ULL ECON 528 - FINAL

Answer whether the following statements are true or false: A) Over time, more experienced workers will demand higher wages and therefore, will lead to an increased in the cost of production for the producers. B) When you produce more, the average cost of production increases.

A) False & B) False

The president of Toyota's Georgetown plant was quoted as saying, "Demand for high volumes saps your energy. Over a period of time, it eroded our focus [and] thinned out the expertise and knowledge we painstakingly built up over the years." Based on this quote, what must be true of the plant's average cost of production curve? A) It is upward-sloping. B) It is downward-sloping. C) It is a ray from the origin. D) It is U-shaped.

A) It is upward-sloping.

Which of the following would cause both the equilibrium price and equilibrium quantity of cotton (assume that cotton is a normal good) to increase? A) an increase in consumer income B) a drought that sharply reduces cotton output C) a decrease in consumer income D) unusually good weather that results in a bumper crop of cotton

A) an increase in consumer income

12) The price of a factor of production that is in fixed supply is called A) economic rent. B) economic profit. C) a compensating differential. D) opportunity cost.

A) economic rent.

Economies of scope refers to the decrease in average total cost that can occur when a firm A) produces more than one product. B) has monopoly power in world markets. C) controls the raw materials used as inputs. D) narrows the scope of its regional markets.

A) produces more than one product.

A four-firm concentration ratio measures A) the fraction of an industry's sales accounted for by the four largest firms. B) the production of any four firms in an industry. C) how the four largest firms became so concentrated. D) the fraction of employment of the four largest firms in an industry.

A) the fraction of an industry's sales accounted for by the four largest firms.

The long-run average cost curve shows A) the lowest average cost of producing every level of output in the long run. B) where the most profitable level of output occurs. C) the average cost of producing where diminishing returns are not present. D) the plant size or scale that the firm should build.

A) the lowest average cost of producing every level of output in the long run.

As the level of output increases, the value of average fixed cost decreases. This happens because the fixed cost amount stays the same, but the output number becomes larger. The difference between the value of average total cost and average variable cost is the average fixed cost so it decreases.

As the level of output increases, the value of average fixed cost decreases. This happens because the fixed cost amount stays the same, but the output number becomes larger. The difference between the value of average total cost and average variable cost is the average fixed cost so it decreases.

Which of the following characteristics is common to monopolistic competition and perfect competition? A) Firms produce identical products. B) Entry barriers into the industry are low. C) Each firm faces a downward -sloping demand curve. D) Firms take market prices as given.

B) Entry barriers into the industry are low.

Which of the following is the best example of a short-run adjustment? A) A local bakery purchases another commercial oven as part of its capacity expansion. B) Your local Wal-Mart hires two more associates. C) Smith University completed negotiations to acquire a large piece of land to build its new library. D) Toyota builds a new assembly plant in Texas.

B) Your local Wal-Mart hires two more associates.

Which of the following would cause a decrease in the equilibrium price and an increase in the equilibrium quantity of salmon? A) a decrease in demand and an increase in supply B) an increase in supply C) an increase in supply and an increase in demand greater than the increase in supply D) a decrease in demand and a decrease in supply

B) an increase in supply

If, when a firm doubles all its inputs, its average cost of production decreases, then production displays A) diminishing returns. B) economies of scale. C) diseconomies of scale. D) declining fixed costs.

B) economies of scale.

A reason why a perfectly competitive firm's demand for labor curve slopes downward is that A) each additional unit of labor hired is less efficient than previously hired units. B) in the short run, as more labor is hired, labor's marginal product falls because of the law of diminishing returns. C) the extra cost of hiring additional units of labor increases as a firm hires more units of labor. D) the firm's demand curve for the product that uses labor is downward sloping.

B) in the short run, as more labor is hired, labor's marginal product falls because of the law of diminishing returns.

A characteristic found only in oligopolies is A) break-even level of profits. B) interdependence of firms. C) independence of firms. D) products that are slightly different.

B) interdependence of firms.

The term "derived demand" refers to A) the demand for financial products called derivatives. B) the demand for a factor of production that is derived from the demand for the good the factor produces. C) a firm's estimated demand curve derived from sales data. D) a demand curve that derives from the availability of resources.

B) the demand for a factor of production that is derived from the demand for the good the factor produces.

Assume that both the demand curve and the supply curve for MP3 players shift to the right but the supply curve shifts more than the demand curve. As a result A) both the equilibrium price and quantity of MP3 players will decrease. B) the equilibrium price of MP3 players will decrease; the equilibrium quantity will increase. C) the equilibrium price of MP3 players may increase or decrease; the equilibrium quantity will decrease. D) the equilibrium price of MP3 players will increase; the equilibrium quantity will decrease.

B) the equilibrium price of MP3 players will decrease; the equilibrium quantity will increase.

