microeconomics exam 4

Monetary payments a firm makes to pay for resources are called

explicit costs.

Monopolistic competitive firms are productively inefficient because production occurs where

average total cost is not at its lowest.

The opportunity cost to a consumer who smokes cigarettes consists of the

products that the consumer could have bought instead of cigarettes.

As firms enter a monopolistically competitive industry in which firms are currently earning economic profits

the demand curve shifts to the left for the existing firms to the industry

Macroeconomics approaches the study of economics from the viewpoint of

the entire economy.

A perfectly competitive firm will be willing to produce even at a loss in the short run, as long as

the loss is smaller than its total fixed costs.

Use the following figure to answer the question below. The total utility yielded by consuming 4 units of X is

17 utils.

Which is not true for a monopolistically competitive industry?

Firms operate at the lowest point of their ATC curves in the long run.

The demand curve faced by a pure monopoly is

downward sloping

A market price:

is a price at which buyers and sellers agree to exchange money for a good or service.

After eating four slices of pizza, you are offered a fifth slice for free. You turn down the fifth slice. Your refusal indicates that the

marginal utility is positive for the fourth slice and negative for the fifth slice.

A leftward shift of a product supply curve might be caused by

some firms leaving the industry.

When economists say that the supply for a product has increased, they mean that the

supply curve has shifted to the right.

A pure monopoly will generate an economic profit whenever

total revenue is greater than total cost.

Use the table below to answer this question, which provides information on the production of a product that requires one variable input. With the addition of the second unit of input, the marginal product is __________ and the average product is __________.

15; 10

The scarcity problem persists because

economic wants exceed available productive resources.

Implicit costs are

opportunity costs of using owned resources.

Mergers of firms in an industry tend to

transform monopolistic competition into oligopoly.

Bob, the owner of a deli in his town, needs to purchase something that economists would label as "capital" to help him produce sandwiches. Which of the following is an example of capital?

A meat slicer to cut ham for sandwiches

Which of the following is most likely to decrease the demand for Mango Jarritos, a popular Mexican soft drink?

Concerns over the empty calories soft drinks contain cause more people to drink mineral water.

For which of the following products is demand likely to be the most elastic?

Converse All Star sneakers

If monopolistically competitive firms in an industry are making an economic profit, then new firms will enter the industry and the product demand facing existing firms will

decrease.

If a 5% cut in the price of a product causes the quantity demanded to rise by 10%, the demand is

elastic.

Economic profit is

equal to the difference between accounting profit and implicit costs.

Marginal revenue for a monopolistically competitive firm

equals marginal cost

A government will create a surplus in a market when it sets a price floor above the

equilibrium price.

A firm encountering economies of scale over some range of output will have a

falling long-run average total cost curve.

According to the circular flow model, product markets are where businesses earn their revenues from

households.

Which of the following has not contributed to the development of oligopolies in the U.S. economy?

interindustry competition

The demand curve faced by a monopolistically competitive firm

is less elastic than the monopolist's demand curve.

Sharon purchases two products, X and Y, with a given fixed budget. The marginal utility she receives from the last unit of X she consumes is 60 utils, and the marginal utility she receives from the last unit of Y she consumes is 30 utils. The price of X is $2.00 and the price of Y is $1.00. Based on the equal marginal principle, these data suggest that Sharon

is maximizing her total utility from the given fixed budget.

The utility of a good or service

is the satisfaction or happiness one receives from consuming it.

A perfectly competitive firm should continue to operate even at a loss in the short run if

it can cover its variable costs of production

If the number of firms in a monopolistically competitive industry increases and the degree of product differentiation diminishes the industry would

more closely approximate pure competition.

Use the figure below to answer the following question. An increase in quantity supplied caused by a change in price is depicted by a

movement from point y to point x.

An "increase in the quantity supplied" suggests a

movement up and to the right along the supply curve.

Assume that Oscar is maximizing his total utility and that the equal marginal principle holds by the time he is done allocating his budget.If MUa/Pa = 100/$35, MUb/Pb = 300/?, and MUc/Pc = 400/?, the prices of products B and C

must be $105 and $140, respectively.

At long-run equilibrium in monopolistic competition, there is

neither allocative nor productive efficiency.

In an oligopolistic market there is likely to be

neither allocative nor productive efficiency.

In an oligopoly, producers' agreements to restrict output tend to be unstable because each firm has an incentive to

produce more than its output quota.

Monopolistic competition is characterized by firms

producing differentiated products.

