ECO Test Bank 3

Scenario 14-1Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit. Refer to Scenario 14-1. At Q = 1,000, the firm's profits equal

$1,000

Scenario 15-4 Suppose a monopolist has a demand curve that can be expressed as P=90-Q. The monopolist's marginal revenue curve can be expressed as MR=90-2Q. The monopolist has constant marginal costs and average total costs of $10. Refer to Scenario 15-4. The profit-maximizing monopolist will earn profits of

$1,600

Katherine gives piano lessons for $20 per hour. She also grows flowers, which she arranges and sells at the local farmer's market. One day she spends 5 hours planting $50 worth of seeds in her garden. Once the seeds have grown into flowers, she can sell them for $150 at the farmer's market. Katherine's accounting profits are

$100, and her economic profits are $0

Scenario 15-6 The concert promoters of a heavy-metal band, WeR2Loud, know that there are two types of concert-goers: die-hard fans and casual fans. For a particular WeR2Loud concert, there are 1,000 die-hard fans who will pay $150 for a ticket and 500 casual fans who will pay $50 for a ticket. There are 1,500 seats available at the concert venue. Suppose the cost of putting on the concert is $50,000, which includes the cost of the band, lighting, security, etc. Refer to Scenario 15-6. How much profit will the concert promoters earn if they set the price of each ticket at $150?

$100,000

Scenario 13-4Suppose that Abdul opens a coffee shop. He receives a loan from a bank for $100,000. He withdraws $50,000 from his personal savings account. The interest rate on the loan is 8%, and the interest rate on his savings account is 2%. Refer to Scenario 13-4. Abdul's annual implicit cost of capital is

$1000

Consider a firm operating in a competitive market. The firm is producing 40 units of output, has an average total cost of production equal to $5, and is earning $240 economic profit in the short run. What is the current market price?

$11

Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales. If the firm increases its output to 200 units, the average revenue of the 200th unit will be

$12

Scenario 13-5Suppose that Emily opens a restaurant. She receives a loan from a bank for $200,000. She withdraws $100,000 from her personal savings account. The interest rate on the loan is 6%, and the interest rate on her savings account is 2%. Refer to Scenario 13-5. Emily's annual explicit cost of capital is

$12,000

Scenario 13-7Julia prepares tax returns and does bookkeeping. Last year her revenues from the tax and bookkeeping business were $150,000, and her expenses for the business were $15,000. When she started her tax and bookkeeping business, Julia gave up her supplemental job doing in-home pet sitting. She used to earn $10,000 per year from pet sitting. Assume that she incurred no costs for her pet sitting business. Refer to Scenario 13-7. Julia's economic profits are

$125,000

Scenario 15-6 The concert promoters of a heavy-metal band, WeR2Loud, know that there are two types of concert-goers: die-hard fans and casual fans. For a particular WeR2Loud concert, there are 1,000 die-hard fans who will pay $150 for a ticket and 500 casual fans who will pay $50 for a ticket. There are 1,500 seats available at the concert venue. Suppose the cost of putting on the concert is $50,000, which includes the cost of the band, lighting, security, etc. Refer to Scenario 15-6. How much profit will the concert promoters earn if they engage in price discrimination?

$125,000

Scenario 15-3 A monopoly firm maximizes its profit by producing Q = 500 units of output. At that level of output, its marginal revenue is $30, its average revenue is $60, and its average total cost is $34. Refer to Scenario 15-3. At Q = 500, the firm's profit is

$13,000

Scenario 13-5Suppose that Emily opens a restaurant. She receives a loan from a bank for $200,000. She withdraws $100,000 from her personal savings account. The interest rate on the loan is 6%, and the interest rate on her savings account is 2%. Refer to Scenario 13-5. Emily's total opportunity cost of capital is

$14,000

The assessment by George Stigler concerning the tradeoffs between "market failure" and "political failure" in the American economy provides support for which of the following solutions to the problems of monopolies?

doing nothing at all

One method used to control the ability of firms to capture monopoly profit in the United States is through

enforcement of antitrust laws.

