Econ 528 Module 5
a. $100
1. Refer to Figure 4-3. What is the value of the deadweight loss at a price of $18? a. $100 b. $180 c. $660 d. $1,040
d. The price falls to $12.
A perfectly competitive wheat farmer in a constant-cost industry produces 3,000 bushels of wheat at a total cost of $36,000. The prevailing market price is $15. What will happen to the market price of wheat in the long run? a. The price rises above $15. b. The price remains constant at $15. c. There is insufficient information to answer the question. d. The price falls to $12.
a. the supply curve will shift to the left and the equilibrium price will increase.
Assume the market for organically-grown produce is perfectly competitive. All else equal, as farmers find it less profitable to produce and sell organic produce in this market a. the supply curve will shift to the left and the equilibrium price will increase. b. the supply curve will shift to the right, the demand curve will shift to the left, and the equilibrium price will decrease. c. the supply curve will shift to the left, the demand curve will shift to the left, and the equilibrium price will increase. d. the demand curve will shift to the left and the equilibrium price will decrease.
c. 180.
Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market. Refer to Figure 12-4. If the market price is $30, the firm's profit-maximizing output level is a. 240. b. 130. c. 180. d. 0.
b. P3cbP1
Refer to Figure 12-3. Suppose the prevailing price is P1 and the firm is currently producing its loss-minimizing quantity. Identify the area that represents the loss. a. P2 deP1 b. P3cbP1 c. P3caP0 d. 0P1 bQ1
a. $240
Refer to Figure 4-3. What is the value of producer surplus at a price of $18? a. $240 b. $300 c. $340 d. $720
a. products are differentiated.
The reason that the coffeehouse market is monopolistically competitive rather than perfectly competitive is because a. products are differentiated. b. entry into the market is blocked. c. barriers to entry are very low. d. there are many firms in the market.
e. Both A and D.
Successful differentiation allows a firm to a. gain buyer loyalty to its brand (because some buyers prefer the differentiating features and are thus brand loyal). b. set the industry ceiling on price. c. attract many more buyers by charging a lower price than rivals and thereby take sales and market share away from rivals. d. command a premium price for its product and/or increase unit sales (because additional buyers are won over by the differentiating features), and/or. e. Both A and D.
b. study buyers" needs and behavior very carefully to learn what they consider important, what they think has value, and what they are willing to pay for
To be successful with a differentiation strategy, a company has to a. Concentrate on differentiating its product on the basis of superior product quality or personalized customer service. b. study buyers" needs and behavior very carefully to learn what they consider important, what they think has value, and what they are willing to pay for c. outspend rivals on R&D in order to have differentiating attributes that rivals don't have. d. incorporate more differentiating features into its product/service offering than rivals and also charge a price no higher than the prices charged by rivals. e. have a state-of-the-art value chain and concentrate on providing buyers with a technologically superior product
c. convince customers that its card has greater value than those offered by rival firms.
When a credit card company offers different services with its card, like travel insurance for air travel tickets purchased with the credit card or product insurance for items purchased with the card, the credit card company is trying to a. shift the demand curve for competing firms to the right. b. create a barrier to entry for competing firms. c. convince customers that its card has greater value than those offered by rival firms. d. create a perfectly competitive market in which to sell its credit card.
b. Entry barriers into the industry are low.
Which of the following characteristics is common to monopolistic competition and perfect competition? a. Firms produce identical products. b. Entry barriers into the industry are low. c. Each firm faces a downward -sloping demand curve. d. Firms take market prices as given.
d. Wal-Mart builds another Supercenter.
Which of the following is an example of a long run adjustment? a. Your university offers Saturday morning classes next fall. b. Ford Motor Company lays off 2,000 assembly line workers. c. A soybean farmer turns on the irrigation system after a month long dry spell. d. Wal-Mart builds another Supercenter.
b. Your local Wal-Mart hires two more associates.
Which of the following is the best example of a short run adjustment? a. A local bakery purchases another commercial oven as part of its capacity expansion. b. Your local Wal-Mart hires two more associates. c. Smith University completed negotiations to acquire a large piece of land to build its new library. d. Toyota builds a new assembly plant in Texas.
c. Advertising could make the monopolistic competitor's demand more inelastic, but advertising has no effect on a perfect competitor's demand.