The two basic markets shown by the simple circular flow model are

product and resource.

Which is a feature of a perfectly competitive market?

products are standardized or homogeneous

The table below shows the utility schedule for a consumer of candy bars. Marginal utility becomes negative with the consumption of the

seventh candy bar.

Assume that the market for corn is perfectly competitive. Currently, firms growing corn are generating losses. In the long run, we can expect

some firms to exit, causing the market price of corn to increase

An increase in the supply of music downloads indicates that more music downloads will be

supplied, even if prices of music downloads stayed the same.

Pam sees that the price of bananas has risen in the grocery store. All else equal, she decides to buy more tangerines than she normally purchases. From the information given, you might conclude that:

tangerines and bananas are substitutes.

Economic analysis assumes "rational or purposeful behavior," which means that people will pursue decisions or actions

that will increase their well-being.

Which of the following defines marginal utility?

the additional satisfaction or happiness received from the consumption of an additional unit of a good or service

Under monopolistic competition, the demand curve faces by an individual firm is downward sloping because

the product of each seller is differentiated from that of others

In the long run, the economic profits for a monopolistically competitive firm will be

the same as the profits for a purely competitive firm.

Which of the following will cause a decrease in market equilibrium price and an increase in equilibrium quantity?

An increase in supply.

A unique feature of an oligopolistic industry is

mutual interdependence.

Use the following graphs for a perfectly competitive market in the short run to answer the next question. The graphs suggest that in the long run, assuming no changes in the given information,

new firms will enter the industry

With a natural monopoly, the normal profit price is _________________ and the competitive price is _________________.

not allocatively efficient; allocatively efficient

Which of the following best represents the pricing behavior of firms in a monopolistically competitive industry?

Teen Angle Hardware looks for a niche to sell its hardware products to teens but finds it difficult to earn anything more than normal profits due to other hardware stores also looking for niches.

Use the following table to answer the next question and assume that the total fixed cost incurred by the firm is $500. The total cost associated with the production of 5 units of output is

$2,500

To answer the next question, use the following table, which shows the demand schedule faced by Ninaskets, a pure monopoly selling baskets. What is the change in total revenue if the pure monopoly lowers the price from $20 to $18?

$30

If you know that total fixed cost is $200, total variable cost is $600, and total product is 4 units, then average total cost must be

$200.

With total fixed cost of $400, a firm incurs an average total cost of $3 and average variable cost of $2.50. The amount of output produced by the firm must be

800 units

Which of the following statements is a major criticism of a pure monopoly as a source of allocative inefficiency?

A pure monopoly fails to expand output to the level where the price of an additional unit is just equal to its marginal cost

Samantha needs to purchase something that economists would label as "labor" to help her produce court documents for her law firm. Which of the following is an example of labor?

A stenographer who can type courtroom proceedings

Which of the following suppliers is most likely to be a monopolist?

A water company

While eating at Alex's "Pizza by the Slice" restaurant, Clara experiences diminishing marginal utility. She received 10 utils from consuming the first slice of pizza and would only receive 5 utils from consuming a second slice, at the same price. Based on this information we can conclude that

Alex may have to lower the price to convince Clara to buy a second slice.

Which of the following can best be characterized as a subject of microeconomics?

An examination of how much of a particular good gets produced

Use the following graph showing the demand and marginal revenue curves faced by a pure monopoly to answer the next question. What price should the pure monopoly charge in order to maximize total revenue?

P3

Which of the following is an example of an oligopolistic market with a standardized product?

The market for aluminum.

Which of the following markets is most likely to be perfectly competitive?

The market for mushrooms

Which of the following is an implicit cost of owning and operating a farm?

The money a farmer could earn by working for someone else.

Which best expresses the law of diminishing marginal utility?

The more of a product is consumed, the smaller is the marginal utility received from the product.

Because of unseasonably cold weather, the supply of oranges has substantially decreased. This statement indicates the

amount of oranges that will be available at various prices has declined.

A firm in an oligopoly is similar to a monopoly in that both firms

could have significant market power and control over price.

Under oligopoly, if one firm in an industry significantly increases advertising expenditures in order to capture a greater market share, it is most likely that other firms in that industry will

decide to increase advertising expenditures even if it means a reduction in profits.

Along a linear downward-sloping demand curve, the price elasticity of demand will be

different across each price range.

The reason the marginal cost curve eventually increases as output increases for the typical firm is because of

diminishing marginal returns.

