ECON 101 Study Set

The fact that firms in oligopoly are interdependent means that

one firm's profits are affected by other firms' actions

The long run average cost curve

shows the lowest average cost facing a firm as it increases output changing both its plant and labor force.

One way to identify oligopoly is to

use the Herfindahl-Hirschman Index (HHI)

The figure above shows the market demand curve and the ATC curve for a firm. If all firms in the market have the same ATC curve, the lowest price at which a firm could stay in business in the long run is ________ per unit and the quantity demanded in the market at that price is ________ units per hour.

$10; 8,000

The figure above shows the demand, marginal revenue, and marginal cost curves for Paul's Parrot pillows, a single-price monopoly producer of pillows stuffed with parrot feathers. When Paul maximizes his profit, the price is ________ per pillow and the marginal cost is ________ per pillow.

$70; $40

In the above figure, the profit-maximizing output for this single-price monopoly is ________ units and the price is ________.

200; $30

The graph shows the market for the two zipline firms that operate in a resort city. If the firms maximize profit and decide to collude, together they will produce ________ rides at a price of ________ per ride.

200; $50

The figure above shows the costs and benefits associated with wood pulp production. Without regulation the market will produce ________ tons of wood pulp at a price of ________ per ton.

3: $600

Use the figure above to answer this question. Pam gives the only piano lessons in town. In order to maximize profit, Pam should give ________ per day and charge ________ per lesson.

4; $40

The figure above shows the costs and benefits associated with wood pulp production. Without regulation the market will produce ________ tons of wood pulp at a price of ________ per ton.

5: $700

The figure above shows the costs and benefits associated with wood pulp production. Without regulation the market will produce ________ tons of wood pulp at a price of ________ per ton.

5; $700

Use the figure above to answer this question. Pam gives the only piano lessons in town. In order to maximize profit, Pam should give ________ per day and charge ________ per lesson.

6; $30

Suppose the local university charges $85 per credit hour. If tuition increases from $85 to $93 per credit hour, using the midpoint method, what is the percentage change in price?

8.99 percent

The figure above illustrates the bagel market. Which of the following statements is correct?

With a price ceiling of $3.00 per bagel, the quantity demanded is greater than the quantity supplied.; With a price ceiling of $1.00 per bagel, there is a shortage of bagels.

Sammy's Inc. competes with a few other firms because there are natural barriers to entry. Sammy's operates in

an oligopoly.

Firms in an oligopolyi. are independent of each other's actions.ii. can each influence the market price.iii. charge a price equal to marginal revenue.

ii only

If a perfectly competitive wheat farmer is maximizing its profit and then increases its output, the farmer's

total revenue increases, but total cost rises by more so that the farmer's total profit decreases.

If a 10 percent price increase generates a 10 percent decrease in quantity demanded, then demand is

unit elastic

The figure shows the labor market for fast food workers. A minimum wage of ________ per hour will create unemployment of ________ workers.

$15; 150,000

The figure shows the costs and benefits associated with wood pulp production. A tax of ________ can be imposed to achieve the efficient level of production of ________ tons

$200; 3

The figure shows the costs and benefits associated with wood pulp production. A tax of ________ can be imposed to achieve the efficient level of production of ________ tons.

$200; 3

The above figure shows the market for buckets of golf balls at the driving range. A new leisure time tax is placed on suppliers in this market, shifting the supply curve from S0 to S1. The amount of this tax is ________ per bucket of golf balls.

$3

A single-price monopoly can sell 2 units for $8.50 per unit. In order to sell 3 units, the price must be $8.00 per unit. The marginal revenue from selling the third unit is

$7.00

The figure above shows the market for private elementary school education in Chicago. There is no external cost of private elementary education. If the marginal social benefit of private elementary education equaled the marginal social cost, the deadweight loss in Chicago's private education market would equal

0.

When the price of a product increases from $35 to $45, the quantity supplied increases from 30 units to 40 units per week. Then, at the midpoint between these two prices, the price elasticity of supply is

1.14

Imposing a sales tax on sellers of a product has an effect that is similar to which of the following?

an increase in the costs of production

What is NOT true about rational choice?

It is the same for all individuals

What is NOT true about rational choice?

It is the same for all indivuals

In an oligopoly, there are

barriers to entry and only a few firms

To be able to price discriminate, a firm must

be able to prevent resales of its good

Marginal utility is the

change in total utility that results from a one-unit increase in the quantity of a good consumed.

In a month, Samantha consumes the quantity of lobster dinners so that her marginal utility from a lobster dinner is 500 units. The price of a lobster dinner is $25. She also is consuming the quantity of spaghetti dinners so that its marginal utility is 300 units, while its price is $15. Samantha is allocating her entire budget. What should she do to maximize her total utility?

consume the current combination of lobster and spaghetti dinners

When a firm becomes so large it is difficult to coordinate and control, it is most likely that

diseconomies of scale have begun.