Which of the following statements is true about advertising by a monopolistically competitive firm? a. Monopolistically competitive firms tend to shun advertising because advertising draws attention to the variety of differentiated products available in the industry. b. Advertising will be more beneficial if a monopolistic competitor colludes with other firms to advertise the products of the industry as a whole rather than an individual firm's product. c. Advertising could make the monopolistic competitor's demand more inelastic, but advertising has no effect on a perfect competitor's demand. d. Since the monopolistic competitor, like the perfect competitor, makes zero profit in the long run, it is a waste of resources to advertise its products.
b. an increase in supply
Which of the following would cause a decrease in the equilibrium price and an increase in the equilibrium quantity of salmon? a. a decrease in demand and an increase in supply b. an increase in supply c. an increase in supply and an increase in demand greater than the increase in supply d. a decrease in demand and a decrease in supply
b. an increase in supply and an increase in demand greater than the increase in supply
Which of the following would cause an increase in the equilibrium price and an increase in the equilibrium quantity of watermelons? a. an increase in demand and an increase in supply b. an increase in supply and an increase in demand greater than the increase in supply c. an increase in supply d. a decrease in demand and an increase in supply
a. an increase in consumer income
Which of the following would cause both the equilibrium price and equilibrium quantity of cotton (assume that cotton is a normal good) to increase? a. an increase in consumer income b. a drought that sharply reduces cotton output c. a decrease in consumer income d. unusually good weather that results in a bumper crop of cotton
c. The equilibrium price is likely to decrease and profits are likely to decrease.
Assume the market for organic produce sold at farmers' markets is perfectly competitive. All else equal, as more farmers choose to produce and sell organic produce at farmers' markets, what is likely to happen to the equilibrium price of the produce and profits of the organic farmers in the long run? a. The equilibrium price is likely to increase and profits are likely to remain unchanged. b. The equilibrium price is likely to remain unchanged and profits are likely to increase. c. The equilibrium price is likely to decrease and profits are likely to decrease. d. The equilibrium price is likely to increase and profits are likely to increase.
a. Although consumers may pay a price greater than marginal cost and the product is not produced at minimum average total cost, they benefit from being able to buy a differentiated product more closely suited to their tastes.
Economists have long debated whether there is a significant loss of well-being to society in markets that are monopolistically competitive rather than perfectly competitive. Which of the following offers the best reason why some economists believe that monopolistically competitive markets benefit consumers despite any loss of well-being? a. Although consumers may pay a price greater than marginal cost and the product is not produced at minimum average total cost, they benefit from being able to buy a differentiated product more closely suited to their tastes. b. Although consumers may pay a price greater than marginal cost for a product, the product is produced at the minimum average total cost. c. Consumers pay a price equal to the marginal cost of producing a product, even though it is not produced at the minimum average total cost. d. Consumers are better off choosing from a variety of differentiated products, even though product differentiation causes barriers that restrict entry into monopolistically competitive markets.
b. 1,350 units
Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. Refer to Figure 12-5. If the market price is $20, what is the firm's profit-maximizing output? a. 750 units b. 1,350 units c. 1,100 units d. 1,800 units
b. the marginal cost curve from b and above
Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. Refer to Figure 12-9. Identify the firm's short-run supply curve. a. the marginal cost curve from d and above b. the marginal cost curve from b and above c. the marginal cost curve d. the marginal cost curve from a and above
c. P2
Figure 13-4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. Refer to Figure 13-4. If the firm represented in the diagram is currently producing and selling Qa units, what is the price charged? a. P3 b. P1 c. P2 d. P0
b. $160
Figure 4-3 shows the market for tiger shrimp. The market is initially in equilibrium at a price of $15 and a quantity of 80. Now suppose producers decide to cut output to 40 in order to raise the price to $18. Refer to Figure 4-3. What is the value of producer surplus at the equilibrium price of $15? a. $80 b. $160 c. $240 d. $400
c. $0
Figure 4-3 shows the market for tiger shrimp. The market is initially in equilibrium at a price of $15 and a quantity of 80. Now suppose producers decide to cut output to 40 in order to raise the price to $18. Refer to Figure 4-3. What is the value of the deadweight loss at the equilibrium price of $15? a. $60 b. $40 c. $0 d. $100
a. $60
Figure 4-3 shows the market for tiger shrimp. The market is initially in equilibrium at a price of $15 and a quantity of 80. Now suppose producers decide to cut output to 40 in order to raise the price to $18. Refer to Figure 4-3. What is the value of consumer surplus at a price of $18? a. $60 b. $120 c. $180 d. $240
d. $240
Figure 4-3 shows the market for tiger shrimp. The market is initially in equilibrium at a price of $15 and a quantity of 80. Now suppose producers decide to cut output to 40 in order to raise the price to $18. Refer to Figure 4-3. What is the value of consumer surplus at the equilibrium price of $15? a. $180 b. $60 c. $120 d. $240
c. $40,000
Figure 4-5 shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month. Refer to Figure 4-5. What is the value of producer surplus after the imposition of the ceiling? a. $430,000 b. $300,000 c. $40,000 d. $100,000
c. $50,000
Figure 4-5 shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month. Refer to Figure 4-5. What is the value of the deadweight loss after the imposition of the a. $260,000 b. $125,000 c. $50,000 d. $175,000
c. operating in the short run.
