Microeconomics 2023 Exam 1 Review, Micro Econ Final Exam

Utility Maximizing Rule

Consumers decide to allocate their money incomes so that the last dollar spent on each product purchased yields the same amount of extra marginal utility.

Total Revenue

Total sales in money terms. Price x Quantity sold P x Q

Determine the products of natural monopoly. Natural monopoly goods:

a toll bridge cable television

Number superstitions occur in nearly every society, impacting the way consumers and businesses make economic decisions. What is the field of economics that helps explain the power of superstition in economic decisions? The field isaltruistic economics.overconfident economics.behavioral economics.framing bias economics.

behavioral economics.

Based on your calculation for cross elasticity, peanut butter and jelly are best viewed as

complements

Clark grows corn and is a price‑taker. For each scenario, decide what Clark should do to his price. Higher taxes, fuel prices, and wages are driving costs up for all corn farmers.

increase

Which of the following is not a characteristic of a perfectly competitive market? a large number of firms offering similar products no barriers to entry no product differentiation between firms some control over price

some control over price

Which of the following is not a characteristic of a perfectly competitive market? no barriers to market entry or exit homogeneous products some control over price many buyers and sellers

some control over price

d. Economic profits are equal to

total revenue minus both implicit costs and explicit costs

-graph 57 The table shows the cost and revenue information for a perfectly (or purely) competitive firm that produces external hard drives. QuantityFixed cost ($)Variable cost ($)Total revenue ($)1010036100011100741100121001451200131002021300141003021400151004351500161005881600171007741700 -How many units should this firm produce to maximize profits?14111517

14 -

Assume that you have $50 a month to devote to first-run movies and bottles of wine. Additionally, suppose the price to see a movie is $10 and a bottle of wine costs $10 as well. Your equilibrium allocation will be5 movies and 5 bottles of wine.2 movies and 3 bottles of wine.0 movies and 5 bottles of wine.3 movies and 2 bottles of wine.

2 movies and 3 bottles of wine.

Which is an example of an x‑inefficiency? A potential competing power company is not granted a government monopoly to provide power to a region because the local government deems that the construction needed to run new power lines will be disruptive to local businesses. A company offers all of its upper management exclusive travel in a fleet of private jets, even to non‑business critical events. A local small business has to close because a large department store opened up across the street and it cannot compete with the department store's prices. The board of directors for a major internet service provider (ISP) spends $10 million$10 million on lobbying efforts to prevent a city government from granting access to utility poles to a new fiber ISP.

A company offers all of its upper management exclusive travel in a fleet of private jets, even to non‑business critical events.

Firms use price discrimination to increase their profits by converting part or all of consumer surplus to producer surplus. Which of the following market conditions is not necessary for a firm to engage in price discrimination?A firm must have some market power.A firm must have the ability to hide their prices from consumers.A firm must have the ability to prevent arbitrage.A firm must have the ability to separate consumers into groups based on their elasticities of demand.

A firm must have the ability to hide their prices from consumers.

Inferior Good

A good whose quantity demanded decreases when consumer income rises (or quantity demanded rises when consumer income decreases). If EI<0 then the good is an inferior good

Elasticity of Supply

A measure used in economics to show the responsiveness, or elasticity, of the quantity supplied of a good or service to a change in its price. Time period allowed for adjustments is the most important factor affecting elasticity of supply. ES= change in quantity supplied/ change in price

Which statement describes a monopoly? Many firms produce identical products with no control over the market price. Many firms produce differentiated products with control over market price. A single firm produces a product with no close substitutes and control over the market price. A single firm produces a product with many close substitutes and limited control over the market price.

A single firm produces a product with no close substitutes and control over the market price.

Shortage

A situation in which the demand for a product or service exceeds its supply in a market.

According to the law of demand,

a decrease in price increases quantity demanded.

Which is most likely to be a natural monopoly? a firm selling health food that has no local competitors a firm that owns all of the world's gold and is therefore the only firm that sells gold jewelry a firm that has a patented low calorie pizza recipe and is therefore the only firm that that can sell diet pizza a firm that provides electricity to all of the homes in Los Angeles

a firm that provides electricity to all of the homes in Los Angeles

Suppose there are three internet service providers (ISPs) in a local market which have been around for a long time and generate healthy economic profits. Suppose that a startup fiber company enters the market. Initially, the startup captures many customers from the older ISPs but soon experiences financial problems due to the huge upfront costs associated with creating a fiber network. In order to generate more revenue, the startup decreases its price by 10%. In response, the established firms all offer price-match guarantees and an additional 5% off any matched price. The older ISPs run the price matching scheme even after the startup decides to return to its original price. Eventually, the startup goes bankrupt and the older ISPs return to the initial pricing regime. -What type of strategy did the three existing ISPs employ?tit‑for‑tatgrim triggertrembling hand triggersubgame perfection

grim trigger

The opioid epidemic causing a staggering number of deaths each year in the United States is largely caused by two drugs: heroin and fentanyl. Much of the heroin is supplied by several major organized Mexican cartels while the much stronger fentanyl is mostly produced in hundreds of labs (big and small) in China. The market structure for heroin can be considered as an oligopoly that operates as a monopoly. On the other hand, the fentanyl industry is less organized in terms of cartel organization and therefore more competitive. How do the differences in the organization of both industries explain why deaths from fentanyl have skyrocketed in recent years? -The organized heroin carteldoes not have barriers to market entry. The more competitive fentanyl industry has substantial barriers to entry, making fentanyl a more available drug.has the ability to control quantity and raise the prices. The more competitive fentanyl industry makes more of the drug available at a lower price.makes the drug at a lower price. The more competitive fentanyl industry has the ability to control quantity and raise the price.is a price taker. In the more competitive fentanyl industry, Chinese suppliers are price makers, making fentanyl a more available drug.

has the ability to control quantity and raise the prices. The more competitive fentanyl industry makes more of the drug available at a lower price.

Which can cause a shift in the demand curve? A change in the price of a good one of the determinants of demand the technology used by firms the cost of production

one of the determinants of demand

Monopolies and monopolistically competitive firms differ in that monopolies are price takers. differentiate their products. participate in markets where barriers to entry are present.

participate in markets where barriers to entry are present.

Monopolies and monopolistically competitive firms differ in that monopolies participate in markets where barriers to entry are present. face competition from many other firms. differentiate their products.

participate in markets where barriers to entry are present.

Which of the following describes rules created by governments that allow for exclusivity in sales, use, and production of an invention for a limited period? trademark patent copyright

patent

How do barriers to entry affect monopolies? They prevent or lessen competition. reduce domestic job loss. increase the number of competitors. reduce the amount of government regulation.

prevent or lessen competition.

Which of the following situations could be considered examples of price gouging? a. A deadly tornado strikes Oklahoma City, destroying the homes of 50% of its population. Immediately afterward the price of sleeping bags increases by 150%

price gouging

. Why are marginal revenue and price equal for competitive firms? Price equals marginal revenue because the demand curve is upward sloping. price must decrease as quantity increases. price is constant for all levels of output. price is the same as total revenue.

price is constant for all levels of output.

Which of the following is a characteristic of monopolistic competition but not perfect competition? zero economic profits in the long run a large number of small firms easy entry and exit product differentiation

product differentiation

Which of the following is a characteristic of both monopoly and monopolistic competition? Both market structures involve many buyers and sellers. no barriers to entry or exit. zero economic profits in the long run. product differentiation.

product differentiation.

What is the relationship between the two goods? complements substitutes no relationship

substitutes

Which of the markets is the best example of monopolistic competition? the market for sugar snap peas the market for cola the fast food industry your town's utilities distrubutor(s) of electricity and water

the fast food industry

Why must price cover average variable costs if the firm is to continue operating? If price is less than average variable costs, the firm can minimize losses by producing where marginal cost equals price. fixed costs will exceed losses. the firm can continue to operate because costs will be covered. the firm will minimize its losses by shutting down.

the firm will minimize its losses by shutting down.

Colombia's coffee producers operate in a perfectly competitive industry. -The market price of a pound of coffee is determined by the Colombian government. the international coffee federation. the global supply of and demand for coffee. Colombian coffee farmers.

the global supply of and demand for coffee.

In which industries are firms more likely to face a contestable market? the banking industry the low‑cost airline industry the electricity industry the automotive industry

the low‑cost airline industry

- graph 64 Rambutan is a fruit prized in Eastern Asia for its unique hairy look. Once peeled, it reveals a sweet, slightly sour grape-like gummy tasting fruit. Consider the graph for marginal revenue (MR), marginal cost (MC), and average total cost (ATC) for a perfectly competitive rambutan farmer. Move point A to label the profit-maximizing output and price for this farmer. -Price ($ per bushel)Quantity of rambutan (bushels)01234567891001234567891011121314151617181920MRMCATC712A -This firm is currently incurring a profit. In the long run, other firms will enter this market. -If the market price falls to $8 per bushel, then this firm is incurring a loss.this firm is at its shut down price.this firm is breaking even (zero profit).this firm is making an economic profit.

- -Profit; either -This firm is breaking even (zero profit)

-graph 84 Hayfever Farms is an 80‑acre hay farm in Colorado. Due to the legalization of marijuana production in the state, the owners are considering changing the farm's name to Blissful Acres and growing marijuana instead of hay. Use the information presented in the table to answer the three questions that follow. Number of acresMC $MR $ (hay)MR $ (marijuana)103207305,600202007305,600305407305,600407307305,600501,2007305,600603,2007305,600705,6007305,600806,7007305,600 -If they continue to grow only hay, how many acres should Hayfever Farms devote to growing hay to maximize profits? area devoted to hay: ________acresacres -If the owners decide to only grow marijuana, how many acres should Blissful Acres devote to growing marijuana to maximize profits? area devoted to marijuana: _______acres -Which of the following is a likely to result from the legalization of marijuana production and consumption? a decrease in the number of marijuana growers no change in the number of marijuana growers a decrease in the number of marijuana growers to zero an increase in the number of marijuana growers

- 40acres -70aces -an increase in the number of marijuana growers

-graph 149 -The table shows a hypothetical demand schedule for monosodium glutamate (MSG). Ajinomoto holds 5050% of the market, Jiali holds 3030% of the market, and Quingdao holds 2020% of the market. Suppose the three firms agree to form a cartel to fix production of monosodium glutamate. Assume marginal cost equals zero, and the output is split equally across the firms. What quantity maximizes the cartel's profit? -Suppose Ajinomoto's marginal cost remains equal to zero, but for Jiali and Quingdao, marginal costs rise above zero. How would this affect the incentive of Ajinimoto to act noncooperatively and change its output? Ajinomoto will not have an incentive to change its output. Ajinomoto will have an incentive to decrease its output of MSG. Ajinomoto will have an incentive to increase its output of MSG.

- 90 million people -Ajinomoto will have an incentive to increase its output of MSG.

-graph 169 Antel and IMD both produce similar computer chips, and the two companies dominate this market. The table shows the choices available to Antel and IMD in terms of total output and the profits they would make in each of these situations. Use this table to answer the four questions. a. Using what you know about the prisoner's dilemma, what would be the profit for Antel and IMD in millions? -Antel profit: $$ million -IMD profit: $$ million -The firms should cooperate. act independently. -The original production level is more profitable because overall demand for computer chips will increase. they can both charge more for the product at the given level of production. it restricts the supply of computer chips.

-$100 -$100 -cooperate. -they can both charge more for the product at the given level of production. -it restricts the supply of computer chips.

Iz, Lauren, Odd, and Ralph started a T‑shirt company. They can produce any number of T‑shirts at a cost of $2$2 per T‑shirt, both marginal and average. They are the only producers of T‑shirts. As monopolists, they charge $20$20 per T‑shirt and obtain total profits of $10,000$10,000. Now assume there are creative differences and they split the company in two. Lauren and Ralph join together and compete against Iz and Odd. If they compete on quantity, each company would produce 5050 T‑shirts and charge $12$12 a T‑shirt. For technical reasons, assume that the quantity demanded is greater than zero for all prices greater than $0. -If, however, Ralph and Lauren compete directly against Iz and Odd in prices, the market price for T‑shirts will be $$ -And their profits will be $$ -In response to the price war, Iz and Odd decide to put an iguana on the chest of their T‑shirt. They convince the world that the iguana is necessary for coolness. This type of behavior is calledproduct differentiation.Cournot competition.Herfindahl competition.Bertrand competition. -What economic reason is likely to have caused Iz and Odd put an iguana on their T‑shirts? get better customers receive a major fashion award decrease costs gain notoriety increase profits

-$2 -$0 -product differentiation. -increase profits

- graph 70 -Suppose that the market for sweaters is perfectly competitive and in long‑run equilibrium. Production data for a single, representative sweater producer are presented in the table. -What is the market price? The market price is $ -Suppose that the market price increases by $3 per sweater. Does the market exhibit production efficiency in the short run? no yes -Does the market exhibit allocative efficiency in the short run? yes no

-$27 -no -yes

The Miami Heat can sell five courtside seats for $2,000 each or six courtside seats if it reduces the price to $1,600 each. What is the marginal revenue of the sixth seat? $600 $400 -$400 $3,600

-$400

-graph 148 - The graph shows the demand curve faced by an oligopolistic firm who is a member of a cartel. Use the graph to answer the questions. What is the most likely price agreed upon by the cartel? -The perceived demand curve for this oligopolistic firm in a cartel appears kinked because all firms will match price increases but not price decreases. all firms are acting like perfect competitors. of the prisoner's dilemma outcome. all firms will match price decreases but not price increases.

