ECON 1101 Test 2

Refer to the table below. This information reflects the demand curve and the average cost curve for a firm that is a natural monopoly. What will this firm's profits equal? PriceQuantity DemandedLRAC$131$10.50$112$9.75$93$9.50$74$9.625$55$10.30

$2.50

In order to produce 100 pairs of oven gloves, Marcia incurs an average total cost of $2.50 per pair. Marcia's marginal cost is constant at $10.00 for every pair of oven gloves produced. The total cost to produce 50 pairs of oven gloves is

$200.00

The table below sets out the amount of capital needed for certain investment projects and the rate of return for each project. What is this firm's demand for physical capital if their hurdle rate is 5%? Quantity of Financial Capital for Physical Capital Investment ProjectsEstimated Rate of Return for the Firm $18 million2%$15 million4%$12 million6%$8 million8%$3 million10%

$23 million

The following table shows the demand curve and cost information for a firm that is a monopoly. If they maximize their profits, what will their revenue equal? PriceQuantityTC$300$10,200$261,000$11,000$222,000$12,000$183,000$15,000$144,000$22,000

$54,000

The following table shows a monopolist's demand curve and cost information for the production of its good. What quantity will it produce? QuantityPrice per UnitTotal Cost10$10$2020$8$5030$6$6540$4$9050$2$120

30

In the US economy, nearly half of all the workers employed by private firms work at

18,000 large firms that employ more than 500 workers.

Which of the following would be classified as a differentiated product produced by a monopolistic competitor?

Channel No. 5

_____________ and __________________ refer to the quantity and price at a point in time.

Productive; allocative efficiency

If a firm is producing so that the point chosen along the production possibility frontier is socially preferred, then that firm is said to have reached its

allocative efficiency

The marginal revenue curve for a monopolist ____________________ the market demand curve.

always lies beneath

In the framework of an oligopoly, what strategy can work like a silent form of cooperation?

always match other cartel firms' price cuts, but don't match price increases

The fact that a consumer is not required to buy the goods that a given firm produces, as well as the fact that the consumer might want the goods a firm produces, but may choose to buy from other firms instead

are two stark realities any business firm must recognize.

The graph below illustrates the total cost function for GoodieCookie Co. How are the company's fixed costs represented in this graph?

as the point where the total cost curve touches the vertical axis

If the price that a firm charges is higher than its ________________ cost of production for that quantity produced, then the firm will earn profits.

average

If the price that a firm charges is lower than its ____________ of production, the firm will suffer losses.

average cost

The desire of businesses to __________________________, so that they can raise the prices that they charge and earn higher profits, has been well-understood by economists for a long time.

avoid competing with each other

The two primary factors determining monopoly market power are the firm's

demand curve and its cost structure

If a perfectly competitive market involves many firms selling identical products, then, in the face of such competition,

each of these firms must act as a price-taker.

In a monopolistic competitive industry, firms can try to differentiate their products by

enhancing product's physical aspects and all of the above.

Once I'MaPharmaCo. has received confirmation of the registration for its latest drug patent application, it will have created a monopoly for that product by restricting

entry into the market.

When J.K. Rowling exerts copyright ownership of her literary works, she creates a monopoly by restricting

entry into the market.

If the North American newsprint paper market has barriers to entry, then

entry will be blocked even if firms are earning high profits.

Which of the following is most unlikely to present a barrier to entry into a market?

deregulation

In economics, labor demand is synonymous with

derived demand.

When I'MaGoldMiner chooses what quantity of gold each of it/s mines will produce over the next 12 months, this quantity, along with the prices prevailing in the market for output and inputs, will

determine the company's total revenue, total costs, and its profits.

Monopolistic competitors in the food industry will often include a recyclable symbol on packaging used for their product as a means to

differentiate their product.

If oligopolistic firms banded together with the intention of acting like a monopoly, it would likely result in their being able to

divide up the monopoly level of profit amongst themselves.

A successful advertising campaign may allow competing monopolists to

do all of the above.