For a monopolist, marginal revenue is

less than price, whereas marginal revenue is equal to price for a perfectly competitive firm

When a firm experiences constant returns to scale,

long-run average total cost is unchanged, even when output increases.

In order to sell more of its product, a monopolist must

lower its price

A monopoly firm is a price

maker and has no supply curve

In a competitive market, no single producer can influence the market price because

many other sellers are offering a product that is essentially identical

In the short-run, a firm's supply curve is equal to the

marginal cost curve above its average variable cost curve.

Profit-maximizing firms in a competitive market produce an output level where

marginal cost equals marginal revenue

When a firm's only variable input is labor, then the slope of the production function measures the

marginal product of labor

A monopoly chooses to supply the market with a quantity of a product that is determined by the intersection of the

marginal revenue and marginal cost curves.

Mr. Rogers sells colored pencils. The colored-pencil industry is competitive. Mr. Rogers hires a business consultant to analyze his company's financial records. The consultant recommends that Mr. Rogers increase his production. The consultant must have concluded that Mr. Roger's

marginal revenue exceeds his marginal cost

A profit-maximizing monopolist will produce the level of output at which

marginal revenue is equal to marginal cost

If a profit-maximizing monopolist faces a downward-sloping market demand curve, its

marginal revenue is less than the price of the product.

Profit is defined as total revenue

minus total cost

A market structure with barriers to entry is

monopoly

When a single firm can supply a product to an entire market at a lower cost than could two or more firms, the industry is called a

natural monopoly

A firm that exits its market has to pay

neither its variable costs nor its fixed costs

When profit-maximizing firms in competitive markets are earning profits,

new firms will enter the market.

For a firm in a competitive market, an increase in the quantity produced by the firm will result in

no change in the product's market price

A reduction in a monopolist's fixed costs would

not effect the profit-maximizing price or quantity

Bill operates a boat rental business in a competitive industry. He owns 10 boats and pays $1,000 per month on the loan that he took out to buy them. He rents each boat for $200 per month. The variable cost for each boat rental is $50. In the off season, Bill should

operate his business as long as he rents at least 1 boat per month

When a monopolist is able to sell its product at different prices, it is engaging in

price discrimination

A rational pricing strategy for a profit-maximizing monopolist is

price discrimination.

When a perfectly competitive firm decides to shut down, it is most likely that

price is below the firm's average variable cost

In the short run, a firm operating in a competitive industry will produce the quantity of output where price equals marginal cost as long as the

price is greater than average variable cost

A profit-maximizing firm will shut down in the short run when

price is less than average variable cost

When the marginal revenue curve is drawn for a monopolist, the curve

is below the monopolist's demand curve, beyond the initial unit produced.

The length of the short run

is different for different types of firms

If all existing firms and all potential firms have the same cost curves, there are no inputs in limited quantities, and the market is characterized by free entry and exit, then the long-run market supply curve

is horizontal and equal to the minimum of long-run average cost for each firm

A firm that is a natural monopoly

is not likely to be concerned about new entrants eroding its monopoly power. is taking advantage of economies of scale. would experience a higher average total cost if more firms entered the market. Correct Answer All of the above are correct

For a firm to price discriminate,

it must have some market power

Suppose that a "doggie day care" firm uses only two inputs: hourly workers (labor) and a building (capital). In the short run, the firm most likely considers

labor to be variable and capital to be fixed

Firms may experience diseconomies of scale when

large management structures are bureaucratic and inefficient

An example of an explicit cost of production would be the

lease payments for the land on which a firm's factory stands

Suppose a firm has a monopoly on the sale of a computer game and faces a downward-sloping demand curve. When selling the 50th game, the firm will always receive

less marginal revenue on the 50th game than it received on the 49th game

Economists assume that monopolists behave as

profit maximizers

Economists assume that the goal of the firm is to maximize total

profits

Which type of public policy toward monopolies is much more common in Europe than in the United States?

public ownership

A production function is a relationship between inputs and

quantity of output

A total-cost curve shows the relationship between the

quantity of output produced and the total cost of production.