-$70 -all firms will match price decreases but not price increases.

-Suppose the country of Lilliput exported $161 billion$161 billion worth of goods and imported $409 billion$409 billion worth of goods in the last calendar year. Calculate Lilliput's net exports. $$ billion -Lilliput is running neither a trade deficit nor a trade surplus.a trade deficit.a trade surplus.

--248 (negative) -a trade deficit.

- graph 49 he graph shows the cost curves of an individual firm in a perfectly (or purely) competitive industry. Use the line labeled Supply to trace out the firm's short‑run supply curve. - What is the minimum quantity this firm will produce in the short run? 3 units 18 units 12 units 6 units -In the long run, the firm will shut down if the market price stays below $12 $9 $6 $2

-12 units -$9

-graph 161 Suppose that Kim and Nene are both in the public eye. They get offers to sell secrets of the other to tabloids. If both keep the secrets, they are both better off than if they get exposed. If only one is exposed, the other person is better off than if no one was exposed. Their payoffs from each option are given in the payoff matrix. Suppose that Nene and Kim play the game over four television seasons, where each season is a new game. Consider the scenarios. Remember, a tit‑for‑tat strategy is one where the person starts by cooperating and then plays whatever strategy the other firm played last. -Over four seasons, how much will Nene make if she and Kim both play tit‑for‑tat? -Over four seasons, how much does Nene make if she always exposes and Kim plays tit‑for‑tat? -Over four seasons, how much will Nene make if she plays a tit‑for‑tat strategy and Kim always exposes? -Over four seasons, how much will Nene make if she and Kim both always expose?

-32 -25 -17 -20

-graph 103 Captain Catahoula and Bow Wow Wonder are two of the four firms in the dog food industry. Before they notify the Federal Trade Commission and The Department of Justice of their plans to merge, Captain Catahoula hires you to determine the concentration of this industry. FirmIndustryBow Wow Wonder10%Waggin' Tails40%40%Mongrel Munchies10%10%Captain Catahoula40% -Use the table to calculate the Herfindahl‑Hirschman Index (HHI) for this dog food industry. HHI: -What is the HHI for this dog food industry?moderately competitiveuncompetitivecompetitive

-3400 HHI=(𝑆1)2+(𝑆2)2+(𝑆3)2+...+(𝑆𝑛)2HHI=(S1)2+(S2)2+(S3)2+...+(Sn)2 Square each of the market shares separately then add them together. (10×10)+(40×40)+(10×10)+(40×40)=3400 -uncompetitive

-graph 167 -Consider a hypothetical demand schedule for monosodium glutamate (MSG). Suppose that Ajinomoto holds 50% of the market, Jiali holds 30% of the market, and Quingdao holds 20% of the market. Suppose the three firms agree to form a cartel to fix production of monosodium glutamate. Assume marginal cost equals zero, and the output is split equally across the firms. -What quantity maximizes the cartel's profit? 300 million pounds 110 million pounds 90 million pounds 20 million pounds -Suppose Ajinomoto's marginal cost remains equal to zero, but for Jiali and Quingdao, marginal costs rise above zero. -How would this affect the incentive of Ajinimoto to act noncooperatively and change its output?Ajinomoto will have an incentive to increase its output of MSG.Ajinomoto will have an incentive to decrease its output of MSG.Ajinomoto will not have an incentive to change its output.

-90 million pounds -Ajinomoto will have an incentive to increase its output of MSG.

The table shows the sales of the 6 largest producers of paper and the sales of all firms in the paper industry. FirmSales (thousands of $)1159213531134135763Total sales in the industry451 -What is the four-firm concentration ratio for the paper industry? ____% -Based on the four-firm concentration ratio, the paper industry is best characterized asmonopoly.perfect competition.oligopoly.

-93.1% 𝐹𝐹𝐶𝑅=(159+135+113+13451)×100%=93.1% -oligopoly.

Determinants of Price Elasticity of Demand

-Availability of substitutions: More substitutes= more elastic quantity demanded -How necessary a product is: More necessary= lower prices of elasticity -The amount of spending on an item of customer total income: More spent= greater price of elasticity demanded -Consumer expectations about future prices. -Time span over which consumer reactions are measured

-How is the issue of raising capital a natural barrier to entry for new firms seeking to enter a market?Banks rarely lend to individuals seeking to open a small business.Banks and venture capital companies are unlikely to lend to firms with little chance of competing against established businesses.It takes several years to save enough capital to fund a new venture.Banks and venture capital companies are unlikely to lend to new ventures as their capital is already committed to established companies. -Which of these factors will increase the chance of a new firm securing capital?

-Banks and venture capital companies are unlikely to lend to firms with little chance of competing against established businesses. -high chance of success

Whenever a new innovation such as a motorized hoverboard or a new rental scooter program is launched, one firm will generally enjoy market power for an initial period. However, it doesn't take long before competition enters. -Why are barriers to entry important in maintaining a monopoly?Because barriers to entry allow innovators to decrease average total cost as production increases.Because barriers to entry allow innovators to become price takers.Because barriers to entry give innovators market power and control over price.Because barriers to entry give innovators control over a significant factor of production. -Why are monopolies in a high‑tech field, such as consumer electronics, often short‑lived? Because shortly after a new electronic product appears, other firms often introduce similar, though not identical, products to compete for profits. Because high‑tech monopolists earn normal profits and leave the market. Because copyright protection does not apply to high‑tech products. Because patents are valid for only one year, and competing firms start producing the new product as soon as the patent expires.

-Because barriers to entry give innovators market power and control over price. -Because shortly after a new electronic product appears, other firms often introduce similar, though not identical, products to compete for profits.

Please answer the questions about cartels and the specific case of the Organization of the Petroleum Exporting Countries (OPEC). -a. Which statement is generally true of cartels?Cartels never stick to their agreed‑upon quotas.In the United States, cartel members can legally meet to set prices.Cartels usually raise prices by expanding output.Cartels collude to raise prices and profits. -Which statement is true of OPEC? OPEC sets production quotas in order to restrict supply. Saudi Arabia is an occasional and minor player in OPEC. The United States is a leading member of OPEC. OPEC includes only nations from the Middle East.

-Cartels collude to raise prices and profits. -OPEC sets production quotas in order to restrict supply.

-graph 145 Supersubs and Hotwich are the only two sandwich shops in town. They have differentiated their products so that Supersubs sells cold sub sandwiches and Hotwich sells hot sandwiches. At any given time, however, Supersubs could expand its selection by purchasing a toaster and Hotwich could also easily start offering cold sandwiches. Refer to the game for the expected payoffs of their possible choices. -What is the unique equilibrium outcome for a one-time game? C A B D -Suppose now that this is a repeated (infinitely) game. A consultant with a business degree advises Supersubs to expand its selection to increase profits. Another consultant with an economics degree argues against this strategy. -Why is the economist likely to have the stronger argument?Hotwich is likely to engage in a tit-for-tat strategy which will lead to lower payoffs over time than cooperating.Outcome A is the most equitable outcome.The threat by Hotwich to expand its selection is not credible.Outcome A is not sustainable in a repeated game under any circumstances.

-D -Hotwich is likely to engage in a tit-for-tat strategy which will lead to lower payoffs over time than cooperating.

-graph 153 EuroRail and SwissRail are hypothetical railways that have a duopoly on the route that connects the cities of Zurich and Munich. Both are considering adding an additional daily train to this route. The payoff matrix shows the payoffs for each railway, where Eurorail's payoffs for each outcome are listed first in each cell. Assume that both companies have complete knowledge of the other's payoff matrix. -Select the answer that best describes the strategies in this game.EuroRail's dominant strategy is to not add the train, whereas SwissRail's dominant strategy is to add the train.EuroRail's dominant strategy is to add the train, whereas SwissRail does not have a dominant strategy.Neither company has a dominant strategy.Both companies dominant strategy is to add the train. -Does a Nash equilibrium exist in this game?Yes, it exists in the lower left quadrant.Yes, it exists in the upper left quadrant.Yes, it exists in the upper right quadrant.No, it does not exist.

-EuroRail's dominant strategy is to add the train, whereas SwissRail does not have a dominant strategy. -Yes, it exists in the upper right quadrant.

One way of assessing market structure is the use of concentration indexes. Two popular concentration indexes are the four-firm concentration ratio and the Herfindahl-Hirschman Index (HHI). Use the information in the table to answer the questions. FirmTotal RevenueCalliopes$8000LaRosas$5000PJs$6500Dons$700025 other smaller firms$50 (each) -Calculate the four-firm concentration ratio (FFCR). FFCR = %% -Calculate the HHI value. HHI = -Based on the four-firm concentration ratio and the HHI, what is the market structure of this industry?monopolistic competitionoligopolymonopoly

-FFCR = 95.5% -HHI =2341.5 -oligopoly

Brandon and Lan just purchased a piece of land and a tractor. They plan to start growing and selling organic kale. They have heard that the market for organic kale is perfectly competitive. What does that mean in terms of long‑run profit?Firms will earn zero economic profit in the long run.Firms will earn zero accounting profit in the long run. Firms will earn negative economic profit in the long run. Firms will earn positive economic profit in the long run. -Brandon and Lan want to know the quantity they should produce to maximize profit. As their economic advisor, you recommend that they produce until price falls below average variable cost. produce until marginal revenue is equal to price. produce until marginal cost is equal to marginal revenue. produce as much as possible, regardless of cost.

-Firms will earn zero economic profit in the long run. -produce until marginal cost is equal to marginal revenue.

-Graph 97 Happy Go Lucky Electric Company is the only company providing electric power to the city of Go Lucky. The accompanying graph depicts their marginal costs (MC), average total costs (ATC), demand (D), and marginal revenue (MR). a. Move point E to the firm's profit maximizing price and quantity. b. At the profit maximizing point, what is Happy Go Lucky's level of profit? Price and Costs ($/unit)Quantity05101520253035404550012345678910DMRMCATCE -Happy Go Lucky's profit is -$30$30.$150$150.$90$90.$30$30

-Graph 97 -$30

-graph 23 The production possibilities frontier (PPF) for Honduras and Brazil, representing hypothetical levels of production, are shown in the graphs. Assume that, without trade, each country is initially producing and consuming at point A on its PPF curve. Suppose these countries decide to trade. Each country will specialize in the production of the good for which it has a comparative advantage. -Which good will each country produce? Honduras will produce bananas and Brazil will produce steel. Honduras will produce steel and Brazil will produce bananas. Honduras will produce both bananas and steel. Brazil will produce both bananas and steel.

-Honduras: post- trade consumption (4,2) - Brazil: post-trade consumption (5,6) -Honduras will produce bananas and Brazil will produce steel.

-graph 79 -Demand and supply are initially at D0 and So, as shown in the graph. Demand increases, and new firms enter the industry; therefore, in the long run, demand and supply move to D1 and S1. The long‑run industry supply curve is SLR. -Using the information in the graph, what conclusion can be drawn? Without question, this industry has experienced economies of scale as it expanded. In the long run, industry costs have increased. In the long run, industry costs have remained constant. In the long run, industry costs have decreased.

-In the long run, industry costs have increased.

-graph 98 The graph shows the demand curve faced by a pure monopolist. Move the interactive point to identify where marginal revenue (MR) is equal to marginal cost (MC) for this monopolist and answer the questions. -What is the monopolist's profit‑maximizing price and output? -price: $____ -output:____units -Are positive long‑run profits possible under this market structure? Long run economic profits will be zero. Positive long run economic profits are possible if barrriers to entry remain high. Positive long run economic profits are definite.

-MR=MC (2,400) -$6 -400units -Positive long run economic profits are possible if barrriers to entry remain high.

