AGECON 203 Homeworks for Exam 2
The figure depicts the supply curve of a certain firm. If A = 2, and the price elasticity of supply when price changes from 5 to B is 1/3, what is the producer surplus at the price B? A. $20 B. $40 C. $50 D. $30
B. $40
Which of the following is not one of the three conditions that characterizes a perfectly competitive market?
Firms have pricing power and can set their prices freely
All of the following are factors in a firm's elasticity of supply except: - inventories. - market price. - time. -labor.
market price
A monopoly has _______ and _____________. Price is set ________________ marginal cost.
one seller many buyers greater than
The aggregate difference between the average total cost (ATC) and average variable cost (AVC) for all units of production is the: - total fixed cost - total variable cost - marginal cost - total cost
total fixed cost
Using the 3-point curve drawing tool, draw the marginal cost curve for this firm in a competitive market. Label your curve 'MC'. When the ATC curve is decreasing, we know that the MC curve is _________ the ATC curve, and when the ATC curve is increasing, we know that MC is _________ the ATC curve.
below, above
A deadweight loss is the __________ in social surplus that results from a market ____________.
decrease, distortion
A change in the wage rate paid to the variable factor (labor) will shift the ________. - ATC curve - AVC curve - MC curve - ATC, AVC, and MC curves
- ATC, AVC, and MC curves
Consider the following scenario in a duopoly with homogeneous products: Marginal cost: $35 Market demand: 1,291 units Competitor's price: $43 Your price: $46 Assuming your competitor maintained their price, what would be your pricing response, and how many units would you expect to sell at that new price? Pricing response: Sales:
$42 1291 units
You are given the following information about the ABC Widget Company's short-run costs. Using what you have learned, fill in the missing values in the table. Given the table above, the average total cost of producing the fourth unit is $______ The marginal cost of producing the sixth unit is $_____ The marginal cost of producing the third unit is ___________________ the average total cost of the third unit. This means that producing the third unit causes the average total cost to _____________
$6 $6 less than , decrease
There are many identical firms with a simple cost structure: Total cost for Q = 0 is $6 and total cost for Q = 1 is $8. Each firm is incapable of producing anything more; in other words, total cost is infinite for any Q larger than 1. In the given scenario, the fixed cost for each firm is $____. In the short run, the equilibrium price will be $____. If firms are free to enter and exit this market, the long-run price will be $____.
$66 $2 $8
Ashley is willing to pay $7, Bill is willing to pay $5, and Carrie is willing to pay $1. Using the multipoint curve drawing tool, draw the demand curve. Properly label your line. Using the information given above, fill the demand schedule for each price. Price ($) Quantity 0 3 1 3 2 2 3 2 4 2 5 2 6 1 7 1 8 0 At a price of $2, the consumer surplus is $____. Suppose another buyer shows up who is willing to pay any amount for one unit. (Consider her word at face value.) Using the multipoint curve drawing tool, draw the new demand curve. Properly label your line.
$8
Scenario: In 2012, the company behind the EpiPen settled a lawsuit by agreeing to allow a generic competitor into the market in 2015, potentially cutting into a big part of its business. The company, Mylan, had already been steadily increasing the price of EpiPen, an injector containing a drug that can save people from life−threatening allergy attacks. After the settlement, it started to raise the price even faster. Now, as Mylan faces growing public furor over its pricing of EpiPen, the company's history of pricing the product highlights a common tactic in the drug industry: sharply raising prices in the years just before a generic competitor reaches the market, as a sort of final attempt to milk big profits from the brand−name drug. Whether the looming generic competition was a motive for the price increases is not entirely clear, because Mylan has declined to answer questions about its thinking. But while the company was once taking two 10 percent price increases a year, it has made two 15 percent increases annually starting in 2014, when the generic competition seemed imminent. Over all, the list price for a pack of two EpiPens is now over $600, up from a little more than $100 in 2007, the year Mylan acquired the product. Most of that increase−a rise to $609 from $265−has come in the last three years. (Source: "Mylan Raised EpiPen's Price Before the Expected Arrival of a Generic," New York Times, August 24, 2016.) Which condition of a perfectly competitive market could most directly be hampered in the market for epinephrine autoinjectors? - Each seller produces an identical good or service. - Each seller produces a negligible fraction of the total market supply. - There is free entry to and exit from the market. - None. The market for the product satisfies all the condition for perfect competition.
- Each seller produces a negligible fraction of the total market supply.
Which of the following is true of the price elasticity of supply? - Price elasticity of supply = Percentage change in quantity supplied/Absolute change in price - Price elasticity of supply = Percentage change in quantity supplied/Percentage change in price - Price elasticity of supply = Percentage change in quantity supplied × Percentage change in price - Price elasticity of supply = Percentage change in quantity supplied × Absolute change in price
- Price elasticity of supply = Percentage change in quantity supplied/Percentage change in price
Larry Krovitz is a salesman who works at a used-car showroom in Sydney, Australia. It's the last week of July, but he is yet to meet his sales target for the month. A customer, Harold Kumar, who wants to buy a Ford Fiesta, walks into the showroom. After taking one of the cars for a test drive, Harold decides to buy it. While $15,000 was the least that Larry would have been willing to accept for that car, he quotes a price of $17,000. After some bargaining, the car is sold for $12,000. In this case, the producer surplus is $−3000. If the cost of the car to Larry is $15,000, his profit is $−3000. Is producer surplus always equal to profit? - Producer surplus will always equal profit, since both profit and producer surplus measure the same concept. - Producer surplus equals profit when marginal cost and average total cost can be represented with the same curve. - Producer surplus is equal to profit when marginal cost is equal to fixed costs. - Producer surplus can never equal profit, since profit and producer surplus are based off of different curves.