Antitrust laws may

restrict the ability of firms to merge

Price discrimination is the business practice of

selling the same good at different prices to different customers

When comparing short-run average total cost with long-run average total cost at a given level of output,

short-run average total cost is typically above long-run average total cost.

When price is below average variable cost, a firm in a competitive market will

shut down and incur fixed costs

Which of the following represents the firm's short-run condition for shutting down?

shut down if TR < VC

Roger owns a small health store that sells vitamins in a perfectly competitive market. If vitamins sell for $12 per bottle and the average total cost per bottle is $12.50 at the profit-maximizing output level, then in the long run

some firms will exit from the market.

In his book, An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith credits economies of scale to

specialization

The most likely explanation for economies of scale is

specialization of labor

Entry into a market by new firms will increase the

supply of the good

When entry and exit behavior of firms in an industry does not affect a firm's cost structure,

the long-run market supply curve must be horizontal.

Total cost is the

the market value of the inputs a firm uses in production

If a firm uses labor to produce output, the firm's production function depicts the relationship between

the number of workers and the quantity of output

When calculating a firm's profit, an economist will subtract only

the opportunity costs from total revenue because these include both the implicit and explicit costs of the firm.

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

the portion of its marginal cost curve that lies above its average variable cost.

Monopoly profit is not a social problem because

the profit represents a transfer from the consumer to the producer with no loss in total surplus.

One assumption that distinguishes short-run cost analysis from long-run cost analysis for a profit-maximizing firm is that in the short run,

the size of the factory is fixed.

An example of an opportunity cost that is also an implicit cost is

the value of the business owner's time.

Most markets are not monopolies in the real world because

there are reasonable substitutes for most goods

The nature of a firm's cost (fixed or variable) depends on the

time horizon under consideration

The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above average

total cost

Which of the following can be added to profit to obtain total revenue?

total cost

In the long run, a firm will enter a competitive industry if

total revenue exceeds total cost. the price exceeds average total cost. the firm can earn economic profits. Correct! All of the above are correct.

A sunk cost is one that

was paid in the past and will not change regardless of the present decision

Analyzing the behavior of the firm enhances our understanding of

what decisions lie behind the market supply curve.

Economic profit

will never exceed accounting profit

Economies of scale arise when

workers are able to specialize in a particular task

In the long run, each firm in a competitive industry earns

zero economic profits

Scenario 13-10Jessica makes photo frames. She spends $5 on the materials for each photo frame. She can create one photo frame in an hour. She earns $10 per hour at a part-time job at the local coffee shop. She can sell a photo frame for $30 each. Refer to Scenario 13-10. An economist would calculate the total cost for one photo frame to be

$15

Scenario 13-10Jessica makes photo frames. She spends $5 on the materials for each photo frame. She can create one photo frame in an hour. She earns $10 per hour at a part-time job at the local coffee shop. She can sell a photo frame for $30 each. Refer to Scenario 13-10. An economist would calculate the total profit for one photo frame to be

$15

If Danielle sells 300 wrist bands for $0.50 each, her total revenues are

$150

Scenario 14-4The information below applies to a competitive firm that sells its output for $40 per unit.• When the firm produces and sells 150 units of output, its average total cost is $24.50.• When the firm produces and sells 151 units of output, its average total cost is $24.55. Refer to Scenario 14-4. When the firm produces 150 units of output, its profit is

$2,325.00

Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales. If the firm increases its output to 200 units, total revenue will be

$2,400

Scenario 13-10Jessica makes photo frames. She spends $5 on the materials for each photo frame. She can create one photo frame in an hour. She earns $10 per hour at a part-time job at the local coffee shop. She can sell a photo frame for $30 each. Refer to Scenario 13-10. An accountant would calculate the total profit for one photo frame to be

$25

Scenario 13-2Chelsea wants to start her own Christmas ornament business. She can purchase a suitable factory that costs $100,000. Chelsea currently has $150,000 in the bank earning 3 percent interest per year. Refer to Scenario 13-2. Suppose Chelsea purchases the factory using her own money. What is Chelsea's annual implicit opportunity cost of purchasing the factory?