Refer to the table below. In this instance, expansion of output QPTRMRTCMC0$300---$15---1$30$30$30$25$102$30$60$30$40$153$30$90$30$60$204$30$120$30$85$255$30$150$30$115$306$30$180$30$150$35

causes input prices to rise as demand for inputs increases.

In the framework of monopolistic competition, the way advertising works can be perceived as

causing both b and c to occur.

For a monopolistic firm, the demand for its product is

completely inelastic

A situation known as _____________________ occurs when all production inputs are allowed to expand, but that expansion does not result in much of a change in the average cost of production.

constant returns to scale

Which of the following can be thought of as an adjustment for the risks involved with respect to the cost of a firm acquiring financial capital?

imposition of hurdle rates of interest

A manufacturer would likely make an ___________ in a market following the long-run process of beginning and expanding production in response to ________________ .

entry; a sustained pattern of profits

The term "constant returns to scale" describes a situation where

expanding all inputs does not change the average cost of production.

How can parties who find themselves in a prisoner's dilemma situation avoid the undesired outcome and cooperate with each other?

find effective ways to penalize firms who do not cooperate

The branch of mathematics that analyzes situations in which players must make decisions and then receive payoffs most often used by economists is

game theory.

A natural monopoly occurs when the quantity demanded is ________ the minimum quantity it takes to be at the bottom of the long-run average cost curve.

less than

Which of the following is most likely to be a monopoly?

local electricity distributor

In the ________, the perfectly competitive firm will react to profits by __________________________ .

long run; increasing its production

If marginal cost is rising in a competitive firm's short-run production process and its average variable cost is falling as output is increased, then

marginal cost is below average variable cost.

Under perfect competition, any profit-maximizing producer faces a market price equal to its

marginal costs

In economic terms, a practical approach to maximizing profits requires an examination of how changes in production affect ________________ and ________________ .

marginal revenue; marginal cost

The economies-of-scale curve is a long-run average cost curve, because

it allows all factors of production to change.

The single most common form of competition in the U.S. is

monopolistic competition among firms with differentiated products.

The largest cattle rancher in a given region will be unable to have a __________ when sufficient numbers of smaller cattle ranchers provide sources of competition.

monopoly

As the name monopolistic competition implies, a firm's decisions in this setting will in certain ways resemble ______________ and in other ways resemble________________ .

monopoly; perfect competition

Idaho farmers can sell as large a quantity of their potato crop as they wish,

provided each is willing to accept the prevailing market price.

If a graph is used to compare total revenue and total cost of a perfectly competitive firm, then the horizontal axis of the graph will represent the _______________ and the vertical axis will represent ______________________ .

quantity produced; both total revenue and total costs, measured in dollars.

In the event that Only1Corp. obtains control of all the natural gas producers in the US, it would most likely

raise prices, cut production, and realize positive economic profits.

In monopolistic competition, the end result of entry and exist is that firms end up with a price that lies

on the downward-sloping portion of the average cost curve.

When a firm uses retained profits to invest in more energy efficient equipment, an economist would calculate the _________________ of investing in physical capital.

opportunity cost

Perfect competition and monopoly stand at _____________ of the spectrum of competition.

opposite ends

Roughly speaking, patent law covers __________ and __________ law protects an author's original books.

original inventive creations; copyright

Following the assumption that firms maximize profits, how will the price and output policy of an unregulated monopolist compare with ideal market efficiency?

output will be too small and its price too high.

Government ______________ regulations specify that inventors will maintain exclusive legal rights to their respective inventions for ______________ .

patent; a limited time

When exit occurs in a monopolistically competitive industry the

perceived demand and marginal revenue curves will shift to the right.

Firms operating in a market situation that creates ___________________, sell their product in a market with other firms who produce identical or extremely similar products.

perfect competition

The use of sharp, temporary price cuts as a form of _________________ would enable traditional US automakers to discourage new competition from smaller electric car manufacturers.

predatory pricing

When a business adopts a strategy of reducing and/or discontinuing production in response to a sustained pattern of losses, it is

preparing to exit operations.

If a perfectly competitive firm is a price taker, then

pressure from competing firms will force acceptance of the prevailing market price.