At the minimum efficient scale A) all possible economies of scale have not been exhausted. B) the firm has achieved the lowest possible average cost of production. C) any increases in the scale of operation will encounter further economies of scale. D) marginal cost is at its minimum.

B) the firm has achieved the lowest possible average cost of production.

In 2004, hurricanes destroyed a large portion of Florida's orange and grapefruit crops. In the market for citrus fruit A) the supply curve shifted to the right resulting in an increase in the equilibrium price. B) the supply curve shifted to the left resulting in an increase in the equilibrium price. C) the demand curve shifted to the right resulting in an increase in the equilibrium price. D) the demand curve shifted to the left resulting in a decrease in the equilibrium price.

B) the supply curve shifted to the left resulting in an increase in the equilibrium price.

What is the incentive for a firm to join a cartel? A) to be able to earn profits in the long run but not in the short run B) to be able to earn larger profits than if it was not part of the cartel C) to completely insulate itself from competition D) to produce a larger amount of output than if it was not part of the cartel

B) to be able to earn larger profits than if it was not part of the cartel

Explain the similarity between how mass production and economies of scope effect the cost of production.

Both methods are used to reduce the cost of production.

Assume the market for organic produce sold at farmers' markets is perfectly competitive. All else equal, as more farmers choose to produce and sell organic produce at farmers' markets, what is likely to happen to the equilibrium price of the produce and profits of the organic farmers in the long run? A) The equilibrium price is likely to increase, and profits are likely to remain unchanged. B) The equilibrium price is likely to remain unchanged and profits are likely to increase. C) The equilibrium price is likely to decrease, and profits are likely to decrease. D) The equilibrium price is likely to increase, and profits are likely to increase.

C) The equilibrium price is likely to decrease, and profits are likely to decrease.

A cartel is A) a temporary storage facility for automobiles. B) a group of firms that enter into an informal agreement to fix prices to maximize joint profits. C) a group of firms that enter into a formal agreement to fix prices to maximize joint profits. D) an example of a group of firms that collectively regulate a competitive industry.

C) a group of firms that enter into a formal agreement to fix prices to maximize joint profits.

Producing 200 units of good Y and 100 units of good X in the same factory costs the firm $50,000. In contrast, producing 200 units of good Y in one factory and 100 units of good X in another factory costs the firm $75,000. So if the firm produces the two goods together, it achieves: A) quadratic returns to scale. B) diseconomies of scope. C) economies of scope. D) diseconomies of scale and diseconomies of scope.

C) economies of scope.

A perfectly competitive firm's supply curve is its A) marginal cost curve. B) marginal cost curve above its minimum average total cost. C) marginal cost curve above its minimum average variable cost. D) marginal cost curve above its minimum average fixed cost.

C) marginal cost curve above its minimum average variable cost.

A monopolistically competitive firm faces a downward-sloping demand curve because A) it is able to control price and quantity demanded. B) there are few substitutes for its product. C) of product differentiation. D) its market decisions are affected by the decisions of its rivals.

C) of product differentiation.

The marginal revenue product of labor for a firm A) will increase if the price of the firm's output increases. B) is the firm's demand curve for labor. C) will decrease if the firm hires more labor. D) All of the above are correct.

D) All of the above are correct.

Which of the following is an example of strategic behavior that we see in oligopoly? A) A firm builds excess capacity to discourage the entry of competitors. B) A firm adopts the pricing behavior of a dominant firm under the assumption that other firms will do likewise. C) Firms in an industry increase advertising expenditure to avoid losing market share. D) All of the above are examples of strategic behavior.

D) All of the above are examples of strategic behavior.

All of the following statements are true of the minimum efficient scale except one. Which one? A) All possible economies of scale have been exhausted. B) The short-run average total cost curve's minimum point is equal to the long run average cost curve's minimum point. C) Any increase in the scale of operation will encounter diseconomies of scale. D) An increase in the output level will increase profit.

D) An increase in the output level will increase profit.

Which of the following is an example of a long run adjustment? A) Your university offers Saturday morning classes next fall. B) Ford Motor Company lays off 2,000 assembly line workers. C) A soybean farmer turns on the irrigation system after a month-long dry spell. D) Wal-Mart builds another Super center.

D) Wal-Mart builds another Super center.

Which of the following is not part of an oligopolist's business strategy? A) deciding on how to manage relations with suppliers B) choosing what new technologies to adopt C) selecting which new markets to enter D) independently setting a product's price without consideration of its rivals' pricing policies

D) independently setting a product's price without consideration of its rivals' pricing policies

A low-cost leader's basis for competitive advantage is: A) using an everyday low pricing strategy to gain the biggest market share. B) bigger profit margins than rival firms. C) high buyer switching costs because of the company's differentiated product offering. D) meaningfully lower overall costs than competitors. E) a reputation for charging the lowest prices in the industry.