$3,000

Scenario 13-11Walter builds birdhouses. He spends $5 on the materials for each birdhouse. He can build one in 30 minutes. He is semi-retired but earns $8 per hour at the local hardware store. He can sell a birdhouse for $20 each. Refer to Scenario 13-11. An economist would calculate the total cost for one birdhouse to be

$9

Pete owns a shoe-shine business. His accountant most likely includes which of the following costs on his financial statements? (i) shoe polish (ii) rent on the shoe stand (iii) wages Pete could earn delivering newspapers (iv) interest that Pete's money was earning before he spent his savings to set up the shoe-shine business

(i) and (ii) only

Which of the following are necessary characteristics of a monopoly? (i) The firm is the sole seller of its product. (ii) The firm's product does not have close substitutes. (iii) The firm generates a large economic profit. (iv) The firm is located in a small geographic market.

(i) and (ii) only

Which of the following statements is correct? Monopolies are socially inefficient because they (i)charge a price above marginal cost. (ii)produce too little output. (iii)earn profits at the expense of consumers. (i) and (ii) only(iv)maximize the market's total surplus.

(i) and (ii) only

For a monopoly firm, the shape and position of the demand curve play a role in determining the (i) profit-maximizing price. (ii) shape and position of the marginal-cost curve. (iii) shape and position of the marginal-revenue curve.

(i) and (iii) only

Which of the following statements is correct for a monopolist? (i) The firm maximizes profits by equating marginal revenue with marginal cost. (ii) The firm maximizes profits by equating price with marginal cost. (iii) Demand equals marginal revenue. (iv) Average revenue equals price.

(i) and (iv) only

Competitive firms differ from monopolies in which of the following ways? (i) Competitive firms do not have to worry about the price effect lowering their total revenue. (ii) Marginal revenue for a competitive firm equals price, while marginal revenue for a monopoly is less than the price it is able to charge. (iii) Monopolies must lower their price in order to sell more of their product, while competitive firms do not.

(i), (ii), and (iii)

Suppose that a firm operating in perfectly competitive market sells 100 units of output. Its total revenues from the sale are $500. Which of the following statements is correct? (i) Marginal revenue equals $5. (ii) Average revenue equals $5. (iii) Price equals $5.

(i), (ii), and (iii)

Suppose that a firm operating in perfectly competitive market sells 300 units of output at a price of $3 each. Which of the following statements is correct? (i) Marginal revenue equals $3. (ii) Average revenue equals $3. (iii) Total revenue equals $900.

(i), (ii), and (iii)

Economists normally assume that the goal of a firm is to (i) sell as much of its product as possible. (ii) set the price of the product as high as possible. (iii) maximize profit.

(iii) only

Total profit for a firm is calculated as

(price minus average cost) times quantity of output.

Jane was a partner at a law firm earning $223,000 per year. She left the firm to open her own law practice. In the first year of business she generated revenues of $347,000 and incurred explicit costs of $163,000. Jane's economic profit from her first year in her own practice is

-$39,000

If a monopolist can sell 7 units when the price is $4 and 8 units when the price is $3, then the marginal revenue of selling the eighth unit is equal to

-$4

Kate is a florist. Kate can arrange 20 bouquets per day. She is considering hiring her husband William to work for her. Together Kate and William can arrange 35 bouquets per day. What is William's marginal product?

15 bouquets

Let L represent the number of workers hired by a firm, and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L=6,Q=147) and (L=7,Q=184). The marginal product of the seventh worker is

37 units of output.

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

An entrepreneur opens a popular new restaurant

Which of the following is not an example of price discrimination?

An ice cream parlor charges a higher price for ice cream than for sherbet.

Which of the following statements is correct?

Assuming that implicit costs are positive, accounting profit is greater than economic profit.

Which of the following statements is not correct?

Monopolists typically produce larger quantities of output than competitive firms.