If the quality differences of similar products are mostly imperceptible to the average consumer's eyes, which of the following will most likely play a major role in influencing the decisions of purchasers?

price of competing products

I'maGoldMiner has benefited from a record rise in gold prices in the global commodities market. While the price of its output is highly influenced by market speculation, if it wants to increase production to take advantage of the current profit-maximizing opportunity, the company

must accept market price for its physical capital inputs.

The term _________________ refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product.

price taker

A monopolistically competitive industry does not display ____________________ in either the short-run, when firms are making _______________, nor in the long-run, when firms are earning ________________ .

productive and allocative efficiency; profits and losses; zero profits

The following figure shows the average cost curve, demand curve, and marginal revenue curve for a monopolist. After maximizing profits, what does the firm's revenue equal?

the area of rectangle ADEH

The shape of the perceived demand curve for a perfectly competitive firm reflects that firm's ability to

sell any quantity it wishes at the prevailing market price.

In the _________, the perfectly competitive firm will seek out ________________________ .

short run; the quantity of output where profits are highest

A monopolistically competitive firm may earn abnormally high profits in the

short term, but the process of entry will drive those profits to zero in the long run.

If a firm's revenues do not cover its average variable costs, then that firm has reached its _________________ .

shutdown point

What qualities would ideally suit a monopolistic firm with regard to barriers to entry?

sufficient strength to prevent or discourage potential competitors from entering the market

For a perfectly competitive firm, the marginal cost curve is identical to the firm's ________________ .

supply curve

Refer to the diagram above. In this instance, point e shown on the graph indicates

the point where profits will increase by reducing output

Even when competitive firms are unable to calculate marginal revenue product directly, _________________________________________ will push wage rates toward the marginal revenue product of labor.

the pressures of competition in the labor market

When the demand for a good or service limits the quantity that can be sold to an output at which the firm experiences economies of scale,

the firm is a natural monopoly.

If the firm is producing at a quantity of output where marginal revenue exceeds marginal cost, then,

the firm should keep expanding production.

If one firm operating in an oligopoly raises its price and other firms do not do so,

the sales of the firm that increased its price will decline sharply.

Refer to the graph below. Based on the information illustrated in the graph, which of the following is correct?

the transition point between where MC is pulling down and pulling up AC always occurs at the minimum point of the AC curve

For a pure monopoly to exist,

there is a single seller in a particular industry

In the highly competitive setting in which oligopoly firms operate, which of the following are considered to be typical temptations each may face?

to cooperate to act as a single monopoly and all of the above

Refer to the diagram below. In this instance, at the range of output represented at point b,

total costs exceed total revenues.

Which of the following denotes the typical shape of the monopolist's total cost curve?

total costs rise and grow steeper as output rises

Whatever the firm's quantity of production, _____________ must exceed total costs if it is to earn a profit.

total revenue

In the business world, a _________________ is recognized as a legally acceptable way for any business to keep knowledge of its particular methods of production from being known by competing firms.

trade secret

If a monopolistic competitor raises its price, it _________ customers than a perfectly competitive firm, but ________________ customers compared to the number that a monopoly that raised its prices would.

will lose fewer; it will lose more

If oligopolists compete hard against each other,

zero profits result for all.

Refer to the diagram below. Based on the information illustrated in this graph, which of the following is an accurate statement?

MC is initially downward sloping in the region of increasing MR at low output levels

______________________ refers to the additional revenue gained from selling one more unit.

Marginal revenue

The demand curve as perceived by a monopolistic competitor is ______________ .

downward-sloping

The term _____________ is used to describe the additional cost of producing one more unit.

marginal cost

Refer to the diagram below. In this instance, at the range of output represented at point c,

profits will be maximized.

___________ include all spending on labor, machinery, tools, and supplies purchased from other firms.

Total costs

Which one of the following is the most accurate description of a monopolist?

a sole producer of a product for which good substitutes are lacking in a market with high barriers to entry

In the framework of monopolistic competition, advertising works because it causes

a steeper perceived demand curve, as well as c above.