- Producer surplus equals profit when marginal cost and average total cost can be represented with the same curve.
Would a profit-maximizing firm continue to operate if the price in the market fell below its average cost of production in the short run? - Yes, firms should keep producing until price falls below marginal cost. - Yes, but only if price was below average variable cost. - No, a firm should never produce if its price falls below average total cost. - Yes, but only if price stayed above average variable cost. The graph on the right shows the average total cost (ATC), average variable cost (AVC), marginal cost (MC), and marginal revenue (MR) for a firm. If the firm produces where marginal revenue equals marginal cost, what would be the fixed costs the firm would still have to pay if it shut down? 1.) Using the rectangle drawing tool, highlight the area on the graph that represents the fixed costs the firm must pay even if it shuts down.
- Yes, but only if price stayed above average variable cost.
You observe a market where in the long run firms earn zero economic profit, consumer and producer surplus is not maximized, and when a new firm enters the market, the price of similar products decrease. You are most likely observing a monopolistically competitive market. An industry has the following characteristics: •The consumers are price-takers. •The price is set above marginal cost and marginal revenue. •There are more than zero profits in the long-run. •The product has no close substitutes. The market conditions of this industry are those of: - monopolistic competition. - a monopoly. - perfect competition. - an oligopoly with homogeneous products. Consider a market structure in which there are only a few firms. These firms face a downward sloping residual demand curve with some entry barriers in the long-run. These conditions are satisfied by an oligopolistic market structure. In this market, if there are zero economic profits, then it reflects a situation of homogenous products in the long-run. If there are more than zero economic profits, then it depicts a case of differentiated products in the long-run.
- a monopoly
According to the U.S. Internal Revenue Service, "A section 501(c)(3) [a.k.a. non−profit] organization must not be organized or operated for the benefit of private interests, such as the creator or the creator's family, shareholders of the organization, other designated individuals, or persons controlled directly or indirectly by such private interests. No part of the net earnings of a section 501(c)(3) organization may inure to the benefit of any private shareholder or individual. A private shareholder or individual is a person having a personal and private interest in the activities of the organization." The IRS rule implies that ________. - a nonprofit organization must make zero profit (break even) - it is illegal for a nonprofit organization to make a profit - it is illegal for a nonprofit organization to maximize the profit - a nonprofit organization can use its profit only to further its mission
- a nonprofit organization can use its profit only to further its mission
All of the following could cause an increase in producer surplus except: - a shift in the market demand curve. - a downward shift in the marginal cost curve. - an upward shift in the marginal cost curve. - a higher equilibrium price.
- an upward shift in the marginal cost curve.
A firm will maximize profit at the level of output where ________. - its total cost equals its total revenue - its average revenue equals its average cost - its marginal revenue equals its marginal cost - its marginal revenue equals its total cost
- its marginal revenue equals its marginal cost
In a perfectly competitive market, ________. - each seller charges a different price for its product - sellers produce identical goods - there are restrictions on the entry of new firms - bargaining over prices is a common phenomenon
- sellers produce identical goods
Fill in the type of market that matches each feature mentioned below. Feature 1. Firm sets market price depending on other firm's market price. 2.Firms with zero ability to affect price. 3. A product with no close substitutes. Which of the following is not an example of monopolistic competition? A. Pharmaceuticals. B. Toothpaste producers. C. Fashion retailers. D. Gift shop.
1. Oligopoly 2. Perfect Competition 3. Monopoly A. Pharmaceuticals.
The long−run supply curve for a firm in a perfectly competitive industry is ________. A. vertical B. horizontal C. positively sloped D. negatively sloped
B. horizontal
You run a small classroom market experiment with only three buyers and three sellers. The willingness to pay (reservation value) for buyer A is $7 for each unit; for buyer B, it is $5 for each unit; and for buyer C, it is $3 for each unit. The willingness to accept (reservation value) for seller X is $2 for each unit; for seller Y, it is $4 for each unit; and for seller Z, it is $6 for each unit. 1.) Using the multipoint curve drawing tool, draw the demand curve for this market. Label the curve appropriately. 2.) Using the multipoint curve drawing tool, draw the supply curve for this market. Label the curve appropriately. Using the information given above, the equilibrium quantity is ___ units. Suppose the market is in equilibrium. Using the equilibrium price, the social surplus is $___. What if in your experiment, seller X and buyer C agree to a price of $2.50, seller Y and buyer B agree to a price of $4.50, and seller Z and buyer A agree to a price of $6.50? All participants have managed to find a trade that benefits them individually. Given this information, the new social surplus will be A. higher than the social surplus at the market equilibrium. B. equal to the social surplus at the market equilibrium. C. lower than the social surplus at the market equilibrium.
2 $6 C. lower than the social surplus at the market equilibrium.
Suppose there are five firms in an industry. Their sales (that is, total revenue) are as follows: • Firm 1: $98 million • Firm 2: $46 million • Firm 3: $30 million • Firm 4: $16 million • Firm 5: $10 million The Herfindahl-Hirschman Index (HHI) for this industry is _________?