In a competitive market the current price is $6. The typical firm in the market has ATC = $5.00 and AVC = $4.50.

New firms will likely enter this market to capture some of the economic profits

Scenario 15-8 Mega Media Cable TV is able to purchase an exclusive right to sell a premium sports channel in its market area. Let's assume that Mega Media pays $100,000 a year for the exclusive marketing rights to the sports channel. Since Mega Media has already installed cable to all of the homes in its market area, the marginal cost of delivering the sports channel to subscribers is zero. The manager of Mega Media needs to know what price to charge for the sports channel service to maximize her profit. Before setting price, she hires an economist to estimate demand for the sports channel. The economist discovers that there are two types of subscribers who value premium sporting channels. First are the 3,000 die-hard sports fans who will pay as much as $150 a year for the new channel. Second, the premium sports channel will appeal to 20,000 occasional sports viewers who will pay as much as $25 a year for a subscription to it. Refer to Scenario 15-8. How much profit will Mega Media Cable TV earn if it sets the price at $150?

$350,000

Scenario 13-13Christine is an artist who creates custom cookie jars. Her annual revenue from selling the cookie jars is $90,000. The annual explicit costs of the materials used to make the cookie jars are $54,000. Refer to Scenario 13-13. Christine used $5,000 from her personal savings account to buy pottery tools for her business. The savings account paid 1% annual interest. Christine could earn $6,000 per year as a tax preparer. What is the annual accounting profit of her cookie jar business?

$36,000

Scenario 13-6Ziva is an organic lettuce farmer, but she also spends part of her day as a professional organizing consultant. As a consultant, Ziva helps people organize their houses. Due to the popularity of her home-organization services, Farmer Ziva has more clients requesting her services than she has time to help if she maintains her farming business. Farmer Ziva charges $25 an hour for her home-organization services. One spring day, Ziva spends 10 hours in her fields planting $130 worth of seeds on her farm. She expects that the seeds she planted will yield $300 worth of lettuce. Refer to Scenario 13-6. An economist would calculate Ziva's total cost for the day of farming to equal

$380

Jacqui decides to open her own business and earns $50,000 in accounting profit the first year. When deciding to open her own business, she withdrew $20,000 from her savings, which earned 5 percent interest. She also turned down three separate job offers with annual salaries of $30,000, $40,000, and $45,000. What is Jacqui's economic profit from running her own business?

$4,000

Scenario 13-2Chelsea wants to start her own Christmas ornament business. She can purchase a suitable factory that costs $100,000. Chelsea currently has $150,000 in the bank earning 3 percent interest per year. Refer to Scenario 13-2. Suppose Chelsea purchases the factory using $50,000 of her own money and $50,000 borrowed from a bank at an interest rate of 6 percent. What is Chelsea's annual opportunity cost of purchasing the factory?

$4,500

Bubba is a shrimp fisherman who used $2,000 from his personal savings account to buy a boat and equipment for his shrimp business. The savings account paid 2% interest. What is Bubba's annual opportunity cost of the financial capital that he invested in his business?

$40

Scenario 13-13Christine is an artist who creates custom cookie jars. Her annual revenue from selling the cookie jars is $90,000. The annual explicit costs of the materials used to make the cookie jars are $54,000. Refer to Scenario 13-13. Christine used $5,000 from her personal savings account to buy pottery tools for her business. The savings account paid 1% annual interest. What is Christine's annual opportunity cost of the financial capital that she invested in her business?

$50

Scenario 15-5 An airline knows that there are two types of travelers: business travelers and vacationers. For a particular flight, there are 100 business travelers who will pay $600 for a ticket while there are 50 vacationers who will pay $300 for a ticket. There are 150 seats available on the plane. Suppose the cost to the airline of providing the flight is $20,000, which includes the cost of the pilots, flight attendants, fuel, etc. Refer to Scenario 15-5. How much profit will the airline earn if it engages in price discrimination?