Suppose that the price of corn, a crop produced in a perfectly (or purely) competitive industry, increased 208% last year as demand for corn‑based ethanol fuel increased. -What do you expect to happen in the long run for the corn industry given this recent success?The price per bushel of corn will continue to increase, yielding higher profits. Thus, more firms will enter the market indefinitely.Profits will become negative due to overfarming, which will result in the corn farming industry going under.Profits will be equal to zero.None of the above. Suppose the firms in the market for bacon, also a perfectly (or purely) competitive industry, experienced losses last quarter due to people becoming increasingly concerned about how high-fat diets negatively impact health. -What do you expect to happen in the long run for the bacon industry?Seeing this as an opportunity to monopolize a fledging industry, firms will enter the industry, shifting supply to the right.Profits will remain negative, which will result in the closing down of the industry as a whole.Profits will be equal to zero.None of the above.

-Profits will be equal to zero. -Profits will be equal to zero.

-graph 100 The graph illustrates a monopoly with constant marginal cost and zero fixed cost. Place the shapes on the graph to show the profits and deadweight loss (DWL) for this firm. -The firm's profits are economic. accounting. both; these are the same for monopolies. -In the long run, economic profits for this monopoly will be increasing. zero. positive. negative.

-Profts& DWL graph 100 -economic -positive

- mirar foto de graph The accompanying table gives the supply and demand for orchid leis in Hawaii. Now assume that severe monsoons and civil unrest in Thailand lead to a reduction in orchid production by an amount equivalent to 8,000 orchid leis supplied at every price. Using this new information, indicate the following: -Quantity supplied at a price of $5:___ thousand -Quantity supplied at a price of $10:___ thousand -Quantity supplied at a price of $15:___ thousand -The new equilibrium price is ____ per lei, and the new equilibrium quantity is ___thousand.

-Quantity supplied at a price of $5: 8 thousand -Quantity supplied at a price of $10: 12 thousand -Quantity supplied at a price of $15: 16 thousand -The new equilibrium price is $10 per lei, and the new equilibrium quantity is 12 thousand.

-Graph 35 -The graph depicts the long‑run average total cost curve (LRATC) for a firm and some possible short‑run average total cost curves (SRATC). -Given the LRATC curve, which SRATC curve could NOT be part of the firm's cost structure?SRATC 1SRATC 3none of theseSRATC 2all of these -Which of the three types of scale does the LRATC curve exhibit between points A and B?constant returns to scaleeconomies of scalediseconomies of scale

-SRATC 2 -economies of scale

-graph 163 the accompanying payoff matrix presents the profits for Firm A and Firm B under two pricing strategies. Suppose both firms have agreed to employ strategies that maximize their combined profits. How will the firms act? -Firm A will Set a low priceSet a high price -Firm B will Set a high priceSet a low price Compare the profits of Firm A when both firms respect the collusive agreement to the profits of Firm A when Firm A secretly cheats on the agreement. How much additional profit would Firm A earn by secretly cheating on the agreement to collude? Round your answer to the nearest whole number. -Firm A's additional profit when cheating: $ Compare the profits of Firm A when both firms respect the collusive agreement to the profits of Firm A when both firms cheat on the agreement. By how much would the profit of Firm A fall if both firms cheat on the agreement to collude? Round your answer to the nearest whole number. -Firm A's lost profits when both cheat: $

-Set a high price -Set a high price -18 -12

-Which statement best explains why consumers might benefit more from monopolistic competition than perfect competition? The benefits of having more variety offsets the losses from productive and allocative inefficiencies. The balance between marginal cost and price in monopolistic competition ensures that the optimal level of output will be produced. The demand curve for a monopolistically competitive firm follows the law of demand, but the demand curve for a perfectly competitive firm does not. Monopolistic competitors will use fewer resources per unit of output than perfect competitors, so overall output will be maximized.

-The benefits of having more variety offsets the losses from productive and allocative inefficiencies.

Which of the given factors is an assumption of perfect competition? There are a large number of producers in the market. Firms have price setting power. There are high barriers to entry. Firms sell differentiated goods.

-There are a large number of producers in the market.

-graph 162 The payoff matrix represents hypothetical profits that could be earned by two milk sellers who have formed a cartel. Each seller must decide whether or not to cheat on the production quotas in the cartel agreement. Use the payoff matrix to answer the questions. -Does either member have an incentive to cheat?Heifer's Gold will cheat, but Milky Moos will not.No, neither has an incentive to cheat.Yes, both will cheat.Milky Moos will cheat, but Heifer's Gold will not. -b. How does cheating impact the other cartel member?Cheating helps the other cartel member by increasing its profits.Cheating hurts the member who does not cheat by decreasing its profits.Cheating does not impact the other member.

-Yes, both will cheat. -Cheating hurts the member who does not cheat by decreasing its profits.

-graph 160 McLaren and Ferrari are competing for the Formula One Constructors' Championship and are deciding whether to increase their spending on their aerodynamic (aero) development. The matrix displays the payoffs to the team that result from each possible choice. Note that, due to other factors, the payoffs are not symmetrical. Assume that each team's goal is to earn as many points as possible. -Does McLaren have a dominant strategy? If so, what is it?Yes. Their dominant strategy is to increase aero development spending.Yes. Their dominant strategy is to leave aero development spending unchanged.No, they do not have a dominant strategy. -Does Ferrari have a dominant strategy? If so, what is it?Yes. Their dominant strategy is to leave aero development spending unchanged.No, they do not have a dominant strategy.Yes. Their dominant strategy is to increase aero development spending.

-Yes. Their dominant strategy is to increase aero development spending. -No, they do not have a dominant strategy.

Suppose each member of a diamond cartel consisting of five producers agrees to sell 100 carats of diamonds per day. A total of 500 carats are sold each day. If the market price is $1,000/carat, each firm earns $100,000 per day. Now suppose that one producer cheats by producing 110 carats, causing the market price of the new output of 510 carats to drop to $980/carat. -a. The cheating firm's total revenue changes -to , -a -of . -b. The total revenue of each of the remaining four firms changes -to , -a -of . -c. Suppose the four noncheating firms change course and all produce 110 carats, and the market price of the new output of 550 carats drops to $850/carat. Each firm now earns per day. -d. The foregoing developments give rise to a Prisoner's Dilemma.TrueFalse

-a -107,800 -rises -7800 -b -98,000 -fall -2000 -c -93500 -d -true

-An oligopoly arises when ____ have all or most of the sales in an industry. If oligopolists with the same marginal costs and no fixed costs compete against each other in price, it leads to all firms _____. -b. If oligopolists cooperate, they can act_____as resulting in ___. -c. Which factors have the potential to develop an oligopolistic market?identical productslow costs of entryhigh economies of scalethe granting of a limited number of patents -d. Which situations would most likely result in an oligopolistic market?local market for internet serviceslocally regulated water marketmarket for applesretail clothing market

-a few large firms -marking zero profits -a monopoly -higher prices and profits -high economies of scale -the granting of a limited number of patents -local market for internet services

Mr. Gizmo, owner and CEO of Gizmos Incorporated, notices that, while people can be prevented from using gizmos, gizmos also exhibit simultaneous (nonrivalrous) consumption. Gizmos Incorporated, is most likelya natural monopoly.producing at the minimum point on its ATC curve.a firm in perfect competition.a public good. -Which of the statements is definitely true of Gizmos Incorporated? Start-up costs were low, but now marginal cost is very high. The firm has large economies of scale. The firm will never need to worry about X-inefficiencies. Gizmos do not have network effects.

-a natural monopoly. -The firm has large economies of scale.

Increased trade tensions between the United States and China in recent years have led to tariffs (taxes) being placed on many U.S. agricultural products sold to China. If many of these products are in a perfectly competitive industries, -a. what will happen to the demand and the market price?Demand will increase, and the market price will fall.Demand will decrease, and the market price will fall.Demand will not change, and the market price will not change. -how will producers be affected in the short run and long run? In the short run, firms' profits will increase. In the long run, new firms will enter the industry. In the short run, firms' profits will decrease. In the long run, some firms will exit the industry. In the short run, firms' profit will not change. In the long run, firms will neither enter nor exit the industry.

-a)Demand will decrease, and the market price will fall. -In the short run, firms' profits will decrease. In the long run, some firms will exit the industry.

How might an industry's costs change in the long run? -a. Costs may decrease due todiseconomies of scale.constant returns to scale.re‑economies of scale.economies of scale. -b. Costs may increase becausein the long run, price is always equal to average total cost.an expanding industry bids down resource or input costs.an expanding industry bids up resource or input costs.profits can only be made in the long run.

-a)economies of scale. -b)an expanding industry bids up resource or input costs.

-graph 71 The accompanying graph depicts the cost curves of an individual firm in a perfectly (or purely) competitive industry. a.The accompanying graph depicts the cost curves of an individual firm in a perfectly (or purely) competitive industry. -a. Use the line labeled 'Supply' to trace out the firm's Short-Run supply curve. -b. What is the minimum quantity this firm will produce in the short run? -c. In the long run, the firm will shut down if the market price stays below

-a)graph 71 -b)12 units -c)$9

-graph 92 Use the information about this hypothetical firm's average total cost curve (ATC) in the graph below to answer the questions. If the firm is monopolistically competitive, place point A at the point at which it will operate to maximize long-run profits. -The firm under estimated its future level of output. is perfectly competitive but focuses on market share as opposed to profit maximization. is monopolistically competitive, but has become complacent. is perfectly, or purely, competitive, but has become complacent.

-is monopolistically competitive, but has become complacent.

-graph 170 Tyler and Pam are arrested and charged with armed robbery. The police interview both suspects separately about their involvement in the crime. The table shows the sentences that Tyler and Pam will receive given their choices. Use the table to answer the three questions. -If Tyler trusts Pam to remain silent, what should he do to minimize his sentence? Tyler should -. If Tyler thinks Pam will confess, what should he do to minimize his sentence? Tyler should -What will be the dominant strategy outcome for Tyler and Pam? The dominant strategy outcome isPam gets 5 years whereas Tyler gets 15 years.Tyler gets 5 years whereas Pam gets 15 years.they both get 10 years.they both get 12 years.

-confess -confess -they both get 12 years.

-graph 134 Consider the demand curve for a colluding oligopoly cartel. All cartel members are suppose to produce a quantity of 20,000 pounds of goods and sell it at a price of $500 per unit (enforced cooperation). Adjust the bottom right point of the demand curve (if necessary) to show any changes to the demand curve as a result of enforced cooperation. -Why does this change (if any) occur to the demand curve for a forced cooperation oligopoly? No change occurs to the demand curve. If one member of the cartel raises output and lowers prices, the rest of the cartel will also slash prices. Due to other cartel members not slashing prices when one firm slashes prices, it creates a reverse kink. If one member of the cartel raises prices, other members will also raise prices.

-demand 30,000 -If one member of the cartel raises output and lowers prices, the rest of the cartel will also slash prices.

Suppose monopolistically competitive firms are earning economic profits in the short run. In the long run, firms will ______enter the industry, ____reducing the demand faced by each firm until all firms are earning normal profits.

-enter -reducing

-graph 40 Assume there is price taking in the market for apples. SRS is the short-run supply curve and LRS is the long-run supply curve. a. Carl, an apple farmer, creates a 100% organic apple juice drink. After initial tasting, the demand increases, to the delight of apple farmers everywhere. Please shift the appropriate curve(s) in the graph for the apple market in the short run, when demand increases and existing farmers increase production of apples as much as they can to meet the increased demand. b. Next, shift the appropriate curve(s) in the graph to reflect the situation after new farmers have entered or left and the market is again in long run equilibrium. -At this point, farmers will produce at MC < ATC. farmers will make zero accounting profit. farmers will produce at MC > ATC. farmers will produce at MC= ATC.

-farmers will produce at MC= ATC.

- graph 37 The graph depicts the perfectly competitive apple market, where SRS is the short‑run supply curve, and LRS is the long‑run supply curve. Suppose that a new 100% organic apple juice drink comes on the market. After initial market testing, demand for the beverage soars, to the delight of apple farmers everywhere. Shift the appropriate curve or curves in the graph for the apple market in both the short and long run. - Initially, the existing farmers increase production of apples to meet the increased demand. After new farmers have entered and the market is again in long run equilibrium,farmers will make zero accounting profit.farmers will produce at MC=ATCMC=ATC .farmers will produce at MC>ATCMC>ATC .farmers will produce at MC<ATCMC<ATC .

-farmers will produce at MC=ATCMC=ATC .

U.S. fast‑food chains often alter their menus or business practices to accommodate local tastes and customs when operating in other countries. One reason for this may be that U.S. companies do not want to go against cultural norms or offend their customers when operating overseas. To a certain extent, U.S. companies wish to fit in to the cultures where they are selling their products. Given this, consider why they do not simply offer the exact same menu items offered by local competitors in each market that they serve. -a. Some degree of product differentiation is necessary togain market share.avoid a Prisoner's Dilemma.open a business in a foreign country.anticipate the actions of competing firms. -b. From the perspective of the consumer, product differentiation has

-gain market share. -both benefits and costs

-graph 130 -These profits are economic. accounting. economic and accounting, which are the same for monopolies. -In the long run, economic profits for this monopoly will be positive. zero. negative. increasing.