The typical pattern of costs for a monopoly can be analyzed by using: total cost fixed cost variable cost marginal cost average cost average variable cost

all of the above

The ______________ of all firms can be broken down into some common underlying patterns.

cost structure

Copyright protection legislation provides protection for original works

during the author's life plus 70 years

The demand curve as perceived by a perfectly competitive firm is __________ .

flat

Given the data provided in the table below, what will the amount of profit be for production at quantity (Q) level 7? QPTCTRMRMCProfit0$5$9 1$5$10 2$5$12 3$5$15 4$5$19 5$5$24 6$5$30 7$5$45

-$10.00

Given the data provided in the table below, the total revenue (TR) for production at quantity (Q) level 4 equals QPTCTRMRMCProfit0$5$9 1$5$10 2$5$12 3$5$15 4$5$19 5$5$24 6$5$30 7$5$45

$20.00

A monopolistic competitor has the following information about cost and demand. What will this firm's profits equal in the short run? QuantityPrice ($)Total Revenue ($)Marginal Revenue ($)Total Cost ($)Marginal Cost ($)Average Cost($)015015175——5147013180136101313011190219151218092073.413.8201122072253.611.2525102505250510309270329089.67358280133599.57407280-1385109.63456270-34651610.33505250-55652011.3

$0

A monopolistic competitor has the following information on cost and demand. What will the firm's profits equal in the long run? QuantityPrice ($)Total Revenue ($)Marginal Revenue ($)Total Cost ($)Marginal Cost ($)Average Cost($)02502530——2244823352.517.5423922145511.2562213219607.51082116817778.59.6310202001510011.5101219228131261310.514182521116519.511.791617272921022.513.13181628872602514.44201530053203016

$0

The table below shows a monopolist's demand curve and the cost information for the production of its good. What will their profits equal? QuantityPrice per UnitTotal Cost10$100$10020$80$40030$60$80040$40$1,40050$20$2,400

$1,200

____________________________ occur when the marginal gain in output diminishes as each additional unit of input is added.

Diminishing marginal returns

A monopolistic competitor has the following information about cost and demand. If this industry was perfectly competitive, what price would the good sell for? QuantityPrice ($)Total Revenue ($)Marginal Revenue ($)Total Cost ($)Marginal Cost ($)Average Cost($)015015175——5147013180136101313011190219151218092073.413.8201122072253.611.2525102505250510309270329089.67358280133599.57407280-1385109.63456270-34651610.33505250-55652011.3

$10

In order to produce 100 oatmeal cookies, GoodieCookieCo incurs an average total cost of $0.25 per cookie. The company's marginal cost is constant at $0.10 for all oatmeal cookies produced. The total cost to produce 50 oatmeal cookies is

$20

The table below shows the demand curve and cost information for a firm that is a monopoly. If they maximize their profits, what price will they charge? PriceQuantityTC$1,0000$500$8005$1,200$60010$3,100$40015$7,000$20020$11,500

$600

The following table shows the demand curve and cost information for a firm that is a monopoly. If they maximize their profits, what will their profits equal? PriceQuantityTC$300$500$2550$600$20100$1,350$15150$2,300$10200$3,400

$650

Given the data provided in the table below, what will the fixed costs equal for production at quantity (Q) level 4? QPTCTRMRMCProfit0$5$9 1$5$10 2$5$12 3$5$15 4$5$19 5$5$24 6$5$30 7$5$45

$9.00

A monopolistic competitor has the following information about cost and demand. What will this firm's profits equal in the long run? QuantityPrice ($)Total Revenue ($)Marginal Revenue ($)Total Cost ($)Marginal Cost ($)Average Cost($)015015175——5147013180136101313011190219151218092073.413.8201122072253.611.2525102505250510309270329089.67358280133599.57407280-1385109.63456270-34651610.33505250-55652011.3

-$55

In the United States, a pharmaceutical company's exclusive patent rights last for

20 years

Refer to the table below. If the information pertains to the demand curve and the long run average cost curve for an electric company that is a natural monopoly, then what quantity will be produced in this market? PriceQuantity DemandedLRAC$12100$6.00$10200$5.50$8300$5.33$7400$5.50$6500$6.00

200

Neil's Bakery is famous for its giant cinnamon buns. The bakery has fixed costs of $100. Neil must pay each worker a wage of $10.00 per hour and each works an 8 hour shift. He earns $2 for each cinnamon bun that is sold. The following table shows how many cinnamon buns he can sell, depending on the number of workers he hires. Refer to the table below. To maximize his profits in this competitive market, how many workers should he hire? LaborQuantity1752140320042105215

3 workers

Approximately what percentage of the US labor force is employed by firms that have fewer than 100 employees?