3244
Assume the figure on the right shows the cost structure for a monopolistically competitive firm selling a particular brand of shoes. MC is the marginal cost curve and AC is the average cost curve. If this firm produces 2 thousand pairs of shoes, does it minimize average cost? How much more would they need to produce to reach minimum average cost? The firm needs to produce an additional __ thousand pairs of shoes to reach minimum average cost.
4
Producer surplus is the difference between the price consumers pay and the supply curve. The graph on the right depicts the supply and demand curves for a market in competitive equilibrium. 1.) Using the triangle drawing tool, highlight the area on the graph that represents producer surplus. Label this area 'PS'. Using your graph, calculate the producer surplus in this market. Producer surplus is ____
4.50
Which of the following statements regarding producer surplus are not true? (Check all that apply.) A. It is not possible to calculate the total producer surplus in the market. B. It arises from selling units at a price that is higher than the marginal cost. C. It is the difference between total cost and total revenue. D. It is the area below the marginal cost curve. Consider the adjacent graph. When the market price (Pmarket) is $2.50, the total producer surplus equals $______ If the equilibrium market price (Pmarket) changes to $2, the total producer surplus would _______.
A,C,D $250 decrease
The figure shows the revenue and cost curves of a monopolist. Compared to a competitive market, how much is the deadweight loss of this monopoly? A. $64 B. $50 C. $25 D. $144
A. $64
Tobacco companies have often argued that they advertise to attract more existing smokers and not to persuade more people to smoke. Suppose there were just two cigarette manufacturers, Jones and Smith. Each can either advertise or not advertise. If neither advertises, they each capture 50 percent of the market and each earns $20 million. If they both advertise, they again split the market evenly, but each spends $4 million on ads and so each earns just $16 million (remember, advertising is not supposed to encourage more people to smoke). If one company advertises but the other does not, then the company that advertises attracts many of its rival's customers. As a result, the company that advertises earns $24 million and the company that does not earns just $12 million. What is each firm's dominant strategy? A. Both firms' dominant strategy is to advertise. B. Smith's dominant strategy is to not advertise and Jones's dominant strategy is to advertise. C. Smith's dominant strategy is to advertise and Jones's dominant strategy is to not advertise. D. Both firms' dominant strategy is to not advertise. E. Neither firm has a dominant strategy. Suppose the government proposes a ban on cigarette ads. The two companies should favor the ban.
A. Both firms' dominant strategy is to advertise. Favor
Both monopolies and monopolistically competitive firms set marginal revenue equal to marginal cost to maximize profit. Given the same cost curves, would you expect prices to be higher in a monopoly or a monopolistically competitive market? A. Monopoly, because its demand is more inelastic. B. Monopoly,because it is a price taker. C. Monopoly, because consumers are more sensitive to price. D. Monopolistically competitive market, because demand is greater.
A. Monopoly, because its demand is more inelastic.
Suppose the refrigerator industry has an HHI of 2,500 while the aluminum industry's HHI is 6,850. Is this information sufficient to conclude that the aluminum market is less competitive than the market for refrigerators? A. Not necessarily. Although the HHI indicates a smaller number of firms, those firms may compete intensely. B. No, because close substitutes exist in the refrigerator market. C. Yes, because there are more firms in the refrigerator market. D. Not necessarily. It could indicate increased competition because firms could be more profitable.
A. Not necessarily. Although the HHI indicates a smaller number of firms, those firms may compete intensely.
Which of the following statements about price, P, is correct? A. P=MR = MC can only be true in perfect competition. B. P=MR = MC can only be true if economic profits are zero. C. P=MR = MC can only be true at profit maximization. D. P=MR = MC can be true for certain oligopolies.
A. P=MR = MC can only be true in perfect competition.
A monopolist should continue to increase production until marginal A. cost is equal to marginal revenue. B. revenue is greater than marginal cost. C. cost is greater than marginal revenue. D. revenue is less than marginal cost.
A. cost is equal to marginal revenue.
In a perfectly competitive market, when firms enter and exit competitive markets: A. it is a good sign the market is working. B. the market is not working well because the market price is too low. C. the market is not working well because the market price is too high. D. the market is not working well because firms are leaving the market.
A. it is a good sign the market is working.
A market structure in which identical goods are produced by several different firms and sold at the market−determined price is referred to as ________. A. perfect competition B. monopolistic competition C. a monopoly D. an oligopoly
A. perfect competition
When firms charge different prices to different consumers for the same good or service, it is referred to as ________. A. price discrimination B. predatory pricing C. a price bias D. shadow pricing
A. price discrimination
In a monopolistically competitive market, a firm earning negative economic profit in the short run will ____________. A. produce only if price is greater than average variable cost. B. produce when revenue is positive. C. produce only if price is greater than marginal cost. D. shut down to avoid losses.
A. produce only if price is greater than average variable cost.
In a perfectly competitive market, a firm with multiple production plants will minimize total costs of production when A. closing older plants with less advanced production technologies. B. each plant produces where marginal revenue equals marginal cost. C. each plant produces at maximum capacity. D. the cost of production for all plants is equal.
B. each plant produces where marginal revenue equals marginal cost.
Which of the following statements are true after considering the given graph? (Check all that apply.) A. The total revenue of the good is negative for any quantity above 400 million. B. The marginal revenue of the good is positive for a quantity below 400 million. C. The marginal revenue of the good is zero at a quantity of 800 million. D. The total revenue of the good is maximized at a quantity of 400 million. From the given graph, it is observed that at $4 the total revenue of the good is maximized. Therefore, price elasticity of demand at a price above $4 is elastic. At $4, the price elasticity of demand for the good is one.