$55,000

A firm's marginal cost has a minimum value of $4, its average variable cost has a minimum value of $6, and its average total cost has a minimum value of $7. Then the firm will shut down in the short run once the price of its product falls below

$6

Scenario 13-12Ariana withdrew $400,000 out of her personal savings account and used it to start her new Internet cafe. The savings account pays 3 percent interest per year. During the first year of her business, Ariana sold 2,000 cups of coffee for $2.50 per cup and 4,000 hours of Internet time, also at $2.50 per hour. During the first year, the business made monetary outlays of $9,000. You may assume that there is no opportunity cost to Ariana's time. Refer to Scenario 13-12. Ariana's accounting profit for the year was

$6,000

Which of the following is not correct?

A monopolist can charge any price and sell any quantity that it chooses

Scenario 13-12Ariana withdrew $400,000 out of her personal savings account and used it to start her new Internet cafe. The savings account pays 3 percent interest per year. During the first year of her business, Ariana sold 2,000 cups of coffee for $2.50 per cup and 4,000 hours of Internet time, also at $2.50 per hour. During the first year, the business made monetary outlays of $9,000. You may assume that there is no opportunity cost to Ariana's time. Refer to Scenario 13-12. Ariana's economic profit for the year was

-$6,000

Scenario 15-9 Suppose executives at an art museum know that 100 adults are willing to pay $12 for admission to the museum on a weekday. Suppose the executives also know that 200 students are willing to pay $8 for admission on a weekday. The cost of operating the museum on a weekday is $2,000. Refer to Scenario 15-9. How much profit will the museum earn if it charges all customers $12 for admission?

-$800

Antitrust laws allow the government to

-prevent mergers -break up companies -promote competition

Eldin is a house painter. He can paint three houses per week. He is considering hiring his friend Murphy. Murphy can paint five houses per week. What is the maximum total output possible if Eldin hires Murphy?

8 houses

Bev is opening her own court-reporting business. She financed the business by withdrawing money from her personal savings account. When she closed the account, the bank representative mentioned that she would have earned $300 in interest next year. If Bev hadn't opened her own business, she would have earned a salary of $25,000. In her first year, Bev's revenues were $30,000, and she spent $1,000 on materials and supplies. Which of the following statements is correct?

Bev's economic profit is $3,700.

The legislation passed by Congress in 1914 to strengthen the government's powers and authorize private lawsuits was the

Clayton Act

Which of the following statements is correct?

It is possible that the best approach to monopolies is for the government to do nothing.

Which of the following is not a characteristic of a perfectly competitive market?

Firms have difficulty entering the market

If a monopolist has zero marginal costs, it will produce

If a monopolist has zero marginal costs, it will produce

Which of the following statements is not correct?

Part of the deadweight loss associated with monopoly is measured by the monopolist's economic profit

After the patent runs out on a brand name drug, generic drugs enter the market. What happens next in the market?

Price decreases, and total surplus increases

If the monopolist's linear demand curve intersects the quantity axis at Q = 30, then the monopolist's marginal revenue will be equal to zero at

Q = 15

Which statement best describes the effect(s) that occur when a monopoly firm reduces the price of its product?

The "price effect" causes total revenue to fall. The "output effect" causes total revenue to rise. The "revenue effect" causes total revenue to remain constant. Correct! Both a and b are correct.

Which of the following statements is correct?

The deadweight loss caused by monopoly is similar to the deadweight loss caused by a tax on a product.

Suppose when a monopolist produces 50 units its average revenue is $8 per unit, its marginal revenue is $4 per unit, its marginal cost is $4 per unit, and its average total cost is $3 per unit. What can we conclude about this monopolist?

The monopolist is currently maximizing profits, and its total profits are $250

Which of the following statements is not correct?

The monopolist produces where P = MC

Which of the following would be most likely to have monopoly power?

a municipal water company

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then

a one-unit decrease in output will increase the firm's profit.

Adam Smith used a famous example of what type of firm to illustrate economies of scale?

a pin factory

Suppose that for a particular business there are no implicit costs. Then

accounting profit will be the same as economic profit.