-graph 130 profits&DWL -economic. -positive

-Graph 69 -Papa Mel's is an alfalfa farm in a perfectly competitive industry. The market demand and supply for alfalfa is shown in the market graph. Based on this information, move the line segment in Papa Mel's graph to show the correct placement of the demand curve for Papa Mel's alfalfa, then answer the question. The market graph is for reference and it is not graded. -What is Papa Mel's profit‑maximizing level of output? 6 bales 8 bales 3 bales 5 bales

-graph 69 - 6 bales

-graph 81 Consider the graphs of a constant cost industry and a perfectly competitive firm within it. Initially, the industry is in long‑run equilibrium at point E, then demand shifts from Demand1 to Demand2. Answer the questions where P is the price, MR is the marginal revenue, AR is the average revenue, MC is the marginal cost, SRATC is the short‑run average total cost, and LRAC is the long‑run average total cost. -Manipulate both of the graphs to reflect the adjustments that yield the long‑run equilibrium. Price ($)Quantity (in thousands)0102030405060708090100012345678910SupplyDemand1Demand2E Price per unit ($)Quantity0102030405060708090100012345678910P=MR=ARLRACSRATCMC -The demand shift results ina short‑run economic proft of 0.a short‑run economic loss for the firm.a short‑run economic profit for the firm.a long‑run economic profit for the firm. -Long‑run equilibrium is restored in this industry whenshort‑run economic losses cause resources to flow to other industries. In the long run, firms exit the industry, reducing market price and driving economic profit to 0. Long‑run equilibrium is restored when P=LRAC=SRATC=MCP=LRAC=SRATC=MC .short‑run economic profits attract resources. In the long run, firms enter the industry, reducing market price and driving economic profit to 0. Long‑run equilibrium is restored when P=LRAC=SRATC=MCP=LRAC=SRATC=MC .short‑run economic losses attract resources. In the long run, firms enter the industry, increasing market price and driving economic profit to 0. Long‑run equilibrium is restored when P=LRAC=SRATC=MCP=LRAC=SRATC=MC .short‑run economic profits attract resources. In the long run, firms enter the industry, reducing market price and driving economic profit to 0. Long‑run equilibrium is restored when P>LRAC=SRATC=MCP>LRAC=SRATC=MC .

-graph 81 -a short‑run economic profit for the firm. -short‑run economic profits attract resources. In the long run, firms enter the industry, reducing market price and driving economic profit to 0. Long‑run equilibrium is restored when P=LRAC=SRATC=MCP=LRAC=SRATC=MC .

-graph 94 -The accompanying graph depicts the market demand curve faced by a hypothetical cartel operating in the US. Use the graph to highlight the area that represents the profits earned by the cartel. -If the US government decides to break up the cartel, under which of the following pieces of legislation could the cartel be prosecuted? The Glass Stegall Act The Sherman Antitrust Act The First Amendment The Dodd Frank Act

-graph 94: Cartel profits (40-70,0-3) -The Sherman Antitrust Act

-graph 152 The graph shows the costs, revenue, and demand facing a monopolistically competitive firm. Refer to the graph to answer the three questions. -The area covered by rectangle C D F E is the firm's total cost. total revenue. profit. None of the above -The area covered by rectangle A B D C is the firm's total cost. total revenue. profit. None of the above. -The area covered by rectangle A B F E is the firm's total cost. total revenue. profit. None of the above.

-total cost. -profit. -total revenue.

There are 38 nearly identical ABC stores within a one-mile radius in Waikiki. The combined size of these 38 stores allows ABC to offer large quantities at favorable prices. Antitrust laws are designed to maintain competition and prevent monopolies from developing. -a. One reason antitrust laws exist is that monopolies tend to produce _____ output and charge____ prices than firms in perfectly competitive industries. -b. ABCoperates as a natural monopoly and is therefore subject to regulation.is subject to price caps, regulating the prices it can charge.operates in a contestable market and is therefore unlikely to charge high prices.has no competition, or threat of competition, which limits its market power.

-less -higher -operates in a contestable market and is therefore unlikely to charge high prices.

A monopolistic competitor wishing to maximize profit will select a quantity wheremarginal revenue equals average cost.marginal revenue equals marginal cost.marginal cost equals average cost.marginal cost equals demand. -If a firm is producing a quantity where marginal revenue exceeds marginal costs, the firm should existing levels of production in order to

-marginal revenue equals marginal cost. -expand -increase profitiblity

- graph 47 The graph shows the marginal cost (MC), average total cost (ATC), and marginal revenue (MR) curves for a perfectly competitive firm. Note that for perfectly competitive firms, the demand (D) curve is the same as the MR curve. Assume that the cost curves are representative of other firms in the industry. -Given the current price, this firm will earn a zero economic profit. negative economic profit. positive economic profit. -In the long run, firms will enter the market. exit the market. -Over time, the price of the product will rise. stay the same. fall.

-negative economic profit. -exit the market. -rise

Consider two rival firms competing in the headphone market. Which of the following product mix decisions are most likely, according to the relevant economic theory? -The two firms willmake different types of products at varying levels of quality to differentiate themselves as much as possible.attempt to imitate one another as closely as possible.offer similar types of products but differentiate based on product quality, features offered, and availability.offer different product types but manufacture them to similar levels of quality. -Which concept best explains why the firms will behave in this way?First-mover disadvantageHotelling's location modelFirst-mover advantageStrategic entry deterrence in contested markets

-offer similar types of products but differentiate based on product quality, features offered, and availability. -Hotelling's location model

- graph 20 -The figure depicts the marginal damage cost (MDC) and marginal abatement cost (MAC) of pollution emissions. Move the point, P, to the point representing the optimal level of pollution. What is the optimal quantity of pollution? -The optimal quantity of pollution is not zero because the marginal damage cost of pollution exceeds the marginal abatement of pollution at zero metric tons of pollution. the marginal damage cost of pollution equals the marginal abatement of pollution at zero metric tons of pollution. the marginal abatement cost of pollution exceeds the marginal damage cost of pollution at zero metric tons of pollution.

-p=(5,500) -optimal quantity of pollution: 5 metric tons -the marginal abatement cost of pollution exceeds the marginal damage cost of pollution at zero metric tons of pollution.

Vamplife is a company that produces blood for vampire consumption. In this market, assume that there are many firms, entry and exit is relatively easy, and firms sell a homogeneous product. -Vamplife is a firm in which market structure? perfect competitionmonopolistic competitionmonopolyoligopoly Refer to the table to determine how many gallons of blood Vamplife should produce in order to maximize profit. Gallons of bloodTotal costTotal revenue0250150120280240319036043404805500600 -Enter the answer as a whole number. number of gallons: gal

-perfect competition -3gal

- graph 66 Consider the graph, which depicts a single competitive firm that wishes to maximize profits given its costs of production. a. What is the profit‑maximizing rule for this firm? -A profit‐maximizing firm willmaximize profits at any output for which the marginal cost curve is below marginal revenue.raise prices to the highest point on the marginal cost curve.produce a level of output such that marginal revenue exceeds marginal cost.produce a level of output such that marginal revenue equals marginal cost. b. At which level of output will this firm maximize profits? Output: units

-produce a level of output such that marginal revenue equals marginal cost. -7units

-graph 74 -Rambutan is a fruit prized in Eastern Asia for its unique hairy look. Once peeled, it reveals a sweet, slightly sour, grape‑like, gummy‑tasting fruit. Shown is a graph for a perfect or purely competitive rambutan farmer. -this firm is incurring a profit_____. -In the long run, firms will enter____this market. -What is this firm's profit/loss? Round to the nearest penny. -If the market price fell to $9.51$9.51, then this firm would be incurring a loss. this firm would be making an economic profit. this firm would be at its shut down price. this firm would be breaking even (zero profit).

-profit -enter -$14 -this firm would be breaking even (zero profit).

- graph 76 -Rambutan is a fruit prized in Eastern Asia for its unique hairy look. Once peeled, it reveals a sweet, slightly sour, grape‑like, gummy‑tasting fruit. The graph shows the average total cost, marginal revenue, and marginal cost curves of a perfectly or (purely) competitive rambutan farmer. -This firm is incurring a___ -In the long run, firms will ____this market. -What is this firm's profit or loss, rounded to the nearest penny? $ -If the market price fell to $9.51, the firm would incur an economic loss. earn zero economic profit. shut down. earn an economic profit.

-profit -enter -$14.00 -earn zero economic profit.

-graph 157 Coca‑Cola and Pepsi are both releasing a new soda at the same time. Each company is fairly well known, and they are both deciding between pursuing two advertising strategies. Each firm knows that its profits will be affected by its own decision and the decision of the competing firm. The payoff matrix contains the estimated profits for both companies for all possible strategies. Pepsi's profits are in the lower (green) triangle of each cell and Coca‑Cola's profits are in the upper (blue) triangle of each cell. Profits (payoffs) are in millions of dollars. -What is Coca‑Cola's dominant strategy? Coca‑Cola does not have a dominant strategy. strategy 1 strategy 2 -What is the Nash equilibrium in this game? There is not a Nash equilibrium. A C D B

-strategy 2 -D

-graph 122 The accompanying graph represents Hayden's Fro-Yo Emporium, which is the only seller of frozen yogurt in a small college town, showing the marginal cost (MC), average cost (AC), marginal revenue (MR), and demand (D) curves. -How many cups of frozen yogurt should Hayden sell? 𝑞3q3 𝑞4q4 𝑞2q2 𝑞1 -How much should Hayden charge per cup? 𝑝4p4 𝑝2p2 𝑝3p3 𝑝1

-𝑞1 -𝑝4

If a 30% price increase for Product A causes a 10%10% decrease in its quantity demanded, but no change in the quantity demanded for Product B, what is the cross-price elasticity of these goods? Round your answer to one decimal place. - What is the relationship between these goods? complements substitutes no relationship

0 -Because the percentage changes are provided, simply divide the percentage change in the quantity of Product B by the percentage change in the price of Product A. cross-price elasticity=0/30% = 0 -No relationship

Given the information from the previous questions, calculate your elasticity of demand for wine over these two prices (see the midpoint method in Chapter 5). The elasticity of demand is0.2862.330.43−0.667

0.43

Classifications of Price Elasticity of Demand: 1. Elastic 2. Unitary Elastic 3. Inelastic

1. The percentage change in demand is greater than the percentage change in price i.e. if there is a greater change in demand there is a small change in price. EP>1 2. The percentage change in quantity demanded is equal to the percentage change in price. EP=1 3. The percentage change in quantity demanded is less than the percentage change in price i.e. if there is a small change in demand with a greater change in price. EP<1

Economic Resources

1. Land: natural resources. Since "land" is considered to be fixed, the return to land is called "rent" 2. Capital or Investment Goods: Machinery, tools, buildings. Return to capital is called "interest". 3. Labour: Human workers. Return to labour is called "wages" 4. Entrepreneurship: the innovation that creates new businesses and products. Return to entrepreneurship is "profit".

Fundamental Economic Questions

1. What is to be produced? 2. How is it going to be produced 3. For whom is it to be produced? 4. What about economic growth?

Production Possibilities Curve: 1. What is it? 2. What does the point inside represent? 3. What does the point outside represent? 4. What might cause it to shift? 5. What does the shift represent? 6. What is the law of increasing opportunity cost?

1. a curve depicting all maximum output possibilities for two goods, given a set of inputs consisting of resources and other factors. 2. The point inside means that the goods/resources are not being used efficiently which leads to unemployment 3. The point outside represents a combination of goods that are not attainable. 4. Anything that causes economic output to increase or decrease will cause a shift. 5. It represents a change in the economic output. 6. Once all factors of production (land, labor, capital) are at maximum output and efficiency, producing more will cost more than average. As production increases, the opportunity cost does as well.

According to the By the Numbers graph, the annual growth rate in demand for electricity per capita has fallen over the past half-century but has remained positive nearly every year. Actual electricity demanded per capita grew in all of the following years except2005-20101980-19852010-20151965-1970

2010-2015

Regulation is most likely to occur in a market with a Herfindahl-Hirschman Index (HHI) of 510002500100

2500

- graph 42 the accompanying graph shows the marginal cost, average total cost, and marginal revenue curves for a firm in a perfectly competitive market. What is the output that maximizes the firm's profits? 12 36 28 20

28

- graph 19 The hypothetical city of Hurstville is trying to decide how many city beautification projects should be approved each year. These projects involve planting gardens, commissioning murals, and building fountains. The city has two types of citizens.Type B citizens appreciate beauty more than type A citizens. There is an equal number of each type of citizen. The accopmanying graph depicts each type of citizen's marginal benefit for city beautification projects. The average cost of each project is $400. Use the information in the graph to answer the questions. Use the interactive points to draw the marginal social benefits (MSB) curve. What is the optimal quantity of city beautification projects? -City beautification is a public good because: it is nonrival in consumption and excludable. it is nonrival in consumption and nonexcludable. it is rival in consumption and nonexcludable. it is rival in consumption and nonexcludable.