If a producer is not able to expand its plant capacity immediately, it is a. bankrupt. b. losing money. c. operating in the short run. d. operating in the long run.
d. new firms will enter in the long run causing market supply to increase, market price to fall and profits to decrease.
If a typical firm in a perfectly competitive industry is earning profits, then a. new firms will enter in the long run causing market supply to decrease, market price to rise and profits to increase. b. the number of firms in the industry will remain constant in the long run. c. all firms will continue to earn profits. d. new firms will enter in the long run causing market supply to increase, market price to fall and profits to decrease.
d. $230,000
1. Figure 4-5 shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month. Refer to Figure 4-5. What is the value of consumer surplus after the imposition of the ceiling at $1000 per month? a. $430,000 b. $120,000 c. $270,000 d. $230,000
e. it has an edge over rivals in attracting customers and coping with competitive forces.
A company achieves competitive advantage whenever a. it has a product offering that is differentiated from the product offerings of rivals. b. its customers exhibit a high degree of loyalty to the company's brand. c. it has more core competences than its rivals. d. it has a better credit rating than rivals. e. it has an edge over rivals in attracting customers and coping with competitive forces.
b. how to compete successfully-its plans for positioning the company in the marketplace, its specific efforts to please customers and improve its competitive strength, and the type of competitive advantage it intends to establish.
A company's competitive strategy deals with a. how it plans to unify its functional and operating strategies into a cohesive effort aimed at successfully taking customers away from rivals. b. how to compete successfully-its plans for positioning the company in the marketplace, its specific efforts to please customers and improve its competitive strength, and the type of competitive advantage it intends to establish. c. its plans for under-pricing rivals and achieving product superiority. d. the specific actions management plans to take to gain a competitive advantage over rivals e. the specific actions management intends to take to strongly differentiate its product offering from the offerings of rival companies in the industry.
c. most rivals are trying to differentiate their product offering from those of rivals.a. buyers are large, have significant power to bargain down prices, use the product in much the same ways, and have common user requirements.
A competitive strategy of striving to be the low-cost provider is particularly attractive when a. buyers are large, have significant power to bargain down prices, use the product in much the same ways, and have common user requirements. b. most rivals are pursuing best-cost or broad differentiation strategies. c. most rivals are trying to differentiate their product offering from those of rivals. d. buyers are not swayed by advertising and are not very brand-loyal. e. there are many ways to achieve higher product quality that have value to buyers.
d. meaningfully lower overall costs than competitors.
A low-cost leader's basis for competitive advantage is: a. using an everyday low pricing strategy to gain the biggest market share. b. bigger profit margins than rival firms. c. high buyer switching costs because of the company's differentiated product offering. d. meaningfully lower overall costs than competitors. e. a reputation for charging the lowest prices in the industry.
c. of product differentiation.
A monopolistically competitive firm faces a downward-sloping demand curve because a. it is able to control price and quantity demanded. b. there are few substitutes for its product. c. of product differentiation. d. its market decisions are affected by the decisions of its rivals.
a. have some control over its price because its product is differentiated.
A monopolistically competitive firm will a. have some control over its price because its product is differentiated. b. charge the same price as its competitors do. c. always produce at the minimum efficient scale of production. d. produce an output level that is productively and allocatively efficient.
c. Yes, it should continue to produce because it is minimizing its loss.
A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000. The fixed cost of production is $20,000. The price of each good is $10. Should the firm continue to produce in the short run? a. There is insufficient information to answer the question. b. Yes, it should continue to produce because its price exceeds its average fixed cost. c. Yes, it should continue to produce because it is minimizing its loss. d. No, it should shut down because it is making a loss.
a. upward sloping and is the portion of the marginal cost curve that lies above the average variable cost curve.
A perfectly competitive firm's short-run supply curve is a. upward sloping and is the portion of the marginal cost curve that lies above the average variable cost curve. b. perfectly elastic at the market price. c. upward sloping and is the portion of the marginal cost curve that lies above the average total cost curve. d. horizontal at the minimum average total cost.
c. marginal cost curve above its minimum average variable cost.
