Econ 130 final

Marginal cost (MC) intersects the average variable cost (AVC) and the average total cost (ATC):

A. at their lowest, or minimum, points.

As output increases, total variable cost.... and average variable cost .....

A. increases; decreases and then increases

The legal principle that large size and the existence of unexerted power are not in themselves illegal

A. led to a finding that U.S. Steel had not violated any law. B. was generally accepted by the courts until 1945. C. is consistent with the Rule of Reason. D. let most decisions rest on firms' conduct. E. All of the above.

When a firm engages in perfect price discrimination,

A. there is no deadweight loss. B. consumer surplus is zero. C. they produce the same output level as a competitive firm. D. All of the above are true.

Indicate whether you agree or disagree with the following statement. If marginal cost is below the average variable cost comma average variable cost will be declining.

Agree: Any time MC is below the AVC comma AVC will be declining.

For the following business, what is the likely fixed factor of production that defines the short run? The fixed factor of production for a brewery is most likely.

All of the above.

What is the relationship between average total cost (ATC) and marginal cost (MC)?

All of the above.

Fixed costs are best described as:

Costs that are incurred even if the firm is currently producing nothing.

For the following scenario, decide whether you agree or disagree and explain your answer. If the elasticity of demand for cocaine is -0.20 and the Drug Enforcement Administration succeeds in reducing supply substantially, causing the street price of the drug to rise by 50%, buyers will spend less on cocaine.

Disagree: When price increases and demand is relatively inelastic, total revenue will rise.

What is the primary difference between income and wealth

Income is a flow variable; wealth is a stock variable.

What can be said of a firm's short-run supply curve?

It is the marginal cost curve of the competitive firm.

A firms cost-minimizing equilibrium condition is represented by which of the following?

MPL/PL = MPK/PK

A monopolist maximizes profit by setting output where

MR = MC.

Explain how the following event would affect the cost curves. A company employs a new technology comma which lowers its utility costs.

Marginal cost comma average variable cost comma and average fixed cost will decrease. Average total cost will not change.

Suppose price increases and demand is perfectly elastic. What happens to total revenue?

Total revenue will fall to zero.

The condition that exists when quantity supplied exceeds quantity demanded at the current price is:

a surplus or excess supply.

An effective price floor is set ....the market equilibrium price and results in a ......

below; shortage

In order to maximize its profit, a monopolist

decides price and output simultaneously.

When the marginal product is rising, the marginal cost is:

falling.

Evaluate the following statement: If the total variable cost of production is the sum of the marginal cost of each additional unit of output, we can calculate the marginal cost by taking the total variable cost of production and dividing it by the quantity of output produced. This statement is:

false; it is confusing marginal cost with average variable cost.

Do you agree or disagree with each of the following statements? Explain your reasoning. For a monopoly, price is equal to marginal revenue because a monopoly has the power to control price. This statement is

incorrect because price is greater than marginal revenue.

. Ceteris paribus, if the price of Pepsi increases, the equilibrium price of Coca-Cola will and the equilibrium quantity of Coca-Cola will .....

increase; increase

For a monopoly, marginal revenue

is less than price, because a monopolist must lower its price in order to sell more.

In output markets, elasticity of supply...., and in labor markets, elasticity of supply .....

is likely to be positive; can be positive or negative

If a monopolist is protected by barriers that prevent other firms from selling the same product, then the monopolist

is still constrained by the demand curve for its product.

When total product reaches its highest level, marginal product

is zero.

Because a monopoly is the only firm in its industry,

it can set the industry price.

Assuming it chooses to produce, a profit-maximizing firm in a perfectly competitive industry will produce output where

marginal revenue equals marginal cost.

The barrier to entry where the value of a product to a consumer increases with the number of that product being sold or used in the market is called

network externalities.

In perfect competition,

price always equals marginal revenue.

Marginal cost (MC) measures:

the increase in total cost that results from producing an additional unit of output.

A monopoly faces no supply curve because

the output quantity produced by a monopoly depends on its marginal cost curve and on marginal revenue associated with a specific price.

One of the major characteristics of pure monopoly is

there is only one firm in the industry.

For a demand curve to be more elastic:

there should be an availability of substitutes.

of the following are characteristics of firms in a perfectly competitive industry except

they are price makers

Economic profit can be calculated as

total revenue minus (explicit costs + implicit costs).

The law of diminishing returns occurs:

when additional units of a variable input are added to fixed inputs, after a certain point, the marginal product of the variable input declines.