35%

The US government has registered ___________________ on behalf of business firms to protect a particularly distinct element each has selected for its ability to aid consumers to easily __________________ .

800,000 trademarks; identify the source of goods

_____________ occurs when circumstances have allowed several large firms to have all or most of the sales in an industry.

An oligopoly

_____________________ help to explain why every economy, as it develops, has an increasing proportion of its population living in urban areas.

Agglomeration factors

____________ tells a firm whether it can earn profits given the price in the market.

Average cost

__________________ law implies ownership over an idea or concept or image

Intellectual property

________________________ arises where many firms are competing in a market to sell similar but differentiated products.

Monopolistic competition

_____________ is calculated by taking the quantity of everything that is sold and multiplying it by the sale price.

Total revenue

______________ include all of the costs of production that increase with the quantity produced.

Variable costs

In a perfectly competitive market setting, which of the following would be a true statement?

Wage rates trend toward marginal revenue product levels.

Which of the following is a question economists have struggled to address with only partial success?

Whether a market-oriented economy produces the optimal amount of variety?

When P > MC in a monopolistically competitive market, that industry will most likely produce ______________________ than would be found in a perfectly competitive industry.

a lower quantity of a good and charge a higher price

Why are the underlying economic meanings of the perceived demand curves for a monopolist and monopolistic competitor different?

a monopolist faces the market demand curve and a monopolist competitor does not

Which of the following represents a difference in the process by which a monopolistic competitor and a monopolist make their respective decisions about quantity and price?

a monopolist need not fear entry and also selection b above

A firm that holds a monopoly position in the market place is

a price maker

If monopolists are able to produce fewer goods and sell them at a higher price than they could under perfect competition, the result will be

abnormally high sustained profits.

In order to reduce the harmful affects of recession and carbon emissions, the government provided tax incentives for manufacturing firm's to ___________________ that provide alternative, more efficient methods of combining inputs to produce output.

acquire energy efficient production technologies

Economic profit can be derived from calculating total revenues minus all of the firm's costs,

including its opportunity costs.

Occasionally, _________________ may lead to pure monopoly; in other market conditions, they may limit competition _________________ .

barriers to entry; to a few oligopoly firms

Temperatures have persisted below freezing levels in Florida throughout the months of December and January. As a result, demand for electricity sharply increased and the price of electricity rose sharply. The price of coal also rose. In these circumstances, any resulting shifts in the supply curves for coal miners and electricity producers

can also be interpreted as shifts of their respective marginal cost curves.

The form of legal protection intended to prevent reproduction of original works is referred to as ______________ law.

copyright

Intellectual property law is a body of law that includes

copyright legislation, as well as all of the above

Which of the following falls outside of the classification of business expenses that fall into the category of fixed costs?

costs incurred in the act of producing

Mary competes in a monopolistically competitive market. Suddenly, 5 new firms enter the market, causing her perceived demand curve to shift. The following tables show her original and new demand curves and her cost information. Assume that Mary can only choose from the quantities of output given in the table. By how much will the quantity that she produces change after the new firms enter the market? Original Demand CurvePriceQuantityTC300$1302510$1402020$2601530$4501040$660 New Demand CurvePriceQuantityTC250$1302010$1401520$2601030$450540$660

decrease by 10

The graph below illustrates the total cost function for GoodieCookie Co. The changing slope of the total cost curve reflects this company's

decreasing marginal costs.

The slope of the demand curve for a monopoly firm is

downward sloping

The term __________________ describes a situation where the quantity of output rises, but the average cost of production falls.

economies of scale

When __________________ exist, doubling of all inputs will result in more than doubling output, which means __________________________________________.

economies of scale; a larger factory can produce at a lower average cost than a smaller company.