D) meaningfully lower overall costs than competitors.

Successful differentiation allows a firm to A) gain buyer loyalty to its brand (because some buyers prefer the differentiating features and are thus brand loyal). B) set the industry ceiling on price. C) attract many more buyers by charging a lower price than rivals and thereby take sales and market share away from rivals. D) command a premium price for its product and/or increase unit sales (because additional buyers are won over by the differentiating features), and/or. E) Both A and D.

E) Both A and D.

A company achieves competitive advantage whenever A) it has a product offering that is differentiated from the product offerings of rivals. B) its customers exhibit a high degree of loyalty to the company's brand. C) it has more core competencies than its rivals. D) it has a better credit rating than rivals. E) it has an edge over rivals in attracting customers and coping with competitive forces.

E) it has an edge over rivals in attracting customers and coping with competitive forces.

Answer whether the following statement is true or false: Economic rent for an input is higher if the input is abundant is supply True False

False

Answer whether the following statement is true or false: If the marginal revenue product of an input is less than the price of that input, the input is too expensive and the firm should stop using that input and try to find some alternate inputs. True False

False

Explain the difference between how mass production and economies of scope affect the cost of production.

Mass production is the production of one product with the reduction of production cost by production on a large scale lowering the average cost of production. Economies of scope is the production of more than one product with the reduction of production cost by producing the different products together jointly.

What is minimum efficient scale? What is likely to happen in the long run to firms that do not reach minimum efficient scale?

Minimum efficient scale is the lowest level of output where economies of scale have been exhausted. In the long run, if firms do not reach minimum efficient scale, they will have higher average costs.

Oligopolists that have restrictions on productive capacity divide the market between themselves and charge prices greater than marginal costs. In this case, they engage in: Select one: a. Cournot competition. b. Bertrand competition. c. quality competition. d. price competition.

a. Cournot competition.

Over the past twenty years, the number of small family farms has fallen significantly and in their place, there are fewer but larger, farms owned by corporations. Which of the following best explains this trend? a. economies of scale in farming b. diminishing returns to labor in farming c. diseconomies of scale in farming

a. economies of scale in farming

Excess capacity and high advertising expenditures are encountered in Select one: a. monopolistic competition b. monopoly c. perfect competition d. non-profit competition

a. monopolistic competition

A firm's demand curve for labor slopes downwards because a. of the law of diminishing marginal returns. b. workers supply fewer labor services as the wage rate falls. c. of rising marginal product. d. firms supply less labor as the wage rate rises.

a. of the law of diminishing marginal returns.

Interdependence of firms is most common in Select one: a. oligopolistic industries. b. monopolistic industries. c. monopolistically competitive industries. d. monopolistically competitive and oligopolistic industries.

a. oligopolistic industries.

If a producer is not able to expand its plant capacity immediately, it is Select one: a. operating in the short run. b. operating in the long run. c. losing money. d. bankrupt.

a. operating in the short run.

Assume the market for organically-grown produce is perfectly competitive. All else equal, as farmers find it less profitable to produce and sell organic produce in this market Select one: a. the supply curve will shift to the left and the equilibrium price will increase. b. the supply curve will shift to the right, the demand curve will shift to the left, and the equilibrium price will decrease. c. the supply curve will shift to the left, the demand curve will shift to the left, and the equilibrium price will increase. d. the demand curve will shift to the left and the equilibrium price will decrease.

a. the supply curve will shift to the left and the equilibrium price will increase.

The Bertrand model is a more plausible model of firm behavior than the Cournot model Select one: a. when firms sell a differentiated product. b. because firms that sell a non-differentiated product typically act as price takers. c. when firms set the quantity to be sold d. because the Bertrand model predicts that firms will price at marginal cost.

a. when firms sell a differentiated product.

There are five firms in an industry with sales at $5 million, $10 million, $8 million, $12 million, and $10 million, respectively. The HHI is Select one: a. 2,014. b. 2138 c. 1,805 d. 925

b. 2138 HHI = sum of the square of the market share of each firm Total sales = 5+10+8+12+10 = 45 million share of each firm:- 5/45 = 11.11% 10/45 = 22.22% 8/45 = 17.78% 12/45 = 26.67% 10/45 = 22.22% Sum of squares = 11.11^2+22.22^2+17.78^2+26.67^2+22.22^2 = 123.4321+493.7284+316.1284+711.2889+493.7284 = 2138.30

One of your classmates asserts that advertising, marketing research, and brand management are redundant expenditures because a firm can obtain the same information by simply looking at what customers are already buying. Which of the following is not a response you might offer her? Select one: a. If a firm successfully manages its brand, customers become less price sensitive as they perceive fewer substitutes for the firm's brand. b. Advertising and brand management allow a firm to create an entry barrier which will insulate the firm from competition and from undertaking further product innovations. c. Conducting market research is a good way for firms to keep abreast of changing consumer tastes and preferences. d. Marketing research could allow a firm to identify new market opportunities and at least, in the short run, a firm can make a profit supplying products to this market segment.

b. Advertising and brand management allow a firm to create an entry barrier which will insulate the firm from competition and from undertaking further product innovations.