B & D
Which of the following is not a characteristic of monopolistic competition? (Check all that apply.) A. Slope of the demand curve is negative. B. Entry and exit is not easy. C. Products are perfect substitutes. D. Sellers are price-makers. Why does a monopolistically competitive industry make zero economic profit in the long-run? A. The firms produce homogeneous products. B. The firms produce similar products that are not perfect substitutes. C. The firms do not have pricing power. D. There is the free entry of many firms in the long-run.
B & D D
The figure shows the cost and revenue curves of a firm in a monopoly market. How much profit does this firm make? A. $20 B. $50 C. $64 D. $70
B. $50
The figure shows short−run average total cost curves for a firm under four different production technologies. Assume that there are only four different technologies that the firm could use. The long−run average total cost curve of the firm goes through points ________. A. B,D,E,F B. A, D, F, G C.A, B, D, E D. B, C, E, G
B. A, D, F, G
Which of the following is likely to happen if the government imposes a price control at $60, when the demand curve shifts to D2? A. There will be a surplus of 15 units of the good in the market. B. There will be a shortage of 15 units of the good in the market. C. There will be a surplus of 10 units of the good in the market. D. There will be a shortage of 10 units of the good in the market.
B. There will be a shortage of 15 units of the good in the market.
The problem of superbugs, which are bacteria that resist all available forms of antibiotics, is becoming a serious challenge for doctors. Developing new antibiotics is very costly. Can a monopoly be good for the society in this regard? A. No, because the firms in a competitive market invest more in research and development to remain competitive. B. Yes, because innovation is more likely in a monopoly. C. No, because the price of the antibiotic will increase in a monopoly. D. Yes, because there will be smaller deadweight loss in the market.
B. Yes, because innovation is more likely in a monopoly.
Oligopolistic firms that sell differentiated products determine their prices when prices are __________. A. identified independently by each firm from the demand curve for its product. B. determined simultaneously by the firms as best responses given other firm prices. C. agreed upon by firms jointly conspiring to maximize profits. D. set equal to marginal cost for each firm.
B. determined simultaneously by the firms as best responses given other firm prices.
Suppose you and your friends decide to go to the beach during spring break. You need to fly from Kansas City to Miami but only two airlines provide the service. This market is best characterized as ___________. A. monopolistic competition. B. oligopoly. C. monopoly. D. perfect competition
B. oligopoly.
A perfectly competitive firm will choose to shut down when the price (marginal revenue) intersects the marginal cost curve below the average variable cost curve. Therefore, the short-run supply curve for a perfectly competitive firm is represented by __________. A. the portion of the average variable cost curve below marginal cost. B. the portion of the marginal cost curve above average variable cost. C. the portion of the average variable cost curve above marginal cost. D. the portion of the marginal cost curve above average total cost. In the long run, the supply curve for a perfectly competitive firm is represented by __________. A. the portion of the marginal cost curve above average variable cost. B. the portion of the average variable cost curve above marginal cost. C. the portion of the marginal cost curve above average total cost. D. the portion of the average variable cost curve below marginal cost.
B. the portion of the marginal cost curve above average variable cost. C. the portion of the marginal cost curve above average total cost.
In recent years, some online firms have offered different consumers different prices for the same good. These firms use the consumer's IP address to find what city they are in and then charge a higher price to people in wealthier cities. This type of pricing behavior is ____________. A. first-degree price discrimination. B. third-degree price discrimination. C. second-degree price discrimination. D. location discrimination. Consider the standard monopoly graph on the right that illustrates a monopoly's demand, marginal revenue, and marginal cost curves. If this monopoly is able to engage in perfect price discrimination, what area would be considered producer surplus? Using the triangle drawing tool, illustrate the area that would represent producer surplus if this monopoly was able to engage in perfect price discrimination. Label your area 'PS.' Compared to a monopoly that does not price discriminate, a monopolist who engages in perfect price discrimination will produce more output and have no deadweight loss.
B. third-degree price discrimination.
The figure shows the marginal cost (circles) and the average variable cost (crosses) of a firm in a competitive market. The firm always makes the choice to maximize its profit. If the market price of the product is $1,700, what is the firm's producer surplus? A. -$300 B. -$800 C. $0 D. $300
C. $0
Scenario: Suppose a competitive market has ten buyers and ten sellers. The product exchanged in this market is beach hats, which are indivisible. The table shows the reservation values for both buyers and sellers. Suppose the equilibrium price in this market is $10. What is the amount of social surplus in this market? A. $15 B. $39 C. $44 D. $30
C. $44
The graph on the right represents the demand, marginal revenue, and marginal cost curves for a monopoly. What price should this monopolist charge to maximize profits? A. $4.50. B. $4.00. C. $5.00. D. $2.00. Using the graph on the right, indicate the profit-maximizing price and quantity. 1.) Using the point drawing tool, place a point at the profit-maximizing price and quantity combination. Which of the following statements are true regarding the profit-maximizing price charged by a monopolist? (Check all that apply.) A. It occurs at the quantity where MR = MC. B. It is greater than MR. C. It occurs along the elastic part of the demand curve. D. It occurs at the quantity where MC = D. E. It is greater than MC.