Tom enjoys drinking Diet Coke with his lunch, but his enjoyment decreases after each glass he consumes. This is an illustration of

diminishing marginal utility.

Price is taken to be a "given" by an individual firm selling in a perfectly competitive market because

each producer supplies a negligible fraction of total market.

In the long run, a representative firm in a monopolistically competitive industry will end up

earning a normal profit, but not an economic profit.

If a firm's total revenue just covers its implicit and explicit costs of production, then

economic profit is zero.

Microeconomics is the study of the

economy at the small-scale level, examining individuals and specific markets. An example would be examining how much of a particular good gets produced.

Total revenue decreases as the price of a good increases, if the demand for the good is

elastic.

To an economist, the economic costs associated with the use of resources include

explicit and implicit costs.

Suppose that in each of four successive years producers sell more of their product and at higher prices. This could be explained

in terms of a stable supply curve and increasing demand.

Generic macaroni and cheese is an inferior good. Demand for generic macaroni and cheese is likely to increase when:

income decreases.

The table below shows the weekly supply for hamburgers in a market where there are just three sellers. If the price of a hamburger increases from $3 to $5, then the weekly market quantity of hamburgers supplied will

increase from 9 to 17.

A headline reads "Lumber Prices Up Sharply." In a competitive market, this situation would lead to a(n)

increase in the price of new homes and decrease in quantity.

A monopolistically competitive firm is producing at a short-run output level where average total cost is $10.00, marginal cost is $5.00, marginal revenue is $6.00, and price is $12.00. In the short run, the firm should

increase the level of output.

You are the sales manager for a software company and have been informed that the absolute value of the price elasticity of demand for your most popular software is less than 1. To increase total revenues from that product, you should

increase the price of the software.

The income elasticity of demand for jewelry is 2. Other things equal, a 10% increase in consumer income will ___________ the quantity of jewelry demanded by ________

increase; 20%.

As a consequence of the problem of scarcity

individuals have to make choices from among alternatives.

If the absolute value of the price elasticity of demand for a good is .75, the demand for that good is described as

inelastic.

In a market, buyers want to pay the _____ possible price and sellers want to charge the _____ possible price.

lowest, highest

When studying human behavior, economists assume rational self-interest. This means that people

make decisions based on some desired outcome.

After eating four slices of pizza, you are offered a fifth slice for free. You turn down the fifth slice. Your refusal indicates that the

marginal benefit for the fifth pizza slice is less than its marginal cost.

If the short-run average variable cost of production for a firm is decreasing, then it follows that average variable cost must be greater than

marginal cost.

A consumer with a limited income will maximize utility when each good is purchased in amounts such that the

marginal utility per dollar spent on each of the final choices in a bundle is equal.

The market supply curve is:

more elastic in the long run than in the short run.

Given a downward-sloping linear demand curve, if total revenue decreases as quantity of output increases, marginal revenue must be

negative and demand is inelastic.

In which market model is there mutual interdependence?

oligopoly

Marginal cost can be defined as the change in cost resulting from

one more unit of production.

In perfect competition, if the market price of the product is initially higher than the minimum average total cost faced by the firms, then

other firms will enter the industry and the industry supply will increase.

For a monopolistic competitor ____ in the long run equilibrium

p = ATC and p > minimum ATC

Marginal utility can be

positive, negative, or equal to zero.

Use the following table to answer the next question. The total variable cost associated with the production of 5 units of output is

$63.00

Pure monopolies are said to be allocatively inefficient because

price is greater than marginal cost.

The goal of product differentiation and advertising in monopolistic competition is to make

price less of a factor and product differences more of a factor in consumer purchases.

The price elasticity of supply measures how responsive the quantity supplied of X is to changes in the

price of X.

Demand and marginal revenue curves are downsloping for monopolistically competitive firms because

product differentiation allows each firm some degree of monopoly power.

The demand schedule for a product shows the relationship between how much of the product buyers are willing and able to buy and the

product's price.

Excess capacity implies

productive inefficiency

Which of the following is not a barrier to entry in an industry?

profit maximization

The horizontal axis of a graph that shows a market demand curve indicates the

quantities that consumers are willing and able to buy at various prices.

There is an excess demand in a market for a product when

quantity demanded is greater than quantity supplied.

There is a surplus in a market for a product when

quantity demanded is less than quantity supplied.

The simple circular flow model shows that workers and capital-owners offer their services to firms through the

resource markets.