The marginal revenue product of labor for a firm Select one: a. will decrease if the firm hires more labor. b. All of the above are correct. c. is the firm's demand curve for labor. d. will increase if the price of the firm's output increases.

b. All of the above are correct.

Evaluate the Statement; Cost approach is the easier approach to achieve optimal production when the firm is at the start of their production plan Select one: a. True b. False

b. False

Evaluate the Statement; Resource approach is the easier approach to achieve optimal production after the firm has already established a production plan and requires only incremental changes in their plan to achieve the maximum possible profit Select one: a. True b. False

b. False

Which type of workers is most likely to enjoy substantial economic rent? Select one: a. Those with low wages which result from no need to have a period of training. b. Those with high wages which result from them possessing the innate ability to develop some skill to a very high level c. Those with high wages which compensate them for unpleasant aspects of their jobs. d. Those with low wages which can be paid because their jobs have other very pleasant aspects.

b. Those with high wages which result from them possessing the innate ability to develop some skill to a very high level

Consider the following characteristics: a. a market structure with barriers to entry b. demand curves that are easily identified c. firm cannot make zero profits in the long run d. firm can reap long run profits. Which of the characteristics in the list above is shared by an oligopolist and a monopolist? Select one: a. a, b, c, and d b. a and d c. a, c, and d d. a, b, and d

b. a and d

Which of the following would cause an increase in the equilibrium price and an increase in the equilibrium quantity of watermelons? Select one: a. an increase in demand and an increase in supply b. an increase in supply and an increase in demand greater than the increase in supply c. an increase in supply d. a decrease in demand and an increase in supply

b. an increase in supply and an increase in demand greater than the increase in supply

A monopolistically competitive firm will Select one: a. produce an output level that is productively and allocatively efficient. b. have some control over its price because its product is differentiated. c. charge the same price as its competitors do. d. always produce at the minimum efficient scale of production.

b. have some control over its price because its product is differentiated.

A company's competitive strategy deals with Select one: a. the specific actions management plans to take to gain a competitive advantage over rivals b. how to compete successfully-its plans for positioning the company in the marketplace, its specific efforts to please customers and improve its competitive strength, and the type of competitive advantage it intends to establish. c. the specific actions management intends to take to strongly differentiate its product offering from the offerings of rival companies in the industry. d. how it plans to unify its functional and operating strategies into a cohesive effort aimed at successfully taking customers away from rivals. e. its plans for under-pricing rivals and achieving product superiority.

b. how to compete successfully-its plans for positioning the company in the marketplace, its specific efforts to please customers and improve its competitive strength, and the type of competitive advantage it intends to establish.

The minimum efficient scale is a. the plant size that yields the most profit. b. level of operation where long-run average costs are lowest. c. the level of output where diminishing returns have not set in yet. d. the smallest output level where the firm finally reaches productive efficiency.

b. level of operation where long-run average costs are lowest.

If the marginal product of capital is six times as large as the marginal product of labor and the price of capital is three times as large as the price of labor, for costs to be minimized: Select one: a. more labor should be used but the use of capital should remain constant. b. more capital should be used and less labor. c. more labor should be used and less capital. d. the price of capital must fall.

b. more capital should be used and less labor.

If a typical firm in a perfectly competitive industry is earning profits, then Select one: a. new firms will enter in the long run causing market supply to decrease, market price to rise and profits to increase. b. new firms will enter in the long run causing market supply to increase, market price to fall and profits to decrease. c. all firms will continue to earn profits. d. the number of firms in the industry will remain constant in the long run.

b. new firms will enter in the long run causing market supply to increase, market price to fall and profits to decrease.

To be successful with a differentiation strategy, a company has to Select one: a. have a state-of-the-art value chain and concentrate on providing buyers with a technologically superior product b. study buyers' needs and behavior very carefully to learn what they consider important, what they think has value, and what they are willing to pay for c. incorporate more differentiating features into its product/service offering than rivals and also charge a price no higher than the prices charged by rivals. d. outspend rivals on R&D in order to have differentiating attributes that rivals don't have. e. Concentrate on differentiating its product on the basis of superior product quality or personalized customer service.

b. study buyers" needs and behavior very carefully to learn what they consider important, what they think has value, and what they are willing to pay for

Economies of scope exist between book publishing and magazine publishing if a. the cost of publishing a magazine is lower for firms that publish many magazines than for firms that publish only one magazine. b. the cost of publishing a magazine is lower for book publishers than for other firms. c. the cost of a publishing a book is not subject to diminishing marginal returns. d. the cost of publishing a book falls over time as the publisher acquires more experience.

b. the cost of publishing a magazine is lower for book publishers than for other firms.