C. $5.00. A,B,C,E
The figure shows the marginal revenue (MR) and demand curves faced by a monopolist. If the monopolist faces a constant marginal cost of $2, what is the optimal quantity that it should produce? A. 45 units B. 80 units C. 40 units D. 20 units
C. 40 units
Which of the following firms is most likely to have a constant marginal cost? A. A firm that faces a horizontal demand curve B. A firm that has extremely high variable costs C. A firm that has extremely high fixed costs D. A firm that is a price−taker
C. A firm that has extremely high fixed costs
$100 is to be divided among two individuals−Mary and Jenna. Which of the following allocations is Pareto efficient? A. Mary receives $90, and Jenna receives $9. B. Mary receives $20, and Jenna receives $75. C. Mary receives $1, and Jenna receives $99. D. Mary receives $45, and Jenna receives $45.
C. Mary receives $1, and Jenna receives $99.
Monopolistically competitive firms earn zero economic profit in the long run as do perfectly competitive firms. Does this mean that total surplus is maximized in a monopolistically competitive market? A. No, because firms increase production to gain market share. B. No, because firms produce where marginal cost equals marginal revenue. C. No, because firms produce where price is greater than marginal cost. D. Yes, because production occurs at the minimum average total cost.
C. No, because firms produce where price is greater than marginal cost.
Sofia, a political science student, thinks that the government should intervene to revive declining industries like video stores and print newspapers. The government, she reasons, can resolve the coordination problem of getting the agents in these markets to trade. Do you agree with her? Explain your answer. A. Yes, government intervention is necessary to generate more buyers for these industries, thus coordinating buyers with existing sellers. B. Yes, the coordination problems of these industries suggest that the invisible hand is failing, so government intervention would revive these industries. C. No, these industries are declining not because of coordination problems but, rather, because of falling demand. D. No, these declining industries are plagued by coordination problems, but government intervention is never the answer.
C. No, these industries are declining not because of coordination problems but, rather, because of falling demand.
Scenario: Jenna makes homemade pastries. Her fixed input in the short run is the mixer. In the long run, she can choose a spatula, hand mixer, or a stand mixer. The table shows the short−run fixed cost (F.C and variable cost (VC) of weekly production using each different level of the capital input. If Jenna wants to make 500 pastries per week, which level of capital input should she choose? A. Spatula mixer B. Hand mixer C. Stand mixer D. Any of the three mixers
C. Stand mixer
Which of the following would maximize social surplus? A. Restrict the quantity sold in the market below the equilibrium quantity. B. Enforce trade beyond the equilibrium quantity. C. Trade at the competitive market equilibrium. D. Set price floors above the equilibrium price
C. Trade at the competitive market equilibrium.
The long-run supply curve is the portion of the MC curve: A. below the AVC curve. B. above the AVC curve. C. above the ATC curve. D. below the ATC curve.
C. above the ATC curve.
A monopolistic competitor maximizes profits by producing 180 hamburgers per day. At this quantity, his average total cost is $5, and his average variable cost is $2. He charges $4 per hamburger. The firm would generate an economic loss of $180 In this case the monopolistic competitor should: A. raise the price per hamburger to cover the average total cost. B. keep producing, generating an economic loss in the long run. C. keep producing, generating an economic loss in the short run. D. shut down.
C. keep producing, generating an economic loss in the short run.
When a monopolist sells positive levels of output, its demand curve ________. A. is vertical, whereas its marginal revenue curve is horizontal B. and marginal revenue curve overlap C. lies above its marginal revenue curve D. lies below its marginal revenue curve
C. lies above its marginal revenue curve
Consider four market structures: perfect competition, monopolistic competition, oligopoly, and monopoly. Firms in all four market structures maximize profits by producing the quantity where ___________. A. price equals marginal cost. B. marginal cost equals zero. C. marginal revenue equals marginal cost. D. price equals marginal revenue.
C. marginal revenue equals marginal cost.
Greenaqua Corp. was given the exclusive right to produce and sell its newly introduced water purifier for 20 years. The right granted to Greenaqua is an example of a ________. A. blueprint B. trademark C. patent D. copyright
C. patent
The graph on the right shows the long-run average cost curve and marginal cost curve for a firm in a perfectly competitive market. Based on the graph to the right, the long-run supply curve is __________. A. the same as the average total cost curve, since it represents the lowest costs in the long run. B. segment AB, since it is the lowest cost segment of the marginal cost curve. C. segment BC, since at prices below B the firm would shut down in the long run. D. segment AC, since the long-run supply curve includes all segments of the marginal cost curve above average variable cost.
C. segment BC, since at prices below B the firm would shut down in the long run.
The figure shows the marginal cost curve and the average total cost curve of a firm operating in a perfectly competitive industry. What is the maximum profit that the firm can make? A. $180 B. $90 C. $30 D. $60
D. $60
The figure is a supply−demand diagram that characterizes the demand, marginal revenue, and cost curves for a profit−maximizing monopolist. If the industry were perfectly competitive (marginal cost pricing) rather than a monopoly, social surplus would be ________. A. Areas A + B + C + D + E B. Areas A + B + C C. Areas A + C D. Areas A + B + C + D
D. Areas A + B + C + D
Imagine you are a buyer in a double oral auction with a reservation value of $16 and there is a seller asking for $10. If you accept this offer, you will gain $6. If you are the only buyer, and you know that the lowest ask price is $2, should you accept this offer? A. Yes, since you will gain $14. B. No, as the only buyer you can extract a lower ask price. C. Yes, accepting an offer from any other seller will reduce your surplus. D. Both A and C are correct.