The basic truth that underlies the study of economics is the fact that we all face

scarcity

The short-run supply curve for a perfectly competitive firm is the

segment of the MC curve lying at and above the AVC curve.

Use the following diagram for the corn market to answer the question below. If the price in this market is fixed at $2 per bushel, then

sellers will quickly run out of corn that they bring to market.

In monopolistic competition, a firm has a limited degree of "price-making" ability. This means that the firm will

set price above marginal cost.

T-Shirt Enterprises is operating in a perfectly competitive market. It is producing 3,000 t-shirts and selling them for $10 each. At this level of output, the average total cost is $10.50 and the average variable cost is $10.20. Based on these data, the firm should

shut down in the short run.

Game theory, which is used in studying oligopoly behavior, originated from the study of games such as the following, except

solitaire

If a tax is placed on the production of good X, this will shift the

supply curve for X to the left.

If a price ceiling is set below the equilibrium price in a market

the quantity demanded will exceed the quantity supplied.

All else being equal, if the law of supply states that as the price of a good, service, or resource rises

the quantity supplied will increase, which explains the shape of the supply curve.

Economic profit is equal to

total revenue minus the explicit and implicit costs of production.

Total utility is best defined as the

total satisfaction received from consuming a good, service, or combination of goods and services

The table shows short-run average total cost schedules for three plants of different sizes that a firm might build in the long run. What is the long-run average total cost of producing 30 units of output?

$7

Answer the next question on the basis of the following data. The marginal cost associated with the production of the sixth unit of output is

$8

Use the following graph showing cost curves for a perfectly competitive firm to answer the next question. If the market price decreases to $0.55, the profit-maximizing quantity of output is

0

It has been estimated that the price elasticity of demand for attending Atlanta Braves baseball games is -0.57.1 If price were the only factor to change, one might conclude that a decrease in attendance of 11.4% was caused by:

an increase in ticket prices of 20%.

Use the following graph to answer the next question. If the industry were perfectly competitive, the market price would be

$14

If a monopolist is able to increase the amount of product she sells from 400 to 420 units by lowering the price of that product from $50 to $45, her marginal revenue is:

-$55 Marginal revenue is the change in total revenue from a change in quantity. Marginal revenue is found by taking the change in total revenue divided by the change in quantity. To find the marginal revenue, use the following formula: Marginal revenue = (New total revenue - Initial total revenue) / (New quantity - Initial quantity). In this case, the initial total revenue is the initial price ($50) multiplied by the initial quantity (400), which is $20,000. The new total revenue is the new price ($45) multiplied by the new quantity (420), which is $18,900. Therefore, the marginal revenue is found by: ($18,900 - $20,000) / (420 - 400) = $-1,100/20 = $-55.

The quantity demanded for cars monthly is shown in the table below. An increase in income increases the quantity demanded by 10% at every price. Which of the following columns represents the new monthly quantity demanded for cars (in thousands of cars)?

Column C Explanation: Multiply the initial quantities demanded by 1.1, which will increases the values by 10%. For each price, follow the row to examine the quantities in each column, and you will see that column C holds the values that you calculated.

What is the most likely reason or reasons that the market for electricity is not perfectly competitive?

It is not easy to enter or exit the industry as a supplier. There are not a lot of sellers in the market.

Which of the following best represents the pricing behavior of firms in an oligopolistic market?

Looking Over Your Shoulder Handbag Co. chooses the price it charges by estimating what its rivals are most likely to do and then taking their responses into consideration

Lucinda prefers chrysanthemums to gardenias. Chrysanthemums are priced lower than gardenias. Lucinda chooses not to buy the chrysanthemums. Which of the following reasons for Lucinda's choice is consistent with rational consumer choice?

Lucinda would rather spend her income on other goods.

For which of the following products is demand likely to be the most inelastic?

Table salt

A cartel is

a formal agreement among firms to collude.

A large increase in the supply of HD-TV sets occurs simultaneously with a smaller decrease in its demand. As a result the equilibrium price will __________ and the equilibrium quantity will __________.

decrease, increase

If a state decided to place a tax on home heating oil, over time:

demand would become more elastic and tax revenue would decline.

In an oligopolistic market there are

few sellers.

In monopolistic competition

products are differentiated

Suppose that the market for corn is perfectly competitive. If corn farmers are currently generating losses, then we would expect that in the long run the market

supply curve will shift to the left.