If the 4-firm concentration ratio for industry A is 80: a. the four largest first account for 20 percent of total output. b. the four largest firms account for 80 percent of total output. c. the industry is a monopoly. d. the industry is competitive.

b. the four largest firms account for 80 percent of total output.

A perfectly competitive firm's short-run supply curve is Select one: a. horizontal at the minimum average total cost. b. upward sloping and is the portion of the marginal cost curve that lies above the average variable cost curve. c. perfectly elastic at the market price. d. upward sloping and is the portion of the marginal cost curve that lies above the average total cost curve.

b. upward sloping and is the portion of the marginal cost curve that lies above the average variable cost curve.

Sue and Jane own two local petrol stations. They have identical constant marginal costs but earn zero economic profits. Sue and Jane constitute a) a Sweezy oligopoly. b) a Cournot oligopoly. c) a Bertrand oligopoly. d) none of the above.

c) a Bertrand oligopoly.

Economists have long debated whether there is a significant loss of well-being to society in markets that are monopolistically competitive rather than perfectly competitive. Which of the following offers the best reason why some economists believe that monopolistically competitive markets benefit consumers despite any loss of well-being? Select one: a. Consumers pay a price equal to the marginal cost of producing a product, even though it is not produced at the minimum average total cost. b. Although consumers may pay a price greater than marginal cost for a product, the product is produced at the minimum average total cost. c. Although consumers may pay a price greater than marginal cost and the product is not produced at minimum average total cost, they benefit from being able to buy a differentiated product more closely suited to their tastes. d. Consumers are better off choosing from a variety of differentiated products, even though product differentiation causes barriers that restrict entry into monopolistically competitive markets.

c. Although consumers may pay a price greater than marginal cost and the product is not produced at minimum average total cost, they benefit from being able to buy a differentiated product more closely suited to their tastes.

There are five firms in an industry with sales at $5 million, $10 million, $8 million, $12 million, and $10 million, respectively. What is the proper conclusion that we can draw from the calculated four-firm concentration ratio and HHI? Select one: a. The four-firm measure suggests the industry is highly competitive, while the HHI suggests the industry is relatively uncompetitive. b. The four-firm measure suggests the industry is relatively uncompetitive, while the HHI suggests the industry is highly competitive c. Both measures indicate that the industry is not perfectly competitive. d. Both measures indicate the industry is served by a monopoly

c. Both measures indicate that the industry is not perfectly competitive.

Which of the following is a characteristic shared by a perfectly competitive firm and a monopoly? Select one: a. Each must lower its price to sell more output. b. Each sets a price for its product that will maximize its revenue. c. Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost. d. Each maximizes profits by producing a quantity for which price equals marginal cost.

c. Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost.

The reason that the Fisherman's Friend restaurant in Stonington, Maine had a monopoly on selling seafood dinners in that town is most likely due to Select one: a. occupational licensing. b. a government-imposed barrier. c. no competitors apparently found the profit level attractive enough to enter the market. d. the restaurant owned all the fresh seafood in the state.

c. no competitors apparently found the profit level attractive enough to enter the market.

In the quantity leadership model: Select one: a. each firm takes the prices charged by its competitors as given b. prices are higher and quantities are slightly less than we would see if the firms colluded to achieve the monopoly outcome c. one firm plays a leadership role and its competitor's simply react to the leader's quantity d. each firm takes the quantities produced by its competitors as given

c. one firm plays a leadership role and its competitor's simply react to the leader's quantity

If firms are in Cournot equilibrium: a) Each firm could increase profits by unilaterally increasing output. b) Each firm could increase profits by unilaterally decreasing output. c) Firms could increase profits by jointly increasing output. d) Firms could increase profits by jointly reducing output.

d) Firms could increase profits by jointly reducing output.

Suppose that you know the following information about the potential buyers in the markets for two types of software for which your firm is a monopolist. Your cost for producing the software is 0. Value of Software 1 ArkCorp - 2M Benton Co - 1M CalArk - 3M Delta-Ozarks - 0 Value of Software 2 ArkCorp - 2M Benton Co - 2M CalArk - 0 Delta-Ozarks - 3M If you sell the items separately, how much total profit can you make? Select one: a. 6M b. 13M c. 12M d. 10M

d. 10M Profit = Total revenue - Total Cost As Total cost of producing soft ware is 0. Thus he has to sell at those prices that maximizes Total revenue. FOR SOFTWARE 1 : If he charge 1M then Ark , Benton and Cal will buy and his revenue = 1M * 3 = 3M If he charge 2M then Ark and Cal will buy and his Revenue = 2M * 2 = 4M If he charge 3M then only Cal all will buy and his revenue = 3M * 1 = 3M. Hence He will charge 2M and his revenue from software 1 is 4M. FOR SOFTWARE 2 : If he charge 2M then Ark , Benton and Delta will buy and his revenue = 2M * 3 = 6M If he charge 3M then only Delta all will buy and his revenue = 3M * 1 = 3M. Hence He will charge 2M and his revenue from software 1 is 6M. Hence Combined Revenue from both software = 4M + 6M = 10M Profit = Total revenue - Total cost = 10M - 0 = 10M. Thus, If you sell separately. Your Profit will be 10M