D. Both A and C are correct.
Consider the differences, if any, between a perfectly competitive market and a monopoly market. Compared to a perfectly competitive market, consumer surplus is lower, producer surplus is higher, and deadweight loss is higher. When a firm exercises its monopoly power, social surplus is lower when compared to a perfectly competitive market. When a firm exercises its monopoly power, the cost to society is the ____________. A. increased producer surplus. B. lost consumer surplus. C. firm's economic profit. D. deadweight loss.
D. Deadweight loss
Which of the following is a key difference between perfect competition and monopoly? A. In perfect competition, there are high entry barriers, but with monopoly, barriers to entry are low. B. With monopoly, social surplus is always maximized. C. Monopolies produce identical goods, while goods produced by perfectly competitive firms are slightly differentiated. D. In perfect competition, no one firm can influence price, but with monopoly, a single seller sets the price.
D. In perfect competition, no one firm can influence price, but with monopoly, a single seller sets the price.
Why is city drinking water better off as a natural monopoly? A. It experiences constant returns to scale since marginal costs are constant, allowing any number of providers to produce an efficient amount. B. It experiences constant returns to scale since it is sanctioned by the government, allowing a single provider to charge a lower price. C. It experiences diseconomies of scale since the marginal cost curve is upward-sloping, indicating that normal market forces break down and only one firm can profitably produce. D. Industries like city drinking water experience economies of scale since they have high fixed costs. Thus, it is cheaper to have a single firm provide a larger quantity. An example of an industry or service that is a natural monopoly is ____________. A. landscapers. B. a natural gas pipeline. C. hair stylists. D. carpet cleaners.
D. Industries like city drinking water experience economies of scale since they have high fixed costs. Thus, it is cheaper to have a single firm provide a larger quantity. B. a natural gas pipeline.
All of the following statements about market structures are true except: A. Monopolists' sales revenues are constrained by market demand. B. Perfect competitors can have short-run economic profits. C. Oligopolists often practices game theory. D. Monopolistic competitors practice marginal cost pricing.
D. Monopolistic competitors practice marginal cost pricing.
1) The economic profits made by a monopolistically competitive firm decreases when there is an entry of a new firm and is equal to zero when in long-run equilibrium. 2) The demand curve will shift right and its slope will be steeper if a firm exits the market. Which of the following factors will not lead to zero economic profit in long-run equilibrium in a monopolistically competitive market? A. Entry of many new firms in the long-run. B. Advertising and innovating the product. C. Establishing the brand name of the product. D. None of the above factors.
D. None of the above factors.
The figure shows the supply and the demand for a good (left) and the cost curves of an individual firm in this market (right). Assume that all firms in this market, including the potential entrants, have identical cost curves. Initially, the market is in equilibrium at point A. As firms enter or exit, the market will tend toward the long−run equilibrium, where each firm earns ________ at the price ________. A. zero accounting profit; $0 B. positive economic profit; $3 C. negative economic profit; $2 D. zero economic profit; $2
D. zero economic profit; $2
Which of the following is not one of the sources of natural market power? A. Controlling a key resource. B. The presence of economies of scale. C. Having individual expertise in a field. D. Production of a luxury good. Which of the following best describes network externalities? A. They are the benefits to a firm from increasing its online presence. B. They are the benefits received by other firms from the actions taken by a monopolist. C. They occur when a product's value increases as more consumers begin to use it. D. They occur when a firm hires an outside company to help lower its costs. The graph on the right shows the average total cost curve for a firm. How would the cost differ if the market consisted of only one large firm compared to a market with many small firms? 1.) Using the point drawing tool, place a point at the output and average cost combination that would exist if there was one large monopoly producing 80 units. Label your point 'Monopoly.' 2.) Using the point drawing tool, place a point at the output and average cost combination that would exist if this was the ATC curve for one of many firms, where each firm produces 20 units. Label your point 'Competition.' Using the graph, a firm with that type of cost curve is best suited to be ___________. A. a competitive firm, since it faces diseconomies of scale, which gives it an advantage over small competitive firms. B. a natural monopoly, since it faces economies of scale and can produce at a lower cost if done by one firm. C. a monopoly based on legal market power, since it faces diseconomies of scale and can produce at a lower cost if done by one firm. D. a competitive firm, since it faces economies of scale, which gives it an advantage over small competitive firms.
D. Production of a luxury good. C. They occur when a product's value increases as more consumers begin to use it. B. a natural monopoly, since it faces economies of scale and can produce at a lower cost if done by one firm.