3 projects -it is nonrival in consumption and nonexcludable.

- graph #12 Demand is unit elastic when quantity is 9 5 between 5 and 9 between 1 and 5 between 1 and 9 1

5

-graph 75 Papa Mel's is an alfalfa farm in a perfectly competitive industry. Use the information in the graphs to answer the question. Note that the scale of the first graph is in thousands of bales. How many bales should Papa Mel produce to maximize his profits? 6 5 8 3

6

- foto de graph Using the table above, which of the following graphs best illustrates the market equilibrium? a b c d

A) intersection @(12,10)

-graph 86 Happy Go Lucky Electric Company is the only company providing electric service to the city of Go Lucky. Demonstrate the five steps to maximizing profit by moving points A, B, C, and D according to the instructions. Place point A on the marginal cost curve where marginal cost equals marginal revenue. Place point B on the 𝑥x‑axis at the output level associated with point A. Place point C on the average total cost curve at that output level. Place point D on the demand curve at that output level. -Use points C and D to determine profit for Happy Go Lucky. $14 $115 $60 $45

A)(2,30) B)(0,30) C)(4,30) D)(6,30) -$60

Marginal Utility

Addition total utility from one more unit. MU= (change in total utility)/(change in quantity)

In 2015, United Airlines and Orbitz Travel sued a 22-year-old person who created the Web site skiplagged.com aimed at helping travelers save money using a technique called "hidden‑city ticketing" (CNN Business, May 1, 2015). Hidden-city ticketing works when a passenger wants to travel nonstop between an airline's major hubs but can find a less expensive fare by booking a connecting flight. The passenger travels on the first leg of the flight and does not take the connecting flight. An example would be a passenger who wanted to travel from Houston to Denver on United Airlines. The website might find a cheaper fair available from Houston to Colorado Springs with a connection in Denver. The passenger can purchase the cheaper flight, fly the first leg, and stay in Denver. Why would an airline charge more for a single flight than one that continues onwards to another destination?Airlines are competitive and believe charging a higher price will cause the other airlines to charge higher prices as well.Airlines charge a higher price because the cost of flying nonstop requires more fuel and maintenance.Airlines charge a higher price for nonstop flights because they face little competition from other airlines that require stops at their own hubs.Airlines prefer that customers take as many flights as possible because they can charge fees for inflight services.

Airlines charge a higher price for nonstop flights because they face little competition from other airlines that require stops at their own hubs.

Alexa, Natalia, and Gabriela are discussing cost curves over a Carmel Rotti Twist at Spike's Coffee Lounge. Alexa contends that an increasing‑cost industry is an industry in which costs rise in the long run as output rises. Natalia believes that an industry can have decreasing costs in the long run as output expands. Gabriela is certain that an industry can expand in the long run even as costs remain constant. Select the most correct statement.Gabriela is the only one who is correct, as constant‑cost industries have costs that are constant in the long run.Alexa and Natalia are both correct, but Gabriela is not.Natalia and Gabriela are both correct, but Alexa is not.Alexa and Gabriela are both correct, but Natalia is not.Alexa is the only one who is correct, as increasing‑cost industries have costs that increase in the long run.Natalia is the only one who is correct, as decreasing‑cost industries have costs that decrease in the long run. Alexa, Natalia, and Gabriela are all correct.

Alexa, Natalia, and Gabriela are all correct.

Surplus

An excess of production or supply over demand.

Giffen Goods

An inferior good with such a large (negative) income effect that the Law of Demand is violated. A product that people consume more of as the price rises and vice versa—violating the basic law of demand in microeconomics.

Normal Goods: 1. Noncyclical Normal Good 2. Cyclical Normal Good

Any goods for which demand increases when income increases, and falls when income decreases but price remains constant, i.e. with a positive income elasticity of demand. If EI>1 then the good is a normal good 1. The quantity demanded goes up by a smaller % than the % increase in income. The basic things we need like underwear or groceries. 0<EI<1 2. The quantity demanded goes up by a bigger % than the % increase in income. These would be luxuries like flat screen TVs, jewelry, eating at high end restaurants, etc. This is very sensitive to the business cycle.

Bree's Bait Shop is a successful store that specializes in highly effective fishing tackle. Bree has employed a high‑tech computer tracking system that allows her to separate her customers into two different groups of consumers with differing price elasticities of demand. Bree is interested in increasing her profits through price discrimination and approaches your marketing firm for advice. Assuming her demand curve is downward sloping, you tell her there is one more crucial piece of information you must have in order to advise her. -What do you ask Bree?What are your variable costs?What is your current output?Are you currently producing where MR=MCMR=MC?Are you able to prevent the resale of your tackle?

Are you able to prevent the resale of your tackle?

Which of the following statements correctly describes the role that easy entry and exit play in competitive markets over the long run? Entry and exit of firms is nonexistent in the long run. Entry and exit of firms allows firms to earn an economic profit in the long run. Entry and exit are important in the long run because firms need competition from other firms to remain in business. As a result of entry and exit, firms earn a normal profit in the long run.

As a result of entry and exit, firms earn a normal profit in the long run.

Law of Diminishing Marginal Utility

As someone consumes/ has more and more units of one particular good, while Total Utility from that good may continue to rise, the Marginal Utility from one more unity will eventually begin to fall.

-Graph 68 Which curve in the graph is the long‑run industry supply curve? cannot be determined B A C

B)

In 2018, two regional airline carriers, Alaska Airlines and Virgin America, agreed to merge into one larger airline under the Alaska Airlines name. Although the merger would reduce the number of airlines serving the U.S. market, and hence raise the HHI, the argument made by Alaska Airlines is that the overall airline industry would become more competitive, not less. Take a look at Alaska Airlines's and Virgin America's old route maps (they can be searched using Google) and compare them to the current Alaska Airlines route map. How might the larger airline be a more competitive player in the airline market?Because a larger airline will shift the airline market into a perfectly competitive market where every firm will be a competitive firmBecause a larger airline will shift the airline market into a monopolyBecause a larger airline can attract more customers and increase its market share to a level similar to that of other leading airlinesBecause the new HHI will be above 2,500

Because a larger airline can attract more customers and increase its market share to a level similar to that of other leading airlines

In nearly every example of demand in this book, a negative relationship exists between the market price and the quantity demanded. Why doesn't this relationship exist for a firm operating in a perfectly competitive market? Because in a perfectly competitive market, each individual firm cannot decide how much of its product to sell. The statement is not true. In a perfectly competitive market, the relationship between the market price and quantity demanded is negative. Because in a perfectly competitive market, each individual firm has some control over the price of its product. Because in a perfectly competitive market, each individual firm does not have the market power to set prices. Each individual firm is a price taker.

Because in a perfectly competitive market, each individual firm does not have the market power to set prices. Each individual firm is a price taker.

Monopolies exist because of barriers to entry, obstacles that prevent other firms from entering an industry and competing for market share. For each case below, indicate which barrier to entry applies. a. Coca-Cola's vast market share in the soft drink market:Economies of scaleBrand loyaltyControl of a resourceNetwork externalitiesLegal barrier

Brand loyalty

Monopolies exist because of barriers to entry, obstacles that prevent other firms from entering an industry and competing for market share. For each case, indicate which barrier to entry applies. a. Coca‑Cola's vast market share in the soft drink market:Control of a resourceNetwork externalitiesBrand loyaltyLegal barrier

Brand loyalty

Which statement is generally true of cartels? In the United States, cartel members can legally meet to set prices. Cartels never stick to their agreed‑upon quotas. Cartels collude to raise prices and profits. Cartels usually raise prices by expanding output.

Cartels collude to raise prices and profits.

Change in Quantity Supplied

Change in the specific quantity of a good that sellers are willing and able to sell.

One can typically find a high-quality color laser printer for $300, which has four pre-installed color toner cartridges that are only half-filled. When the toner is used up, replacing all four cartridges costs over $400. Why would companies charge more to replace the toner than to buy the printer itself?It is harder to distinguish between printer quality than toner quality.It is much more expensive to make toner cartridges than it is to make printers.Companies try to make the same profit from printers as they do from cartridges.Companies have more monopoly power in the toner cartridge market than in the printer market.

Companies have more monopoly power in the toner cartridge market than in the printer market.

Economist argue that consumers are better off when competition is strong and monopolies are limited to certain industries. One reason is the deadweight loss associated with monopoly markets and market power. Which of the following is an example of deadweight loss in monopoly markets?Lack of innovation and technological breakthroughs under monopolistic conditionsGuaranteed economic profit under monopolistic competitionConsumer surplus lost because prices are higher and output is lower under monopolistic conditionsFailure to achieve economies of scale under monopolistic conditions

Consumer surplus lost because prices are higher and output is lower under monopolistic conditions

Law of Demand: 1. Price Effect 2. Substitution Effect 3. Income Effect

Consumers buy more of a good at lower prices than at higher prices. Price and Quantity Demanded are inversely (negatively) related. 1. (change in quantity demanded)/ (change in price). PE= change in quantity/ (over)/ change in price. Price increases, Quantity decreases; Price decreases, Quantity increases. 2. a good is relatively cheaper or more expensive to other goods than before the price changed, so consumers will replace more expensive items with less costly alternatives. Ex: substituting quaker granola bars for great value ones 3. The effect caused by the effect of a change in the price of a good has on our "real" income- our income in terms of what we can buy of goods and services.

Assume that a monsoon destroys the coffee crop in Vietnam, one of the world's largest coffee producers. What will likely occur? The price of sugar and creamer will increase. Consumers will try to find alternatives to coffee due to increases in the price of coffee. People will consume more coffee. There will be no change in the market for coffee.

Consumers will try to find alternatives to coffee due to increases in the price of coffee.

. China's control of the market for rare earths (a group of minerals used to produce electronics): Economies of scale Legal barrier Network externalities Brand loyalty Control of a resource

Control of a resource

China's control of the market for rare earths (a group of minerals used to produce electronics): Economies of scale Legal barrier Control of a resource Network externalities Brand loyalty

Control of a resource

In general, the market demand curve in a perfectly competitive market is perfectly elastic. False True

False

Suppose you master the art of growing herbs in your garden and sell them for a profit at the local farmer's market. Your neighbor sees your profitable business and decides to do the same. However, with less experience, your neighbor faces a much higher marginal cost curve. Assume the market for herbs operates under perfect competition. How is it possible for both you and your neighbor to sell herbs at the same price? It is not possible. Since the neighbor has a higher marginal cost curve, the neighbor has to sell the herbs at a higher price. The neighbor has more friends in the area and so has more customers. Each seller produces the herbs until marginal cost equals the market price. The neighbor has to cut resources to sell the herbs at the same price.

Each seller produces the herbs until marginal cost equals the market price.

What attribute of natural monopolies discourages new entrants? Few barriers to entry Economics of scale Diseconomics of scale Free entry and exit

Economics of scale

The local utility company that can provide electricity to the entire market at a lower average cost than other producers: Control of a resource Network externalities Legal barrier Brand loyalty Economies of scale

Economies of scale

The local utility company that can provide electricity to the entire market at a lower average cost than other producers: Control of a resource Network externalities Legal barrier Economies of scale Brand loyalty

Economies of scale

Which of the statements is true of the long‑run industry supply curve (LRIS)? External diseconomies result in a decreasing cost industry and a horizontal LRIS curve. External economies result in an increasing cost industry and a downward sloping LRIS curve. External economies result in a decreasing cost industry and a downward sloping LRIS curve. Internal diseconomies result in an increasing cost industry and an upward sloping LRIS curve.

External economies result in a decreasing cost industry and a downward sloping LRIS curve.

An individual firm in a perfectly competitive market can obtain a higher price for its product by reducing output. False True

False

An individual firm in a perfectly competitive market must lower its price to sell more of its product. False True

False

Indicate whether each the following statements about taxes is true or false. a. The incidence of a tax is determined by which group (buyers or sellers) must write the check to the government.TrueFalse

False -The incidence of an excise or commodity tax is a measure of who actually bears the economic burden of a tax, not merely who writes the check to the government. If the tax is paid by producers, the value of the tax can be wholly, or in part, passed onto consumers in the form of higher prices. On the other hand, if the tax is paid by consumers, sellers may find that they must reduce the price by at least a portion of the tax. In fact, it does not matter who pays the tax, as the equilibrium quantity and price (including the tax) will still be the same.