Which of the following statements is true about advertising by a monopolistically competitive firm? Select one: a. Advertising will be more beneficial if a monopolistic competitor colludes with other firms to advertise the products of the industry as a whole rather than an individual firm's product. b. Since the monopolistic competitor, like the perfect competitor, makes zero profit in the long run, it is a waste of resources to advertise its products. c. Monopolistically competitive firms tend to shun advertising because advertising draws attention to the variety of differentiated products available in the industry. d. Advertising could make the monopolistic competitor's demand more inelastic, but advertising has no effect on a perfect competitor's demand.

d. Advertising could make the monopolistic competitor's demand more inelastic, but advertising has no effect on a perfect competitor's demand.

In which markets are network effects likely? Select one: a. Hi-tech product markets b. Markets subject to increasing returns c. Market for trendy products. d. All of the above

d. All of the above

Which of the following is not a reason why firms experience economies of scale? a. Larger firms may be able to purchase inputs at lower costs than smaller competitors. b. Technology can make it possible to increase production with a smaller increase in at least one input. c. Workers and managers can become more specialized, enabling them to be more productive. d. As output increases, the managers can begin to have difficulty coordinating the operations of their firms.

d. As output increases, the managers can begin to have difficulty coordinating the operations of their firms.

Would you expect economies of scope to occur in the following situation; Producing two goods that use the same resource Select one: a. I cannot answer based on the available information b. I do not know. c. No d. Yes

d. Yes

Relative to a perfectly competitive market, a monopoly results in Select one: a. a gain in producer surplus equal to the loss in consumer surplus. b. a gain in producer surplus equal to the gain in consumer surplus. c. greater economic efficiency. d. a gain in producer surplus less than the loss in consumer surplus.

d. a gain in producer surplus less than the loss in consumer surplus.

Assume that both the demand curve and the supply curve for MP3 players shift to the right but the demand curve shifts more than the supply curve. As a result Select one: a. the equilibrium price of MP3 players may increase or decrease; the equilibrium quantity will increase. b. the equilibrium price of MP3 players will decrease; the equilibrium quantity may increase or decrease. c. the equilibrium price of MP3 players will increase; the equilibrium quantity may increase or decrease. d. both the equilibrium price and quantity of MP3 players will increase.

d. both the equilibrium price and quantity of MP3 players will increase.

The reason that the coffeehouse market is monopolistically competitive rather than perfectly competitive is because Select one: a. there are many firms in the market. b. entry into the market is blocked. c. barriers to entry are very low. d. products are differentiated.

d. products are differentiated.

Economic rent is defined as a. what you pay to rent your apartment or house. b. the revenue received by a factor of production with an upward sloping supply curve. c. the surplus received by employing a factor of production in its highest valued use. d. the price of a factor of production that is fixed in supply.

d. the price of a factor of production that is fixed in supply.

A competitive strategy of striving to be the low-cost provider is particularly attractive when Select one: a. buyers are not swayed by advertising and are not very brand-loyal. b. most rivals are pursuing best-cost or broad differentiation strategies. c. most rivals are trying to differentiate their product offering from those of rivals. d. there are many ways to achieve higher product quality that have value to buyers. e. buyers are large, have significant power to bargain down prices, use the product in much the same ways, and have common user requirements.

e. buyers are large, have significant power to bargain down prices, use the product in much the same ways, and have common user requirements.

Why do economies of scope arise?

They arise because production of two or more goods may share an input, so there will be cost savings from producing two goods together rather than separately.

Use the following to answer question 2: Quantity of Good 1 Quantity of Good 2 Total Cost of Producing Q1 Q2 Q1 + Q2 70 0 $96,000 0 255 144,000 70 255 192,000 Consider the table. Does the firm have economies of scope? Explain.

Yes, the firm does have economies of scope. It is cheaper to produce the two goods jointly ($192,000) than each good separately ($96,000 + $144,000 = $240,000).