Major league baseball teams have imposed what is commonly called the "luxury tax" on themselves. A team is subject to the tax if its payroll exceeds a specified level. The annual threshold for the luxury tax is $189 million for 2014-16. A team that exceeds the threshold must pay 17.5 percent to 50 percent of the amount by which its payroll is above the threshold, where the "tax rate" depends on the number of years the team is over. This question looks at why teams might subject themselves to this tax. Suppose there are two major league baseball teams, Team 1 and Team 2. They will both choose to offer either high salaries to players or low salaries. They will make their decisions simultaneously. If both choose low each will earn $500; if both choose high each will earn $450. If one chooses high and the other chooses low, the team that chooses high will attract the best players and will earn $650, but the team that chooses low will earn just $350. Show that high is a dominant strategy but that both teams would be better off if both chose low. If one team picks low, then the other team reduces its payoff by $150 from picking low instead of high, and if one team picks high, then the other team reduces its payoff by $100 from picking low instead of high. (Enter your responses as integers.) If both teams picked low, then their combined payoff would be higher by $100 relative to the outcome where they both pick high. (Enter your response as an integer.) Under a 1922 Supreme Court decision, major league baseball is not subject to many antitrust laws. Suppose these two teams agree to a "luxury tax." Under this luxury tax, a team that chooses high must pay a tax of $275. What is the Nash equilibrium? A. The Nash equilibria is for both teams to pick high and both teams to pick low. B. The Nash equilibrium is for both teams to pick high. C. The Nash equilibria is for Team 1 to pick high and Team 2 to pick low and for Team 1 to pick low and Team 2 to pick high. D. The Nash equilibrium is for both teams to pick low. E. The game does not have a Nash equilibrium. Some people might argue that the luxury tax in baseball is not an important determinant of major league salaries. As evidence, they show that team payrolls rarely exceed the threshold level and so teams rarely pay the tax. Your answer to this question suggests the logic of the luxury tax is __________. A. important, because it promotes low salaries. B. not important, because it does not affect salaries. C. important, because teams collude. D. not important, since teams seek to maximize payoffs.
D. The Nash equilibrium is for both teams to pick low. A. important, because it promotes low salaries.
What happens in a monopolistically competitive market when firms exit the market? A. Firms have less market power. B. The existing firm's demand curve shifts in and becomes flatter. C. Consumers become more sensitive to price. D. The existing firm's demand curve shifts out and becomes steeper.
D. The existing firm's demand curve shifts out and becomes steeper.
Seller A increases the price of its good by 20% and still enjoys a high market demand. Due to the high demand, there is an increase in the number of similar sellers in the long-run. This is an example of monopolistic competition. Which of the following is not a common characteristic between a monopoly and monopolistic competition? A. There is deadweight loss in the market. B. The slope of the demand curve is negative. C. The price set by the seller/producer will be above marginal revenue. D. The products sold have close substitutes. Suppose Good A belongs to a market where the firms earn zero economic profits in the long-run and entry of new firms will result in price changes that operate through shifts in the market supply curve for Good A. Which market structure does Good A belong to? A. The perfectly competitive market. B. The oligopolistic market with homogenous products. C. The oligopolistic market with differentiated products. D. The monopolistic competitive market.
D. The products sold have close substitutes. A. The perfectly competitive market.
For a market to be characterized as an oligopoly, there must be __________. A. few sellers. B. a possibility of positive economic profits in the long run. C. homogeneous or differentiated products. D. all of the above. An example of an oligopoly is the __________. A. local electric company. B. corn market. C. patented drug market. D. cell phone market.
D. all of the above. D. cell phone market.
When existing firms leave a perfectly competitive market, it causes ________. A. a decrease in the profitability of existing firms B. a rightward shift in the demand curve of the good being produced by the firms C. a leftward shift in the demand curve of the good being produced by the firms D. an increase in the profitability of existing firms
D. an increase in the profitability of existing firms
In an oligopoly with differentiated products: A. game theory will be useless. B. barriers to entry will be low. C. prices will equal marginal costs. D. economic profit will exist.
D. economic profit will exist.
Total revenue for a monopolist is maximized A. where marginal revenue and demand are equal. B. only if the slope is positive. C. on the elastic portion of the demand curve. D. only if marginal revenue is zero.
D. only if marginal revenue is zero.
Perfect price discrimination implies that ________. A. demand is perfectly inelastic B. the firm produces a smaller output than it would as a single−price monopolist C. demand is perfectly elastic D. the firm produces a larger output than it would as a single−price monopolist
D. the firm produces a larger output than it would as a single−price monopolist
Suppose the world demand schedule for oil is as follows: Price per Barrel Quantity Demanded $50 40 $75 30 $130 20 There are two oil-producing countries, A and B. Each will produce either 10 or 20 barrels of oil. To keep things simple, assume they can produce this oil at zero cost. There are four possible outcomes: Country B produces 10 or 20 barrels of oil and Country A produces 10 or 20 barrels of oil. Find each country's profit for each of these four possibilities. If Country A produces 10 and Country B produces 10, then Country A's profit is $1300 and Country B's profit is $1300. If Country A produces 20 and Country B produces 10, then Country A's profit is $1500 and Country B's profit is $750 If Country A produces 10 and Country B produces 20, then Country A's profit is $750 and Country B's profit is $1500. Part 6 If Country A produces 20 and Country B produces 20, then Country A's profit is $1000 and Country B's profit is $1000. These payoffs are illustrated in the payoff matrix on the right. Suppose these countries choose the quantity of oil to produce simultaneously and without consulting with one another. What is each country's dominant strategy? A. Neither firm has a dominant strategy. B. Each country's dominant strategy is to produce 10. C. A's dominant strategy is to produce 20 and B's dominant strategy is to produce 10. D. A's dominant strategy is to produce 10 and B's dominant strategy is to produce 20. E. Each country's dominant strategy is to produce 20. The oil ministers realize they can do better if they collude and agree that each will produce 10. By colluding, each country will increases its profit by $300 if each produces 10 instead of 20. (Enter your response as an integer.) Country A will have an incentive to cheat and produce 20 instead of 10, and Country B will have an incentive to cheat and produce 20 instead of 10
E. Each country's dominant strategy is to produce 20.
Consider a perfectly competitive market as shown in the given graph. Suppose the initial price of a product is $1.40 per unit. At this price, the marginal revenue (MR) curve faced by a firm is _______. If the market price increases from $1.40 to $2.70 per unit, the firm would ____________ production from 272 to 350 units. If the market price decreases from $1.40 to $0.80 per unit, the firm would produce 200 units because at this price ___________. Which of the following statements is not true? - Sunk costs do not affect current and future production decisions. - The short-run supply curve of a firm is the portion of its marginal cost (MC) curve that lies below AVC. - A firm should continue operating in the short-run if the market price is between average total cost (ATC) and AVC. - A firm should shut down if average variable cost (AVC) is greater than the market price.