The opportunity cost of producing one more unit of a good is calculated by dividing the

decrease in the quantity of the other good by the increase in the quantity of the good whose opportunity cost we're calculating.

The graph shows a perfectly competitive market that was in a long-run equilibrium on demand curve D0. Due to a permanent change in demand to D2, the price in the market will ________ causing existing firms to ________ which means that ________ the market.

decrease; incur an economic loss; some firms will exit

Marginal benefit

decreases as more of a good is consumed.

As a typical firm increases its output, its marginal cost

decreases at first and then increases

When a firm's long-run average total cost falls as its output increases, the firm is experiencing

economies of scale

When the percentage change in the quantity demanded exceeds the percentage change in price, then demand is

elastic

Consider a perfectly competitive market that was in a long-run equilibrium when a permanent increase in demand occurs. Which of the following will occur as a result? i.The existing firms will start to earn an economic profit. ii.New firms will be motivated to enter the market. iii.Some firms that cannot meet the new demand will exit the market.

i and ii only

Which of the following is TRUE regarding tax incidence? i.The elasticities of supply and demand determine tax incidence. ii.When the government taxes the seller, the firm always pays most of the tax. iii.When the government taxes the buyer, the consumer always pays most of the tax.

i only

Boeing and Airbus have entered into a cartel agreement that will enable them to boost their profits. What occurs if Boeing decides to cheat on the agreement? i.Boeing lowers the price of its airplanes. ii.The total industry output increases. iii.The total profits in the airplane industry will decrease.

i, ii, and iii

Producer Surplus

increases if market price rises and the supply curve does not shift.

The number of corn producers increases, so the supply of corn ________ and the supply curve of corn ________.

increases; shifts rightward

The marginal cost curves slope upward because of the principle of

increasing marginal cost.

Moving from one point to another on a production possibilities frontier implies

increasing the production of one good and decreasing the production of another.

Computer memory chips are produced on wafers, each wafer having many separate chips that are separated and sold. The above table shows costs for a perfectly competitive producer of computer memory chips. If the market price of a wafer is $2,400 dollars, the firm is

incurring an economic loss of $2,800 an hour.

In perfect competition, marginal revenue

is equal to market price

The above figure shows a perfectly competitive firm. If the market price is $15, the firm

is making an economic profit

Scarcity

is the inability to satisfy all our wants.

In the long run, perfectly competitive firms will exit the market if the price is

less than average total cost

For a perfectly competitive syrup producer whose average total cost curve does not change, an economic profit could turn into an economic loss if the

market demand for syrup decreases.

The above figure shows the market demand curve for telephone calls. Suppose the marginal cost of a telephone call is 2¢ a minute for a call no matter how many minutes of calls are made and there are 3 firms in the industry. If the firms in the industry operate as perfect competitors, there are ________ minutes of calls made per hour.

more than 7 million and less than or equal to 9 million

The graph shows the the LRAC facing a ________ where ________ of scale exist when 5 million units are produced.

natural monopoly; economies

When firms in a perfectly competitive market are earning an economic profit, in the long run

new firms will enter the market

Suppose the current equilibrium wage rate for housekeepers is $8.60 per hour. An increase in the minimum wage to $8.50 per hour leads to

no change in the market for housekeepers.

Suppose the price of a pair of jeans is $25 and the price of a T-shirt is $15. The consumer's budget is entirely allocated. If the marginal utility from a pair of jeans is 100 units and the marginal utility from a T-shirt is 75 units, the consumer is

not in equilibrium and should purchase fewer jeans and more T-shirts

Which of the following is TRUE? In the above figure, if the market is

perfect competition, ƒsill be Q2 and price will be P2.

A competitive market is in equilibrium. Then there is a decrease in demand and a decrease in supply. The equilibrium price ________, and the equilibrium quantity ________.

perhaps changes but we can't say if it rises, falls, or stays the same; decreases

To increase its profit, a perfectly competitive firm will produce more output when

price is greater than marginal cost.

The figure above shows the labor market in a region. For a minimum wage to change the wage rate and amount of employment, it must be

set above $6 an hour

The above figure shows the market for winter jackets. In an effort to keep the nation warm, the president places a price ceiling of $100 in the market for winter jackets. As a result, there is a

shortage equal to 150,000 jackets.

If firms in an oligopolistic industry consistently cut their price to sell more output, what price and output will result?

the competitive price and output

All of the following statements are true EXCEPT

the demand for Nike running shoes is less elastic than the demand for shoes.

What does the long-run average cost curve show?

the lowest average cost to produce each output level in the long run