In order to calculate marginal cost, the change in ______________ is divided by the amount of change in quantity.

either total cost or variable cost

In a perfectly competitive market, each firm produces at a quantity where price is set

equal to marginal cost, both in the short run and in the long run.

If a competitive firm experiences a shift in costs of production that decreases marginal costs at all levels of output,

expanding output levels at any given price will be profitable.

A firm's ___________ consist of expenditures that must be made before production starts that typically, over the short run, _______________ regardless of the level of production.

fixed costs; do not change,

A perfectly competitive industry is a ____________________

hypothetical extreme.

Joe owns a restaurant. Many of the restaurants that he competes with recently closed, shifting his perceived demand curve. The following 2 tables show his old and new perceived demand curves. Assume that Joe can only choose from the quantities of output given in the table. By how much does the price that he charges change after the restaurants leave the market? Original Demand CurvePriceQuantityTC$200$1,000$18100$1,100$16200$2,000$14300$4,000$12400$7,000 New Demand CurvePriceQuantityTC$250$1,000$23100$1,100$21200$2,000$19300$4,000$17400$7,000

increase by 3

The demand curve perceived by a perfectly competitive firm

is horizontal

When a monopolist increases sales by one unit,

it loses some marginal revenue and all of the above.

If the CEO of I'MaBigBank is playing prisoner's dilemma then, from his perspective, the gains to be had from cooperation are

larger than the rewards from pursuing self-interest.

A __________________ exists when the quantity demanded in the market is less than the quantity at the bottom of the long-run average cost curve.

natural monopoly

Deregulation occurs when a government eliminates or scales back rules relating to all but one of the following. Which one is it?

natural monopoly

What happens in a perfectly competitive industry when economic profit is greater than zero?

new firms may enter the industry and all of the above

A _________ refers to a group of firms colluding with one another to produce at the monopoly output and sell at the monopoly price.

prisoner's dilemma

Why would labor be treated as a variable cost?

producing larger quantities of a good or service generally requires more workers

A monopolist is able to maximize its profits by

producing output where MR = MC and charging a price along the demand curve.

Monopolistic competitors can make a _____________ in the short-run, but in the long run, ______________ will drive these firms toward _______________________ .

profit or loss; entry and exit; a zero-profit outcome

Refer to the table below. If this information were used to create a total cost graph, the curve should QuantityCost (in dollars)Fixed Costs (in dollars)Total Costs (in dollars)Average Total Costs (in dollars per unit)Average Variable Costs (in dollars per unit)Marginal Costs (in dollars per unit)004040- -- -- -114055155515235407517.537.520360401002033.3254904013022.532.53051254015525313561604020026.633.340

reflect all of the above.

The total revenue curve for a monopolist will

start low, rise, and then decline

The figure below shows the demand curve and the long run average cost curve for an electric company. This market is a natural monopoly because

the demand curve intersects the long run average cost curve at a point where the long run average cost curve is downward sloping

Product differentiation may occur in _______________ because ____________________ created strong preferences for certain brands.

the minds of buyers; past habits and advertising

In order to determine the average variable cost, the firm's variable costs are divided by _______________________.

the quantity of output

If each of two competing monopolists undertakes equal advertising efforts to attract consumers away from the other, the total result is

they will simply neutralize one another's efforts.

When a firm pursues a predatory pricing strategy, it does so

to maximize profits in the long run.

Why would a profit-seeking firm need to tailor its decisions about the quantity of labor inputs that it purchases?

to produce the profit-maximizing quantity of output at the lowest possible average cost

The marginal cost curve is generally ______________, because diminishing marginal returns implies that additional units are ________________________.

upward-sloping; more costly to produce

If a comparison between average cost and price reveals whether a firm is earning profits, then a comparison between average variable cost and price reveals

whether the firm is earning profit if fixed costs are left out of the calculation.

Would raising the price for a product create a larger decline in quantity demanded for a monopolistic competitor's than it would for a monopoly?

yes; consumers will buy from competitors offering lower priced substitutes