MR1 increase MR2 = MC - The short-run supply curve of a firm is the portion of its marginal cost (MC) curve that lies below AVC.
The graph on the right shows the marginal revenue, marginal cost, and average total cost curves for a firm in a perfectly competitive market. If this firm produced at the profit-maximizing output level, what would be the size of this firm's profits or losses? 1.) Using the rectangle drawing tool, illustrate the size of this firm's profits or losses if it produces at the profit-maximizing output level. Label the area appropriately.
Refer to image
In a perfectly competitive market, all of the following are true except: The products sold are basically homogenous Entry into the market is unrestricted The market supply cannot affect the retail price Sellers are price-takers
The market supply cannot affect the retail price
A firm is experiencing economies of scale when its ___________________ declines as more output is produced. The table below shows the long-run total costs of three different firms. Do firms 1 and 2 experience economies of scale? Or do they experience diseconomies of scale? A. Both firms are experiencing diseconomies of scale. B. Both firms are experiencing economies of scale. C. Firm 1 is experiencing economies of scale, while firm 2 is experiencing diseconomies of scale. D. Firm 1 is experiencing diseconomies of scale, while firm 2 is experiencing economies of scale. Minimum efficient scale is the lowest level of output where long-run average total cost is minimized. Firm 3's minimum efficient scale occurs when the output is ______ unit(s). A. 1. B. 2. C. 3. D. 4.
average total cost C. Firm 1 is experiencing economies of scale, while firm 2 is experiencing diseconomies of scale. C. 3.
While at a Subway® in your neighborhood, you notice that a single employee completes an order, right from helping you choose your bread, veggies, and meat to making your sub the way you want it. However, over at Pizza Hut®, each task in a pizza order is completed by a different worker. Why do you think Subway and Pizza Hut have chosen these different ways to produce meals? Pizza production is mostlystandardized, so Pizza Hut _____ take advantage of specialization and the division of labor, while sandwich production is more customized so Subway ______ take advantage of specialization and the division of labor.
can cannot
In a perfectly competitive market, a seller _______ choose to raise the price of its good since all sellers in the market produce ____________ , so raising the price would result in _________________. All firms in a perfectly competitive market are said to be _____________?
cannot, identical goods, losing all its customers price takers
The long-run supply curve in a perfectly competitive market is ________. The long-run supply curve in a perfectly competitive market states that _____. A. the long-run quantity remains the same while the equilibrium price varies B. the long-run quantity can vary while the equilibrium price returns to the price at the minimum of the average total cost C. both the long-run quantity and the equilibrium price increase D. both the long-run quantity and the equilibrium price decrease Suppose Louis Corporation could increase its profits considerably if it decided to shift from the clothing industry to the IT industry. In this case, the economic profits of Louis Corporation in the clothing industry are ________. In contrast, suppose Louis Corporation wouldn't be able to increase its profits if it decided to shift from the clothing industry to the IT industry. In this case, the economic profits of Louis Corporation in the clothing industry are _____.
horizontal B. the long-run quantity can vary while the equilibrium price returns to the price at the minimum of the average total cost negative zero
In short-run equilibrium, Firm A sells 125 units of output at $67 per unit and faces an average total cost of $45. Profits earned by Firm A at equilibrium are $2750. Using the rectangle drawing tool, draw the region which depicts the total profits for Firm A. The opportunity cost of the time that Firm A's owner spends on running the company will be included in its ___________ costs. Which of the following expressions correctly describes economic profits? - Marginal revenues−explicit costs. - Total revenues - explicit costs. - Total revenues - implicit costs - explicit costs. - Marginal revenues - implicit costs - explicit costs
implicit Total revenues - implicit costs - explicit costs.
If some sellers exit a competitive market, how will this affect its equilibrium? 1.) Using the 3-point drawing tool, show the impact if some sellers exit a competitive market. Label your new curve appropriately. 2.) Using the point drawing tool, show the new equilibrium price and quantity. Label this point 'A'. According to your graph, when some sellers exit a competitive market, the equilibrium price ________ and the equilibrium quantity ________.
increases, decreases
If firms in a perfectly competitive market are earning profits or incurring losses in the short run, then in the long run these profits or losses will either cause new firms to enter or existing firms to leave the market. This will result in a shift in the _________________ until profits are ____. Given the long-run adjustment process that takes place after a supply or demand shock, we know that the industry supply curve must be __________. A. downward-sloping, since the supply curve will shift downward until all firms are incurring losses. B. horizontal, since the supply curve shifts until price is back to its original level and profits are back to zero. C. upward-sloping, since it is simply the sum of the short-run supply curves for each individual firm. D. vertical, since the demand curve will continue to shift until all firms in the market earn profits.
industry supply curve zero B. horizontal, since the supply curve shifts until price is back to its original level and profits are back to zero.
