkshakes is $2. Put tacos on the horizontal axis and put milkshakes on the vertical axis. The slope of Chuck's budget line is equal to:

−5.