Suppose that you know the following information about the potential buyers in the markets for two types of software for which your firm is a monopolist. Your cost for producing the software is 0. Value of Software 1 ArkCorp - 2M Benton Co - 1M CalArk - 3M Delta-Ozarks - 0 Value of Software 2 ArkCorp - 2M Benton Co - 2M CalArk - 0 Delta-Ozarks - 3M If you bundle the items, how much profit can you make? Select one: a. 12M b. 6M c. 10M d. 13M

a. 12M Now, ArkCorp willingness to pay for the items is 2M + 2M = 4M, BentonCo willingness to pay for the items is 1M + 2M = 3M, CalArk willingness to pay for the items is 3M + 0 = 3M and Delta-Ozarks willingness to pay for the items is 0M + 3M = 3M. So, possible prices of the bundle is 3M and 4M. If you charge 4M then only ArkCorp will buy and thus Revenue = 4M and as cost of producing is 0. Thus Profit = Revenue - Cost = 4M - 0 = 4M. If you charge 3M then all of them will buy and thus Revenue = 3M*4 = 12M and as cost of producing is 0. Thus Profit = Revenue - Cost = 12M - 0 = 12M. Hence he should charge 3M and earn a profit = 12M.

Which of the following is a reason why a firm would experience diseconomies of scale? a. As the size of the firm increases, it becomes more difficult to coordinate the operations of its manufacturing plants. b. As the size of the firm increases, it becomes more difficult to find markets where it doesn't already have operations. c. As the size of the firm increases, it must operate in other countries where differences in language, customs and laws increase its average costs. d. To finance an increase in the size of its plant a firm must borrow more money or sell more shares of stock.

a. As the size of the firm increases it becomes more difficult to coordinate the operations of its manufacturing plants.

What is the difference between "diminishing marginal returns" and "diseconomies of scale"? a. Diminishing marginal returns, which applies only in the short run when at least one factor is fixed, explains why marginal cost increases, while diseconomies of scale, which applies in the long run when all factors are variable, explains why average cost increases. b. Diminishing marginal returns, which applies only in the long run when all factors are variable, explains why average variable cost increases, while diseconomies of scale, which applies in the short run when at least one factor is fixed, explains why average total cost increases. c. Both concepts explain why average total cost increases after some point but diminishing marginal returns applies only in the short run when there is at least one fixed factor, while diseconomies of scale apply in the long run when all factors are variable. d. Both concepts explain why marginal cost increases after some point but diminishing marginal returns applies only in the short run when there is at least one fixed factor, while diseconomies of scale apply in the long run when all factors are variable.

a. Diminishing marginal returns, which applies only in the short run when at least one factor is fixed, explains why marginal cost increases, while diseconomies of scale, which applies in the long run when all factors are variable, explains why average cost increases.

Collusion makes firms better off because if they act as a single entity (a cartel) they can reduce output and increase their prices and profits. But some cartels have failed and others are unstable. Which of the following is a reason why cartels often break down? Select one: a. Each member of a cartel has an incentive to "cheat" on the collusive agreement by producing more than its share when everyone else sticks with the collusive agreement. b. Members of a cartel may resent having to share their profits equally. c. When a cartel is profitable the amount of competition it faces increases. d. Most cartels do not have a dominant strategy.

a. Each member of a cartel has an incentive to "cheat" on the collusive agreement by producing more than its share when everyone else sticks with the collusive agreement.

If the marginal product of labor is 2, the marginal product of capital is 4, the wage rate is $3, the rental price of capital is $6, and the price of output is $1.50, then the firm should a. None of the above is correct b. Decrease output by reducing the quantity of capital, reducing the number of units of labor, or both c. Hold output constant, but hire more labor and less capital d. Increase output by hiring more labor, more capital, or both

a. None of the above is correct

An increase in input costs in the production of electric automobiles caused the price of electric automobiles to rise. Holding everything else constant, how would this affect the market for gasoline-powered automobiles (a substitute for electric automobiles)? Select one: a. The demand for gasoline-powered automobiles would increase and the equilibrium price of gasoline-powered automobiles would increase. b. The demand for gasoline-powered automobiles would decrease because consumers could afford to buy fewer gasoline-powered automobiles. c. The demand for gasoline-powered automobiles would increase and the equilibrium price of gasoline-powered automobiles would decrease. d. The supply of gasoline-powered automobiles would increase and the equilibrium price of gasoline-powered automobiles would decrease.

a. The demand for gasoline-powered automobiles would increase and the equilibrium price of gasoline-powered automobiles would increase.

A perfectly competitive wheat farmer in a constant-cost industry produces 3,000 bushels of wheat at a total cost of $36,000. The prevailing market price is $15. What will happen to the market price of wheat in the long run? Select one: a. The price falls to $12. b. The price rises above $15. c. The price remains constant at $15. d. There is insufficient information to answer the question.

a. The price falls to $12. ATC=Total Cost / Production Units =36,000 / 3,000 =12

The president of Toyota's Georgetown plant was quoted as saying, "Demand for high volumes saps your energy. Over a period of time, it eroded our focus [and] thinned out the expertise and knowledge we painstakingly built up over the years." This quote suggests that a. as Toyota expanded its capacity, it experienced diseconomies of scale. b. high demand for Toyota's cars prevented the company from focusing on its strength: auto design. c. Toyota was experiencing an excess demand for its automobiles which it had difficulty keeping up with. d. Toyota was focused on "churning" out cars for which it did not invest sufficiently in training its workers.

a. as Toyota expanded its capacity, it experienced diseconomies of scale.