The opportunity cost of constructing a new public highway is the

value of other goods and services that are sacrificed in order to construct the new highway

The opportunity cost of constructing a new public highway is the

value of other goods and services that are sacrificed in order to construct the new highway.

Bobby decides to sell lemonade on a hot summer day. If Bobby sell 20 glasses of lemonade for $0.20 per cup, and his average total cost is $0.17, what are his economic profits for the day?

$0.60 Since ATC is $0.17 and Bobby sells each glass for $0.20, his profit per glass is $0.03 cents. He sold 20 glasses and therefore made an economic profit of $0.60 (20 x $0.03).

Suppose you are given the following demand data for a product. The price elasticity of demand (based on the midpoint formula) when price increases from $7 to $9 is

-1.60.

Use the following graph for a profit-maximizing pure monopoly to answer the next question. The firm will produce the quantity

0V

The price elasticity of supply for a product will be 2 if a

1% decrease in price causes a 2% decrease in quantity supplied.

The price elasticity of demand for a popular sporting event is -2. If the price of a ticket to this event increases by 10%, the quantity of tickets demanded will decrease by

20%.

The following data show the relationship between total cost and output in the short run. The firm's marginal cost is equal to average total cost somewhere between units

3 and 4

Use the supply and demand curves depicted in following graph for a competitive market to answer the question below. If the government imposed a price ceiling of $15, then buyers will be intending to buy ___, but they will be able to legally buy ____.

36 units, 24 units

Use the following figure to answer the next question. Total fixed cost at output level Q2 is measured by the vertical distance

CD

Suppose that TC = $550, TVC = $500, and MC = $100. If the firm produces 10 units of output, then

MC > AVC

Use the following figure to answer the next question. At which point does marginal cost (MC) equal average variable cost (AVC)?

Point B

If nicotine in cigarettes is highly addictive, why would it make economic sense for producers of cigarettes to offer free samples of their products to young adults?

The free samples will help get people addicted to nicotine, which makes demand less elastic.

Hector would like to buy a new pair of soccer cleats. Hector prefers Adidas to Puma brand soccer cleats. But Hector chooses to buy the Puma brand cleats instead. Which of the following reasons for Hector's choice is consistent with rational consumer choice?

The price of Puma brand soccer cleats was less than the price of Adidas brand soccer cleats.

Microeconomics is concerned with

a detailed examination of specific economic units that make up the economic system.

The characteristic most closely associated with oligopoly is

a few large producers.

A nondiscriminating pure monopoly must decrease the price on all units of a product in order to sell more units. This explains why

a pure monopoly's marginal revenue curve is below its demand curve.

Pure monopoly refers to

a single firm producing a product for which there are no close substitutes.

Which of the following would cause a rightward shift of the supply curve for cell-phone services?

a subsidy to cell-phone producers

Use the following graph for a competitive market to answer the question below. In a market with supply and demand curves as shown above, a price floor of $2.50 will result in

a surplus of 10 units.

Collusion refers to a situation where rival firms decide to

agree with each other to set prices and output.

In the long run

all costs are variable.

Barney decides to quit his job as a corporate accountant (which pays $10,000 a month) and go into business for himself as a certified public accountant. He decides not to rent office space downtown, but instead sets up shop in his converted garage apartment, which he could rent out for $300 a month if he wasn't using it as his own office. He must purchase office supplies worth $75 a month, and his monthly electricity bill has increased by $50 now that he is working out of his home office. After six months of working from home, Barney has earned an average of $12,000 per month. a. What are Barney's average monthly accounting profits? b. What are Barney's average monthly economic profits?

average monthly accounting profits $11,875 average monthly economic profits $1,575

Collusion among oligopolistic firms

becomes more difficult if the firms all have different cost and demand curves.

In the circular flow model of the market system, households

buy products and sell resources.

Who determines the price and quantity traded in a market?

buyers and sellers

Use the following graph for a competitive market to answer the question below. A black market where the price is $2.00 could result from a price

ceiling set at $1.50.

The decision-making process followed by consumers to maximize utility assumes that

consumers behave rationally, attempting to maximize their satisfaction.

If box A represents businesses or firms, B the resource market, and C households, and if flow (7) represents goods and services, then flow (6) would represent

consumption expenditures

A firm sells a product in a perfectly competitive market. The marginal cost of the product at the current output level of 1,000 units is $2.50. The minimum possible average variable cost is $2. The market price of the product is $2.50. To maximize profits, the firm should

continue producing 1,000 units.

Variable costs are

costs that change with the amount of output a firm produces