. When the price elasticity of demand is low, and the price elasticity of supply is high, the burden of an excise (or commodity) tax falls mainly on producers. False True

False -The relative burden of an excise tax depends on the price elasticity of supply and the price elasticity of demand for the product. If the price elasticity of demand is low, and the price elasticity of supply is high, the burden of a tax falls mainly on consumers. Because consumers are less sensitive to price changes than producers, producers can pass the bulk of the tax onto consumers in the form of higher prices.

Law of Supply

Firms (people) are willing to supply more at higher prices than at lower prices. That means the supply curve has a positive slope- upward.

Complementary Goods

Goods that are used together. The cross price elasticity of demand is less that 0. Ex: cars and gas

Substitute Goods

Goods that can be substituted for another. The cross price elasticity of demand is positive. Ex: cherry coke zero gets substituted by Sam's Cola

The opening of formal Cuban relations with the United States has led to greater trade between the two countries, especially in perfectly competitive products such as sugar, tobacco, and oranges. Explain what is likely to happen in the market for these agricultural products under increased trade with Cuba.Demand will decrease for products such as sugar, tobacco, and oranges.Consumers in the U.S. will not benefit from increased trade because Cuba expects to generate more revenues from trade than the United States.Greater trade between the two countries will lead to lower prices in the market for products such as sugar, tobacco, and oranges.Individual farmers in the United States will produce more agricultural products to stay competitive with Cuba.

Greater trade between the two countries will lead to lower prices in the market for products such as sugar, tobacco, and oranges.

In the Canadian province of Northern Territories in the Arctic, ice roads are an important means of transportation during the winter months. These are pathways for cars and trucks made on frozen lakes enabling trucks to reach remote mines that generate many jobs. However, in 2017, the 248-mile Tibbitt to Contwoyto Winter Road faced a shorter season due to warmer weather that delayed the freezing of the lakes. Moreover, the thawing permafrost surrounding the area releases carbon dioxide and methane trapped underneath, adding greenhouse gases to the atmosphere. Each of the following is an external cost faced by residents of the Northern Territories as a result of climate change except one. -Which is the exception? Higher wages, owing to labor shortages associated with seasonal workers' inability to enter the region during winterHigher costs of travel outside the provinceLoss of work opportunities, arising from the inability of mining firms to transport machinery into the province during winterReduced economic activity in communities closest to the ice roads

Higher wages, owing to labor shortages associated with seasonal workers' inability to enter the region during winter

How can a kinked demand curve indicate that the firms in the oligopoly will continue to behave as a cartel and not have an incentive to deviate from the cartel? If the firms in the oligopoly collude to restrict output, the firms implicitly agree to increase prices if a firm in the oligopoly increases prices. If the firms in the oligopoly collude to restrict output, the firms implicitly agree to cut the quantity produced if a firm in the oligopoly cut prices. If the firms in the oligopoly collude to restrict output, the firms implicitly agree to cut prices if a firm in the oligopoly cuts prices. If the firms in the oligopoly collude to restrict output, the firms implicitly agree to increase quantity if a firm in the oligopoly increases prices.

If the firms in the oligopoly collude to restrict output, the firms implicitly agree to cut prices if a firm in the oligopoly cuts prices.

Which of the statements is true of the prisoner's dilemma? In the game that includes two prisoners, from which this game derives its name, neither prisoner will confess and they will both walk free. In the prisoner's dilemma, firms could do better if they both did exactly the opposite of what they ultimately choose to do. Firms in a repeated game are more likely to fall into the prisoner's dilemma. The prisoner's dilemma is an example of a cooperative equilibrium. One player has a dominant strategy and the other has a mixed strategy.

In the prisoner's dilemma, firms could do better if they both did exactly the opposite of what they ultimately choose to do.

Which of the following is not an explicit cost? Funds used to purchase capital goods Wages paid to employees Interest income forgone to invest in a new business Rent paid on a building used as a retail outlet

Interest income forgone to invest in a new business

Average Revenue

It's the price if all units are sold at the same price. Total revenue divided by the quantity sold (TR/Q)

-graph 85 Consider the three different long‑run industry supply curves (LRIS). -Choose the statement that best describes the type of industry LRIS represents. LRIS2 represents an increasing cost industry. LRIS2 represents external diseconomies. LRIS2 represents a constant cost industry. LRIS1 represents a constant cost industry.

LRIS2 represents a constant cost industry.

What are antitrust laws? Legislation enacted to prevent the encroachment of government into the private sector. Laws governing the management of state-owned enterprises. Laws meant to eliminate collusion and promote competition among firms. Laws meant to protect businesses from unfair treatment from consumers.

Laws meant to eliminate collusion and promote competition among firms.

Pfizer's control of the production of Viagra: Brand loyalty Economies of scale Control of a resource Legal barrier Network externalities

Legal barrier

Pfizer's control of the production of Viagra: Legal barrier Economies of scale Control of a resource Brand loyalty Network externalities

Legal barrier

Positive v. Normative Economics

Positive Economics is objective and fact based. Positive economic statements don't have to be correct, but have to be able to be tested and proved or disproved. Normative Economics is subjected and value based. Normative economics are opinion based so they can't be proved or disproved.

Types of Economic Systems

Market System or Capitalism: Private ownership of resources and the use of markets and prices to coordinate and direct economic activity, Command System or Communism: Government owns most property resources and economic decision making occurs through a central economic plan. Mixed Capitalism: protects private property and allows a level of economic freedom in the use of capital, but also allows for governments to interfere in economic activities in order to achieve social aims.

Which situation gives the best example of a price‑taker as it pertains to perfect competition? Mary Beth grows cotton. She finds that she can always sell her entire crop at the market price. However, if she asks a price that is even slightly higher she cannot sell any of her cotton. Carol sells used furniture. Sometimes customers want to haggle with her over her prices, but she typically responds, "That's the price, hon. Take it or leave it." Bob is having trouble selling his old car. When Cindy offers him $1000 he takes it, even though it is less than he was hoping to get. The city government has set a maximum price Alice can charge for her garage apartment, so she must take that price or not rent it out at all.

Mary Beth grows cotton. She finds that she can always sell her entire crop at the market price. However, if she asks a price that is even slightly higher she cannot sell any of her cotton.

Which of the following companies most closely resembles a monopoly? Walmart Starbucks Microsoft McDonald's

Microsoft

Which firm is most likely to be a natural monopoly? Municipal Power Light, the local supplier of electricity a firm that owns nearly all the diamond mines in the world a restaurant that is unable to practice price discrimination and must charge all consumers the same price a pharmaceutical company that has the exclusive right to sell a patented drug

Municipal Power Light, the local supplier of electricity

Facebook's position in social media: Control of a resource Network externalities Economies of scale Legal barrier

Network externalities

Facebook's position in social media: Legal barrier Economies of scale Control of a resource Network externalities

Network externalities

Poker players are known to bluff once in a while, meaning that they will make a large bet despite holding inferior cards in an effort to pressure other players to fold their hands. Would bluffing be considered a dominant strategy in poker? Yes, because it usually results in a winning hand. Yes, because it is the main strategy used by players. No, because bluffing is usually not successful and is therefore considered a secondary strategy. No, because if a player bluffs on every hand, other players will catch on and call his or her bluff.

No, because if a player bluffs on every hand, other players will catch on and call his or her bluff.

Suppose you work hard building your business and end up earning zero economic profit for the year. Consider how an economist would evaluate your business. a. Is this business failing?No, because the firm would be earning a normal profit.Yes, because the objective of a business is to maximize its profits.No, because most businesses suffer losses in the first year.Yes, because a business must earn an economic profit to remain financially viable.

No, because the firm would be earning a normal profit.

Use the By the Numbers graph to answer the following question. Which region employs the highest number of people in the farm and farm-related industries?Northern CrescentEastern UplandsSouthern SeaboardHeartland

Northern Crescent

Which statement is true of OPEC? OPEC includes only nations from the Middle East. OPEC agreements are enforced by international law. OPEC sets production quotas in order to restrict supply. The United States is a leading member of OPEC.

OPEC sets production quotas in order to restrict supply.

Equilibrium Price and Quantity

Occurs when at the market price, the quantity demanded of a good is equal to the quantity supplied.

Plastic Elasticity of Demand:

One way of measuring the responsiveness of a quantity demanded to a change in the price of a product where both changes are measured in the same kind of units. Ep= (change in Q)/(change in P) x (P1 + P2)/(Q1 + Q2)

Which of the statements is TRUE? Patents give inventors exclusive rights to sell a product for a specific period of time. Copyrights are legal protections that protect a product from being copied by others for a specific period of time. Patents give inventors exclusive rights to sell a product for an unlimited period of time. Copyrights are legal protections that protect a product from being copied by others for an unlimited period of time. Patents give inventors exclusive rights to sell a product for a specific period of time. Copyrights are legal protections that protect a product from being copied by others for an unlimited period of time. Copyrights give inventors exclusive rights to sell a product for an unlimited period of time. Patents are legal protections that protect a product from being copied by others for an unlimited period of time. Copyrights give inventors exclusive rights to sell a product for a specific period of time. Patents are legal protections that protect a product from being copied by others for a specific period of time.

Patents give inventors exclusive rights to sell a product for a specific period of time. Copyrights are legal protections that protect a product from being copied by others for a specific period of time.

Which of the following is not an implicit cost? The salary an entrepreneur forgoes to found a new business Payments for raw materials The return an investor foregoes by purchasing a stock fund rather than a bond fund Depreciation

Payments for raw materials

Cross Price Elasticity of Demand

Percent change in the quantity of one good with respect to the % change in the price of another good. Calculation Formula: Exy= (change in quantity)/(change in price) x (Price1 + Price2)/(quantity1 + quantity2)

Sally is a monopolist who owns the only cake shop in town. At a quantity of 20 cakes, the marginal cost of producing one more cake is $12, while the marginal revenue from selling one more cake is $10. To maximize profits, should Sally increase or decrease output? Should she increase or decrease price?She should increase output and increase price.She should decrease output and increase price.She should decrease output and decrease price.She should increase output and decrease price.

She should decrease output and increase price.

Demand Function

Shows relationship between the quantity demand of something and the things that affect it. Example: Quantity demanded of a Samsung is affected by the price, quality, prices of similar phones, advertising, income, recent technological advances, etc.

Supply Curve

Shows the relationship between quantity supplied of something and its price, everything else is held constant.

Demand Curve

Shows the relationship between the quantity demanded of a good and its own price. Everything else in the demand function is held constant.

Supply Function

Shows the relationship between the quantity supplied of something and things that affect it.

Which of the choices describes how the effects of import tariffs and import quotas are different? Import tariffs create deadweight loss, whereas import quotas do not create deadweight loss. Some foreign producers receive some of the benefits generated by an import quota. The domestic cost of an import tariff is larger than the domestic cost of a comparable import quota. Quotas do not affect the equilibrium price, whereas tariffs do not affect the equilibrium quantity.

Some foreign producers receive some of the benefits generated by an import quota.

Identify the first antitrust law and its purpose. The Clayton Act of 19501950 toughened restrictions on mergers by prohibiting any merger that leads toreduced competition. The Sherman Act of 18901890 prohibits price fixing, collusion, and monopolization. The Clayton Act of 18901890 prohibits firms from owning stock in competing firms. The Robinson-Patman Act of 19361936 prohibited anticompetitive price discrimination. The Federal Trade Commission Act of 19141914 established the FTC. The Sherman Act of 19141914 established the Federal Trade Commission.

The Sherman Act of 18901890 prohibits price fixing, collusion, and monopolization.

Marginal Revenue

The additional revenue that will be generated by increasing product sales by one unit. Total Revenue2- Total Revenue1/ Quantity2- Quantity1

Which statement best explains why consumers might benefit more from monopolistic competition than perfect competition? Monopolistic competitors will use fewer resources per unit of output than perfect competitors, so overall output will be maximized. The balance between marginal cost and price in monopolistic competition ensures the optimal level of output will be produced. The demand curve for a monopolistically competitive firm follows the law of demand, but the demand curve for a perfectly competitive firm does not. The benefits of having more variety offsets the losses from differing prices and output.

The benefits of having more variety offsets the losses from differing prices and output.

Change in Quantity Demanded

The change in the amount of a good consumers want to buy because its price has changed. Ex: Consumers will buy more Holister pants when they go on sale.

Assume a competitive industry is in long-run equilibrium and firms in the industry are earning zero economic profit. Now assume that production technology improves such that average total costs decline by $5 per unit. How will the industry move to a new long-run equilibrium? The decline in costs will result in economic profits in the short run. In the long run, firms will enter the market causing the price to fall until all firms only earn normal profits. In the short run, market entry will occur and the market price will fall. However, there will be so much entry into the market that firms will have losses in the long run. It will not move to a new long-run equilibrium. New firms will enter the market, which will increase the price for that good and the long-run equilibrium will remain the same. The new long-run equilibrium will be where each firm has a normal profit plus $5.