Economies of scale exist as a firm increases its size in the long run because of all of the following except a. as a firm expands its production, its profit margin per-unit of output increases. b. the firm can afford more sophisticated technology in production. c. as a larger input buyer, the firm can purchase inputs at a lower per unit cost. d. labor and management can specialize even further in their tasks.

a. as a firm expands its production, its profit margin per-unit of output increases.

Learning curves represent the relationship between a. average variable cost and the cumulative number of units produced b. average variable cost and the rate of increase in technology c. total cost and technology d. average variable cost and the number of units produced per time period

a. average variable cost and the cumulative number of units produced

When a credit card company offers different services with its cards, like travel insurance for air travel tickets purchased with the credit card or product insurance for items purchased with the card, the credit card company is trying to Select one: a. convince customers that its card has greater value than those offered by rival firms. b. create a barrier to entry for competing firms. c. shift the demand curve for competing firms to the right. d. create a perfectly competitive market in which to sell its credit card.

a. convince customers that its card has greater value than those offered by rival firms.

Juicy Couture has been successful in selling women's clothing using an unusual strategy. According to an article in the Wall Street Journal, the key to the firm's strategy is to "limit distribution to maintain the brand's exclusive cachet, even if that means sacrificing sales, a brand-management technique once used only for high-end luxury brands." In 2006, Juicy clothes were sold in only four department stores: Neiman Marcus, Saks, Bloomingdale's, and Nordstrom. In 2006, its sales have more than quadrupled since 2002. Source: Rachel Dodes, "From Track Suits to Fast Track," Wall Street Journal, September 13, 2006. How does limiting the number of stores in which Juicy's products are sold contribute to its success? Select one: a. Maintaining the exclusivity of a product increases the demand for the product. b. By sacrificing sales, the company was able to focus on producing high-quality products. c. It enables Juicy to price its products at a premium and differentiate them from lower-priced products. d. It helps establish Juicy's products as luxury items favored by the very wealthy.

c. It enables Juicy to price its products at a premium and differentiate them from lower priced products.

Max Shreck, an accountant, quit his $80,000-a-year job and bought an existing tattoo parlor from its previous owner, Sylvia Sidney. The lease has five years remaining and requires a monthly payment of $4,000. Max's explicit cost amounts to $3,000 per month more than his revenue. Should Max continue operating his business? Select one: a. If Max's marginal revenue is greater than or equal to his marginal cost, then he should stay in business. b. Max's explicit cost exceeds his total revenue. He should shut down his tattoo parlor. c. Max should continue to run the tattoo parlor until his lease runs out. d. This cannot be determined without information on his revenue.

c. Max should continue to run the tattoo parlor until his lease runs out.

Would you expect economies of scope to occur in the following situation; Producing two goods that are complementary to each for the buyer such as coffee and sugar. Select one: a. Cannot be determined based on the provided information b. Yes c. No d. I do not know

c. No

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000. The fixed cost of production is $20,000. The price of each good is $10. Should the firm continue to produce in the short run? Select one: a. No, it should shut down because it is making a loss. b. Yes, it should continue to produce because its price exceeds its average fixed cost. c. Yes, it should continue to produce because it is minimizing its loss. d. There is insufficient information to answer the question.

c. Yes, it should continue to produce because it is minimizing its loss.

If identical firms sell an undifferentiated product, advertising is likely to be Select one: a. focused on secret ingredients. b. used to attack the rivals' products. c. collectively undertaken by the industry group. d. strategically aimed at deterring entry.

c. collectively undertaken by the industry group.

An oligopolistic industry is characterized by all of the following except Select one: a. the possibility of reaping long run economic profits. b. production of standardized products. c. firms pursuing aggressive business strategies, independent of rivals' strategies. d. existence of entry barriers.

c. firms pursuing aggressive business strategies, independent of rivals' strategies.

The demand for labor is described as a derived demand because a. it is derived by workers seeking to earn income to fund the consumption of goods and services. b. it is derived by producers seeking to make profits by starting new businesses. c. it is derived from the demand for products that use labor in the production process. d. it is derived from government institutions which rely on labor markets for the purpose of raising tax revenue.

c. it is derived from the demand for products that use labor in the production process.

According to the Bertrand model, a firm will assume that rival firms will Select one: a. keep their rates of production constant b. match price increases but not price cuts c. keep their prices constant d. match price cuts but not price increases

c. keep their prices constant