A perfectly competitive firm's supply curve is its a. marginal cost curve. b. marginal cost curve above its minimum average total cost. c. marginal cost curve above its minimum average variable cost. d. marginal cost curve above its minimum average fixed cost.
d. The demand for gasoline-powered automobiles would increase and the equilibrium price of gasoline-powered automobiles would increase.
An increase in input costs in the production of electric automobiles caused the price of electric automobiles to rise. Holding everything else constant, how would this affect the market for gasoline-powered automobiles (a substitute for electric automobiles)? a. The supply of gasoline-powered automobiles would increase and the equilibrium price of gasoline-powered automobiles would decrease. b. The demand for gasoline-powered automobiles would increase and the equilibrium price of gasoline-powered automobiles would decrease. c. The demand for gasoline-powered automobiles would decrease because consumers could afford to buy fewer gasoline-powered automobiles. d. The demand for gasoline-powered automobiles would increase and the equilibrium price of gasoline-powered automobiles would increase.
a. both the equilibrium price and quantity of MP3 players will increase.
Assume that both the demand curve and the supply curve for MP3 players shift to the right but the demand curve shifts more than the supply curve. As a result a. both the equilibrium price and quantity of MP3 players will increase. b. the equilibrium price of MP3 players will increase; the equilibrium quantity may increase or decrease. c. the equilibrium price of MP3 players will decrease; the equilibrium quantity may increase or decrease. d. the equilibrium price of MP3 players may increase or decrease; the equilibrium quantity will increase.
b. the equilibrium price of MP3 players will decrease; the equilibrium quantity will increase.
Assume that both the demand curve and the supply curve for MP3 players shift to the right but the supply curve shifts more than the demand curve. As a result a. both the equilibrium price and quantity of MP3 players will decrease. b. the equilibrium price of MP3 players will decrease; the equilibrium quantity will increase. c. the equilibrium price of MP3 players may increase or decrease; the equilibrium quantity will decrease. d. the equilibrium price of MP3 players will increase; the equilibrium quantity will decrease.
b. the supply curve shifted to the left resulting in an increase in the equilibrium price.
In 2004, hurricanes destroyed a large portion of Florida's orange and grapefruit crops. In the market for citrus fruit a. the supply curve shifted to the right resulting in an increase in the equilibrium price. b. the supply curve shifted to the left resulting in an increase in the equilibrium price. c. the demand curve shifted to the right resulting in an increase in the equilibrium price. d. the demand curve shifted to the left resulting in a decrease in the equilibrium price.
b. It enables Juicy to price its products at a premium and differentiate them from lower priced products.
Juicy Couture has been successful in selling women's clothing using an unusual strategy. According to an article in the Wall Street Journal, the key to the firm's strategy is to "limit distribution to maintain the brand's exclusive cachet, even if that means sacrificing sales, a brand-management technique once used only for high-end luxury brands." In 2006, Juicy clothes were sold in only four department stores: Neiman Marcus, Saks, Bloomingdale's, and Nordstrom. In 2006, its sales have more than quadrupled since 2002. How does limiting the number of stores in which Juicy's products are sold contribute to its success? a. Maintaining the exclusivity of a product increases the demand for the product. b. It enables Juicy to price its products at a premium and differentiate them from lower priced products. c. It helps establish Juicy's products as luxury items favored by the very wealthy. d. By sacrificing sales, the company was able to focus on producing high quality products.
c. Max should continue to run the tattoo parlor until his lease runs out.
Max Shreck, an accountant, quit his $80,000-a-year job and bought an existing tattoo parlor from its previous owner, Sylvia Sidney. The lease has five years remaining and requires a monthly payment of $4,000. Max's explicit cost amounts to $3,000 per month more than his revenue. Should Max continue operating his business? a. If Max's marginal revenue is greater than or equal to his marginal cost, then he should stay in business. b. Max's explicit cost exceeds his total revenue. He should shut down his tattoo parlor. c. Max should continue to run the tattoo parlor until his lease runs out. d. This cannot be determined without information on his revenue.
b. Advertising and brand management allow a firm to create an entry barrier which will insulate the firm from competition and from undertaking further product innovations.
One of your classmates asserts that advertising, marketing research, and brand management are redundant expenditures because a firm can obtain the same information by simply looking at what customers are already buying. Which of the following is not a response you might offer her? a. Marketing research could allow a firm to identify new market opportunities and at least, in the short run, a firm can make a profit supplying products to this market segment. b. Advertising and brand management allow a firm to create an entry barrier which will insulate the firm from competition and from undertaking further product innovations. c. Conducting market research is a good way for firms to keep abreast of changing consumer tastes and preferences. d. If a firm successfully manages its brand, customers become less price sensitive as they perceive fewer substitutes for the firm's brand.