The decline in costs will result in economic profits in the short run. In the long run, firms will enter the market causing the price to fall until all firms only earn normal profits.

The Environmental Protection Agency is attempting to rule on whether pollution from greenhouse gas emissions endangers public safety. Among the many greenhouse gas polluters are cows emitting methane. Economists have devised a theory to help address this issue. -Identify the statement that is true according to economic theory. If the cost of paying a pollution charge (tax on bovine methane emissions) is less than the cost of reducing pollution, the farmer will have an incentive to reduce pollution. The efficient level of pollution removal occurs where the marginal benefit of pollution removal equals the marginal cost of pollution removal; i.e., some pollution could be allowed. To maximize social welfare, all pollution should be removed. The benefit of pollution cleanup to society is always less than the cost of pollution cleanup, especially if all costs are borne by the producer (which means the farmer, but technically, the cows are doing the producing). Environmental standards regarding cow-generated methane creates strong incentives for the farmer to reduce as much as possible.

The efficient level of pollution removal occurs where the marginal benefit of pollution removal equals the marginal cost of pollution removal; i.e., some pollution could be allowed.

Change in Demand: 1. Substitute Goods 2. Complementary Goods

The entire demand curve shifts because something other than the price of the good itself changes. Ex1: in the 2009 recession toyota sold about 1,000 cars at the price of $20,000, but in 2017 they sold 2,500 cars at the same price. Ex 2: American airlines sell less plane tickets when Southwest airlines has a sale. 1. Goods that can be used in place of one another. Ex: Samsung Galaxy v Iphone; Toyota v Honda 2. Goods that are used together. Ex: cars & gas, printers & ink.

Change in Supply

The entire supply curve shifts because something other than the price of the good itself changes.

Economic theory states that the firm should shut down if market price falls below average variable costs at the profit maximizing output. The firm will minimize losses by stopping production when revenue is not sufficient to cover variable costs. In the business world, the decision to shut down a firm is often more complicated. Under what circumstances might a firm continue to operate when prices are below average variable costs? The firm might continue to operate if profit could be generated in the long run. The firm might continue to operate because average fixed costs are being covered, even though average variable costs are not being covered. The firm would never continue to operate when prices are below average variable cost. The firm might continue to operate because some customers would be willing to pay a higher price for the firm's product.

The firm might continue to operate if profit could be generated in the long run.

Income Elasticity of Demand

The percent change in quantity over the percent change in income. Calculation formula: EI= (change in quantity)/ (change in income) x (Income 1 + Income2) / (Quantity 1 + Quantity 2)

In cities around the country, the government provides assistance to families with low incomes to rent apartments at prices capped by the U.S. Department of Housing and Urban Development (HUD), essentially setting a price ceiling on apartments. The designated apartments tend to rent quickly, and tenants are less likely to move once they find an apartment. Assume the price ceiling is set below market equilibrium and no government subsidies are offered to landlords. What are the most likely outcomes in terms of availability of rent-controlled apartments and ongoing maintenance of rent‑controlled apartments?

The price ceiling will cause a shortage of rent‑controlled apartments and the rent‑controlled apartments will be less well maintained than apartments without rent controls.

The growth of ride-sharing services such as Uber and Lyft has generated much discussion in the news. Drivers operate as independent businesses, working as many hours as they choose and earning a portion of the fares. Fares are set by the company, with market prices increasing during periods of high demand, such as "surge" pricing by Uber. From the driver's perspective, ride-sharing companies share many characteristics with perfectly competitive firms. Which of the following is not a characteristic found in ride-sharing companies? The short-run supply curve is nonexistent. Drivers do not have control of the prices. Supply is determined by the marginal cost incurred by each driver. Drivers face few barriers to entry.

The short-run supply curve is nonexistent.

Total Utility

The total amount of happiness or satisfaction associated with different amounts of something

-graph 156 Felix and Jocelyn are arrested and charged with armed robbery. The police interview both suspects separately about their involvement in the crime. Each suspect has to make a decision. They can betray the other suspect by confessing that they both committed the crime, or they can cooperate with the other suspect by remaining silent. The table shows the sentences that Felix and Jocelyn will receive given their choices. Use the table to answer the question. -What will be the dominant strategy outcome for Felix and Jocelyn? Jocelyn gets 5 years, and Felix gets 15 years. They both get 10 years. Felix gets 5 years, and Jocelyn gets 15 years. They both get 12 years.

They both get 12 years.

Relationship between Price Elasticity of demand and Total Revenue

They deal with the same two variables, P and Q. If your product has elastic demand, you can increase your revenue by decreasing the price of that good. P will decrease, but Q will increase at a greater rate, thus increasing total revenue. If the product is inelastic, then you can actually raise prices, sell slightly less of that item but make higher revenue

Which of these scenarios is NOT an example of a barrier to entry? Tinseltown Theaters shows almost all of the most popular newly released movies. De Beers owns nearly all of the world's diamond mines. Boeing serves a large fraction of the jumbo jet market and is able to produce at a lower average cost than any new entrant likely could. Pfizer is the only firm that is legally allowed to produce and sell Lipitor, a best‑selling cholesterol drug.

Tinseltown Theaters shows almost all of the most popular newly released movies.

In a perfectly competitive market, average revenue is equal to the market price. True False

True

In general, an individual firm in a perfectly competitive market faces a perfectly elastic demand curve. True False

True

MR < P for the monopolist; however MR = P for the competitive firm. True False

True

e. An excise tax can distort incentives and create missed opportunities for mutually beneficial transactions. False True

True

The change in the total cost consumers pay and the change in the revenue sellers receive when a tax is introduced is independent of whether it is levied on buyers or sellers. True False

True -On the other hand, if the price elasticity of demand is high, and the price elasticity of supply is low, the burden of tax falls mainly on producers. Any increase in price will result in a large drop in quantity sold.

Average Utility

Utility per unit of something AU= Total Utility/Quantity

Which scenario is an example of an industry in monopolistic competition? Sprint, AT&T, Verizon, and T-Mobile own a large portion of the U.S. cellular market share. Farmers grow navel oranges throughout the United States. Within walking distance from your home, there are a plethora of fast-food restaurants including Koala Express,Cabo Bob's Burritos, Oodles of Noodles, and Hanz's Hearty Hamburgers. The local gas company owns all of the gas lines that supply natural gas and heating to the residents in the townof Madison, Wisconsin.

Within walking distance from your home, there are a plethora of fast-food restaurants including Koala Express,Cabo Bob's Burritos, Oodles of Noodles, and Hanz's Hearty Hamburgers.

What is a natural monopoly? a monopoly that results when one firm is able to produce at a lower cost than multiple firms, giving large firms with higher levels of output an advantage over smaller competitors a monopoly that results from government issuing patents a monopoly resulting from one firm's exclusive ownership of a natural resource required to produce a good a market in which there is only one firm

a monopoly that results when one firm is able to produce at a lower cost than multiple firms, giving large firms with higher levels of output an advantage over smaller competitors

U.S. fast‑food chains alter their menus and business practices in nearly every country in which they operate. For example, McDonald's restaurants in Mumbai sell Maharaja Macs—which consist of two chicken patties with three layers of bun—instead of traditional Big Macs. McDonald's offering of chicken patties instead of hamburger patties in India isa way to accommodate consumer preferences.an example of product differentiation.an example of game theory.a form of advertising.

a way to accommodate consumer preferences.

A bumper crop results in a much higher supply of corn this year.

decreases

What is the difference between absolute and comparative advantage? a. An absolute advantage exists when individual A can produce . b. A comparative advantage exists when individual A can produce . c. If Stephen Curry is better than you at both basketball and mowing grass, why would he still hire you to mow his lawn? Because Stephen Curry hasa comparative advantage in mowing lawns, and you have a comparative advantage in basketball.an absolute advantage in both activities.a comparative advantage in basketball, and you have a comparative advantage in lawn mowing. . b. A comparative advantage exists when individual A can produce . c. If Stephen Curry is better than you at both basketball and mowing grass, why would he still hire you to mow his lawn? Because Stephen Curry hasa comparative advantage in mowing lawns, and you have a comparative advantage in basketball.an absolute advantage in both activities.a comparative advantage in basketball, and you have a comparative advantage in lawn mowing.

a)More of a good than person B using the same amout of resources b)a good is an opportunity cost lower than individuals B's opportunity cost for that good c)a comparative advantage in basketball, and you have a comparative advantage in lawn mowing.

At what level would you expect prices to settle during a period of price gouging? The price would settle____ the pre-gouging market price.

above

Given an equilibrium level of output in an oligopoly market, each firm may face a kinked demand curve because the firmsimplicitly agree to increase prices if a firm increases prices.implicitly agree to increase quantity if a firm increases prices.agree to cut prices if another firm cuts prices.agree to cut the quantity produced if a firm cuts prices.

agree to cut prices if another firm cuts prices.

Select all examples of a market. a local farmer's market the free‑agent signing period in the NFL where players hoping to sign with a team interact with teams looking for additional players the New York Stock Exchange Trader Joe's: a grocery store frequented by "foodie" types

all of theh above

Which statement best describes an infant industry? an industry in some form of emerging technology an industry that cannot survive without foreign markets in which to sell an emerging or underdeveloped industry that needs protection to survive and become competitive an industry that exists in a new country that is formed out of an older country.

an emerging or underdeveloped industry that needs protection to survive and become competitive

From an economic context, select the correct definition of a market.an institution that brings together buyers and sellers of goods or servicesthe process of using advertising to convince potential buyers to purchase a producta place where groceries and other household items are bought and soldan institution where stocks or bonds are purchased

an institution that brings together buyers and sellers of goods or services

- mirar graph question 12 The first graph represents a total revenue curve for Marilyn's Magnificent Coiffures. Use the information from the total revenue curve to move the five points on the second graph to plot the corresponding demand curve. Demand is elastic when quantity is between 5 and 9 between 1 and 5 1 between 1 and 9 5 9

between 1 and 5

- graph 12 Demand is inelastic when quantity is 5 between 5 and 9 1 between 1 and 5 between 1 and 9 9

between 5 and 9

Colorado was the first state to legalize recreational marijuana in 2012. Since then, about a dozen have followed suit, leading to a boom in the number of growers and shops selling marijuana. A problem, however, is that federal law still prohibits the sale of marijuana, though in practice, state laws have been respected. Still, many shop owners choose to conduct transactions only in cash to avoid leaving a trail of evidence from credit card transactions, which reduces the risk of prosecution but raises the risk of theft or loss. With so much retail competition and the added risk, why would so many choose to venture into this business? Business ownersare protected and believe that the risks of running a marijuana business are minimal.can earn profits from sales, given the high demand for marijuana.enjoy the risks of running a marijuana business.are competitive in nature and will do what it takes to actively compete in a growing market.

can earn profits from sales, given the high demand for marijuana.

Why do perfectly competitive firms sell their products only at the market price? Perfectly competitive firms can sell their goods above the market price because such firms are price takers with market power. cannot charge more than other firms lest they sell nothing, and they have no incentive to sell at a lower price. cannot sell their goods above the market price because firms are price makers. can increase sales by setting the price they charge for their goods below the market price

cannot charge more than other firms lest they sell nothing, and they have no incentive to sell at a lower price.

When a sports team consistently struggles to win any games, one strategy is to replace the coach. But when this happens, the new coach initially has the same players, the team's primary input. How can a new coach improve the team's record when the players are mostly the same? The new coachwill increase the profitability of the team initially even if the coach comes with the same ideas as the old coach.comes with a new idea that allows him or her to use the inputs more efficiently and productively.should change the team's inputs by employing new players.cannot improve the team; the players should have been replaced because they play the game.

comes with a new idea that allows him or her to use the inputs more efficiently and productively.

Low‑fare carriers such as Spirit, Allegiant, and Frontier have been successful at gaining market share by offering low base fares, but then charging for everything from seat assignments to snacks, to carry‑on bags. In response, the major airlines (Delta, United, and American) introduced a new fare category called Basic Economy that mimics the low‑fare competition. This new strategy allows the major airlines to avoid a prisoner's dilemma outcome byestablishing a cartel, sharing market power, and maintaining considerable control over price.continuing to charge higher prices to their more loyal flyers, while competing for low‑fare carriers' customers.setting barriers to market entry, so that low‑fare carriers cannot compete for customers with major airlines.reducing fares on all passengers and competing for every customer willing to purchase an airfare.

continuing to charge higher prices to their more loyal flyers, while competing for low‑fare carriers' customers.