A local playground equipment company plans to operate out of its current factory, which is estimated to last 30 years. All cost decisions it makes during the 30-year period

are short-run decisions.

A monopolist will choose to increase output when

at the present level of output, marginal revenue exceeds marginal cost.

For a competitive firm,

average revenue equals marginal revenue

Constant returns to scale occur when the firm's long-run

average total costs are constant as output increases

Which of the following is a characteristic of a monopoly?

barriers to entry

A monopoly can earn positive profits because it

can maintain a price such that total revenues will exceed total costs.

In the long run,

competitive firms' profits are zero.

In the long run the local coffee shop incurs total costs of $625 when output is 1,250 cups of coffee and $750 when output is 1,500 cups of coffee. For this range of output, the coffee shop exhibits

constant returns to scale

The Big Blue Sky jet company has long-run total costs of $20 million if it produces 5 jets and long-run total costs of $24 million if it produces 6 jets. The Big Blue Sky jet company is experiencing

constant returns to scale

When a firm's long-run average total costs do not vary as output increases, the firm exhibits

constant returns to scale.

Which of the following industries is most likely to exhibit the characteristic of free entry?

dairy farming

The economic inefficiency of a monopolist can be measured by the

deadweight loss. value of the unrealized trades that could be made if the monopolist produced the socially-efficient output. area above marginal cost but beneath demand from the monopoly output to the socially-efficient output. Correct Answer All of the above are correct.

In a competitive market, a firm's supply curve dictates the amount it will supply. In a monopoly market the

decision about how much to supply is impossible to separate from the demand curve it faces.

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then

decreasing output would increase the firm's profit

The socially efficient level of production occurs where the marginal cost curve intersects

demand

Suppose that a professional photographer takes a prize-winning digital photo. She can sell a 5"x7" color print of the photo for $10. She can also sell the digital file for $20. There are 500 people willing to buy the color print and 2,000 people willing to buy the digital file. Assume the costs to the photographer are zero and that the people who purchase the digital file cannot resell the file itself or any prints made from it. What should she do in order to maximize her profits?

earn $45,000 by selling both the color prints and the digital files at their respective prices

If the government regulates the price that a natural monopolist can charge to be equal to the firm's average total cost, the firm will

earn zero profits

If long-run average total cost decreases as the quantity of output increases, the firm is experiencing

economies of scale

In the long run a company that produces and sells candy bars incurs total costs of $1,200 when output is 2,400 candy bars and $1,400 when output is 2,900 candy bars. The candy bar company exhibits

economies of scale because average total cost is falling as output rises

If a monopolist can practice perfect price discrimination, the monopolist will

eliminate consumer surplus. eliminate deadweight loss. maximize profits. Correct! All of the above are correct.

With perfect price discrimination the monopoly

eliminates deadweight loss

When new firms enter a perfectly competitive market,

existing firms may see their costs rise if more firms compete for limited resources.

A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will

fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.

The long-run average total cost curve is always

flatter than the short-run average total cost curve, but not necessarily horizontal.

When deciding what price to charge consumers, the monopolist may choose to charge them different prices based on the customers'

geographical location. age. income. Correct! All of the above are correct

Which field of economics studies how the number of firms affects the prices in a market and the efficiency of market outcomes?

industrial organization

In the long run,

inputs that were fixed in the short run become variable

A production function describes

how a firm turns inputs into output

The key issue in determining the efficiency of public versus private ownership of a monopoly is

how ownership of the firm affects the cost of production

Suppose the long-run supply curve for a good is upward-sloping. The upward slope could be explained by

increases in production costs resulting from more firms coming into the market.

Scenario 13-15Joan grows pumpkins. If Joan plants no seeds on her farm, she gets no harvest. If she plants 1 bag of seeds, she gets 500 pumpkins. If she plants 2 bags, she gets 800 pumpkins. If she plants 3 bags, she gets 900 pumpkins. A bag of seeds costs $100, and seeds are her only cost. Refer to Scenario 13-15. Joan's total-cost curve is

increasing at an increasing rate