Which of the following is a legal rule that prohibits copying of material in order to protect the rights of those responsible for the creation of the good? trademark patent copyright

copyright

Which of the items is most likely to be a complement to coffee? tea decaf coffee baked beans creamer

creamer

If Good C increases in price by 2020% a pound, and this causes the quantity demanded for Good D to increase by 30%30%, what is the cross-price elasticity of the two goods? Round your answer to one decimal place.

cross-price elasticity =30%/20%=1.5

Suppose the federal government reduces an effective price floor toward the equilibrium price but not below it. What will happen to the deadweight loss -The deadweight loss will remain unchanged.decrease.increase.become negative.

decrease

If a firm is producing a quantity where marginal cost exceeds marginal revenue, the firm should ____ existing levels of production in order to ____. decrease ; increase profitability expand ; increase profitability expand ; decrease total costs decrease ; increase total revenue

decrease ; increase profitability

Sandy owns the only landscaping company in town that specializes in flower gardens—thus, Sandy is a monopolist. At a quantity of 10 flower gardens, the marginal cost of producing one more flower garden is $300, and the marginal revenue from selling one more flower garden is $250. To maximize profits, Sandy shoulddecrease output to the point where 𝑀𝑅>𝑀𝐶MR>MC and increase price based on the demand curve.increase output to the point where 𝑀𝑅=𝑀𝐶MR=MC and decrease price based on the demand curve.decrease output to the point where 𝑀𝑅=𝑀𝐶MR=MC and increase price based on the demand curve.decrease output to the point where 𝑀𝑅=𝑀𝐶MR=MC. The market price won't change because monopolists are price takers.

decrease output to the point where MR=MC and increase price based on the demand curve.

Firms in monopolistic competition

differentiate their products

Which of the following makes monopolistic competition different than perfect competition? Monopolistically competitive firms face competition from many other firms participate in markets where barriers to entry are present differentiate their products

differentiate their products

How do monopolistically competitive firms attain market power? Such firms attain market power by differentiating their products. restricting output. offering low prices. establishing high barriers to entry.

differentiating their products.

Perfect price discrimination is characterized by charging prices that are different from competitors' prices. different prices to customers based on when they purchase the good or service. each customer a price equal to his or her maximum willingness to pay. customers a different price, depending on their gender. customers a different price, depending on their income.

each customer a price equal to his or her maximum willingness to pay.

Suppose that a newly discovered oil reservoir spans the subsurface property of many landowners. However, if too many wells are drilled and used to pump out the oil too quickly, the oil field's water and gas pressure would drop, reducing the total recoverable oil from the reservoir. This situation may lead to a "tragedy of the commons" becauseeach landowner has an incentive to pump out too much oil too quickly, leading the reservoir to dry up prematurely.landowners' property rights over their shares of the newly discovered oil will only benefit a few landowners.high transactions costs prevent landowners from bargaining and achieving an efficient allocation of oil.the landowner who makes the discovery will pump out the oil and will not share the revenues.

each landowner has an incentive to pump out too much oil too quickly, leading the reservoir to dry up prematurely.

Which is not an example of rent‑seeking behavior? fighting for tariffs on imported goods within the same industry $25 million$25 million spent lobbying Congress incurring $30 million$30 million in legal fees to defend against antitrust regulations excessive spending on a corporate jet for executives

excessive spending on a corporate jet for executives

If a firm is producing a quantity where marginal revenue exceeds marginal costs, the firm should ____ existing levels of production in order to ____. decrease ; increase profitability expand ; decrease total costs expand ; increase profitability decrease ; increase total revenue

expand ; increase profitability

In comparison to oligopolies, firms in monopolistic competition participate in markets where barriers to entry are present. face competition from many other firms. differentiate their products.

face competition from many other firms.

What explains why unregulated monopolists, unlike perfectly competitive firms, can maintain positive economic profits in the long run? Unregulated monopolists, unlike perfectly competitive firms,can always set a price that is greater than average total cost.face no competition in the long run.can always set a price that is greater than marginal cost.face competition in the long run.

face no competition in the long run.

A monopolistic competitor, much like a firm in perfect competition, sells its product at a pointwhere the price is equal to the marginal cost.

false

In the long run, monopolistic competitors make a similar amount of profit to monopolists, since, in both cases, the firm's demand curves are downward sloping, and at the profit maximizing point, the marginal cost is equal to the marginal revenue.

false

When the price elasticity of demand is high, and the price elasticity of supply is low, the burden of an excise tax falls mainly on consumers. True False

false

Why, if competitive firms are earning economic profits in the short run, are they unable to earn them in the long run? If firms are making short-run profits, consumers will no longer be willing to buy the good and enrich the firm's owners. firms will enter the industry with better technology and generate more profits in the long run. firms will exit the industry and the loss of competition will drive profits to zero in the long run. firms will enter the industry and greater competition will drive profits to zero in the long run.

firms will enter the industry and greater competition will drive profits to zero in the long run.

A firm's ___________________ are costs that are incurred even if there is no output. In the short run, these costs ___________________ as production increases.

fixed costs; do not change

Competing airlines occasionally merge to create a larger airline. According to antitrust laws, all of the following help determine whether such mergers might be uncompetitive except how many employees the airline has. how the merger might affect the concentration ratio. how big a market share the new airline has. how the merger might affect the Herfindahl‑Hirschman index.

how many employees the airline has.

Colombia's coffee producers operate in a perfectly competitive industry. Which statement is most likely true? In Colombia, a few large coffee farms dominate the market. hundreds of thousands of individually-owned coffee farms produce the same type of coffee. each of many coffee farms produces its own unique variety of coffee bean. one state-owned entity produces all coffee in the country.

hundreds of thousands of individually-owned coffee farms produce the same type of coffee.

Suppose that there has been a sudden influx of refugees in the small town of Dallon, leading to a doubling of the local population. The accompanying graph depicts Dallon's market for food. Adjust the graph to show the immediate impact that this rise in population has on the food market. Then determine what happens to equilibrium price and quantity. -Equilibrium price decreases. increases. may increase or decrease, but it is impossible to know for sure. remains constant.

increase

Suppose that there has been a sudden influx of refugees in the small town of Dallon, leading to a doubling of the local population. The accompanying graph depicts Dallon's market for food. Adjust the graph to show the immediate impact that this rise in population has on the food market. Then determine what happens to equilibrium price and quantity. -Equilibrium quantity increases. may increase or decrease, but it is impossible to now for sure. decreases. remains constant.

increase

Suppose the federal government reduces an effective price floor toward the equilibrium price but not below it. What will happen to the total surplus? -The total surplus will become negative. increase. remain unchanged. decrease.

increase

Why does an effective price ceiling appear below the equilibrium rather than above it? A price ceilingis only effective when it is equal to the market equilibrium price.is only effective when it is low enough to restrict increases in the market price.and its effectiveness are not at all associated with equilibrium.is only effective when it is high enough to restrict decreases in the market price.

is only effective when it is low enough to restrict increases in the market price.

If a firm is earning zero economic profits, then

it is earning a return sufficient to cover the opportunity costs of all the resources it uses

Holding everything else constant, producers are willing to offer more units for sale when the price at which they can sell their product increases. This concept is known as the profit-maximizing condition. law of supply. maximal output. law of one price.

law of supply.

Holding everything else constant, producers are willing to offer more units for sale when the price at which they can sell their product increases. This concept is known as thelaw of one price.law of supply.maximal output.profit-maximizing condition.

law of supply.

A perfectly competitive industry is characterized by a single firm with control over the market price producing a product with no close substitutes. many firms with no control over the market price producing identical products. many firms with control over the market price producing differentiated products. a single firm with limited control over the market price producing a product with many close substitutes.

many firms with no control over the market price producing identical products.

A monopolistic competitor wishing to maximize profit will select a quantity where marginal cost equals average cost. marginal revenue equals average cost. marginal revenue equals marginal cost. marginal cost equals demand.

marginal revenue equals marginal cost.

Which can cause a shift in the demand curve? A change in the cost of production the price of a good the technology used by firms one of the determinants of demand

one of the determinants of demand

Suppose that a recent study shows that non‑fatal traffic accidents have risen due to an increase in aggressive driving. This information comes after the implementation of mandatory seat belt laws requiring all drivers and passengers to wear seat belts. This relationship could be an example ofadverse selection.a public good.tragedy of the commons.the free‑rider problem.moral hazard.

moral hazard.

Suppose there are three firms in the widget industry. Widgets 'R' Us decides not to raise the price for its widgets for fear that The Widget Warehouse and Widgets Unlimited, Ltd. will maintain their prices and take away some of Widget's 'R' Us's market share. -This decision on the part of Widgets 'R' Us is an example ofcollusion.mutual interdependence.price fixing.allocative efficiency.

mutual interdependence.

Regulation is more likely to occur in narrowly defined markets. broadly defined markets.

narrowly defined markets.

To be produced by a natural monopoly, a good must be nonrival and nonexcludable. nonrival and excludable. rival and excludable. rival and nonexcludable.

nonrival and excludable.

Clark's wife wants to buy a new house. She argues that raising the price of his corn by a few cents per bushel would pay for it in no time.

not change

A new model of sunglasses become the hottest overnight fashion trend after several movie stars wear them to the Academy Awards. As a result, producers increase their price by 300%.

not price gouging

The exchange rate between U.S. dollars and the Papua New Guinea kina increases sharply as the Summer Olympics in Paris, France, approach.

not ptice gougning

If a strong economic recovery boosts average incomes, what would happen to the equilibrium price and quantity of a normal good and of an inferior good? The equilibrium price and quantityof a normal good would rise; those of an inferior good would also rise.of a normal good would rise; those of an inferior good would fall.of a normal good would fall; those of an inferior good would rise.of a normal good would fall; those of an inferior good would also fall.

of a normal good would rise; those of an inferior good would fall.

Regulation is most likely to occur in a market characterized as monopolistically competitive. perfectly competitive. oligopolistic.

oligopolistic.

In the last few years, Google has expanded beyond a search engine service to include products, such the Pixel phone, and services, such as unlimited photo storage with Google Photos. Suppose that Google is considering charging a fee for the use of Google Photos. Google executives must decide whether to charge a monthly fee of $4.99 or a monthly fee of $5.00. According to behavioral economic theory, which of the following explains how consumers would likely interpret the fee amounts? Consumers are likely to viewthe two prices as equal due to framing bias.the $4.99 fee as more affordable than the $5.00 fee due to framing bias.the $4.99 fee as more affordable than the $5.00 fee due to altruism.the $5.00 fee as more affordable than the $4.99 fee due to overconfidence.

the $4.99 fee as more affordable than the $5.00 fee due to framing bias.

Suppose a firm experiences an increase in average cost as it hires more labor because it becomes harder to maintain motivation and enthusiasm. This is an example of increased specialization. an increase in an input costs because of an increase in demand. increased efficiency in use of physical capital. the principal-agent problem.

the principal-agent problem.

When is allocative efficiency met in a perfectly competitive market? when price equals marginal revenue when price equals average cost when price equals marginal cost when price equals average variable cost

when price equals marginal cost

Accounting profits are equal to

total revenue minus explicit costs

Which of the following is a word, name, symbol or device that shows the creator of the good and can only be used by that firm? copyright patent trademark

trademark

Suppose there is a single internet service provider (ISP) in a local market which has been around for a long time and generates healthy economic profits. Suppose that a startup fiber company enters the market. Initially, the startup captures many customers from the older ISP but soon experiences financial problems due to the huge upfront costs associated with creating a fiber network. In order to generate more revenue, the startup decreases its price by 10%. The older ISP contacts a local market research group and asks them to begin an e‑mail campaign to survey potential customers about how they would feel about the older ISP changing its pricing scheme. The new scheme would include a price match guarantee and offer an additional 5% off any matched price. The older ISP makes sure that many executives at the startup receive an e‑mail as part of the campaign. Upon hearing about the possible new pricing scheme, the startup switches back to its old pricing model and the older ISP decides not to implement the price match. -What type of strategy did the older ISP employ?trembling hand triggersubgame perfectiongrim triggertit‑for‑tat

trembling hand trigger

Advertising can play a role as an indirect signal of product quality to customers.

true

In the short term, a monopolistic competitor will make a profit if the demand curve is above the average total cost curve at some point.

true

Monopolistically competitive industries are more likely to make use of advertising to create products that catch on in mainstream popularity than industries in perfect competition.

true

A firm's ___________________ are costs that increase as quantity produced increases. These costs often show ___________________ illustrated by the increasingly steeper slope of the total cost curve. fixed costs; opportunity costs fixed costs; technological changes variable costs; constant returns to scale variable costs; diminishing marginal returns

variable costs; diminishing marginal returns

Which of the choices illustrates the law of demand? Pat wants to buy more candy bars at $2 than at $1. None of the choices. wants to buy more candy bars at $1 than at $2. offers more candy bars for sale at $2 than at $1.

wants to buy more candy bars at $1 than at $2.