ECON-B 251 Final Exam (Mod 9-12)

When Sidney's Sweaters, Inc. makes exactly zero economic profit, Sidney, the owner,

makes an income equal to his best alternative forgone income

When marginal product is rising

marginal cost is falling

A firm will expand the amount of output it produces as long as its ______ exceeds its ______.

marginal revenue marginal cost

The goal of the firm is to

maximize profit

A game in which payoffs decrease from beginning to end is called a

negative-sum game

the market with the lowest barriers to enter is ____

perfect competition

Which of the following is a type of market?

perfect competition monopolistic competition Oligopoly Monopoly

For a single-price monopoly, marginal revenue is ______ when demand is elastic and is ______ when demand is inelastic.

positive negative

A game in which payoffs increase from beginning to end is called a

positive-sum game

The profit maximizing level of output for the perfectly competitive firm occurs where

price (MR) = MC OR where profit is the largest

Short-run average profits or average losses are determined by comparing _____

price (MR) to average total cost (MC)

At the profit maximizing level of output, firms shutdown when

price < AVC

Joe, a hair dresser, offers students a discount price on haircuts. This form of pricing is an example of

price discrimination

When Dominant Pizza is willing to sell a pizza to a student who lives on-campus at a lower price than it is willing to sell the identical pizza to a student who lives a block away from the campus, the pizza firm is practicing

price discrimination

the principal agent problem suggests

principals and agents are more likely to have the same goals if the agent's pay is tied to satisfying the principals goals - this is because the workers goal is wage maximization while the principals goal is profit maximization

In the short run, a firm will

produce and incur an economic loss if its total revenue covers its total variable cost but not its total cost

An unregulated monopoly will

produce in the elastic range of its demand curve

An implicit cost is an opportunity cost that

requires no actual payment of cash

The fundamental reason a single-price monopoly creates a deadweight loss is that it

restricts output

One important difference between monopoly and monopolistic competition is the

slope of the demand curve that the firm faces

Having an equal amount of information is known as

symmetric information

The short run is a period of time in which

the quantity used of at least one factor of production is fixed

A single-price monopoly charges the same price

to all customers

If the price elasticity of demand is less than 1, a monopoly's

total revenue decreases when the firm lowers its price.

If the price elasticity of demand is greater than 1, a monopoly's

total revenue increases when the firm lowers its price

In the long-run, perfectly competitive firms earn

zero economic profit

A game in which any gains within the group are exactly offset by equal losses by the end of the game is called a

zero-sum game

Long-run average total costs decrease as output increases is known as ______ scales and observed on the ____ of the ______ average cost curve

- economies of - downwards sloping portion - long-run

Which of the following are barriers to entry for an oligopoly?

- economies of scale - ownership of a vital resource - price wars

Perfectly competitive markets are _______ because ______ is maximized and firms produce at the lowest possible ______ cost.

- efficient - total surplus - average total

In a perfectly competitive market, price ____ marginal revenue. In a monopoly, price is _____ marginal revenue.

- equal -greater than

the more perfectly a monopoly can price discriminate, the ______ its output and the _____ its profit

- larger - larger

Compared to the perfectly competitive firm, the profit-maximizing single price monopolist produces ______ quantity and charges a ______ price.

- lower - higher

Which of the following are features of game theory?

- players - payoffs - strategies

A single-price monopolist will find when it produces its profit-maximizing amount of output that

- price exceeds marginal cost - marginal revenue equals marginal cost - price exceeds marginal revenue

In comparison with a perfect competition, a single-price monopolist with the same costs creates a _____ consumer surplus and earns a ____ economic profit

- smaller - larger

Which of the following are conditions for price discrimination for a monopoly?

- the monopolist must be able to separate the market by customer - The monopolist must be able to prevent the resale of the good or service - must face a downwards sloping demand curve - buyers must have different price elasticities of demand

In the long-run, perfectly competitive firms earn _____ economic profit and ______ accounting profit

- zero - positive

Compared to a similar perfectly competitive industry, a single-price monopoly _____ consumer surplus and _____ economic efficiency.

-decreases - decreases

In a perfectly competitive market there are ___ buyers, ____ sellers producing ____ products. ____ have full information and ____ have market power.

-many -many -identical -buyers and sellers -neither buyers nor sellers

Which of the following are examples of implicit opportunity costs?

-the owner's time -depreciation -interest forgone

Rent seeking by a monopolist _____ the social _____ of a monopoly and ______ its ____.

- decreases - cost - increases - average total cost

All of the following are examples of price discrimination EXCEPT

"buy now, pay later" payment options

Sue quit her $40,000 per year job and opened a coffee shop that she calls Top Brew. In the first year, Top Brew earned $200,000 in revenue. For the same year, Top Brew paid $80,000 to employees in wages, spent $40,000 on ingredients such as coffee beans, $15,000 rent for the building to house Top Brew. Sue also used $50,000 of her personal savings to purchase equipment for Top Brew, which she was earning $4,000 in interest each year. Assuming no depreciation in the value of the equipment, Sue's economic profit from Top Brew for the year is $

$21,000 -subtract everything besides the $50,000 since this came from her personal savings, not the company

Which of the following are barriers to entry for a monopoly

- Government restrictions - copyright - patent - public franchises - ownership of a vital resource - high financial capital to enter market

In the prisoners' dilemma, when each player takes the best possible action given the action of the other player, a _______ equilibrium is reached.

- Nash

Which of the following statements about a monopoly is FALSE?

Monopolies have no barriers to entry

An example of a fixed resource in the short run is

a building

The demand for corn from Hoosier farms is perfectly elastic because corn from Hoosier farms is

a perfect substitute for corn from other farms

In perfect competition, each individual firm faces ________ demand curve.

a perfectly elastic

The profit-maximizing single price monopolist produces _______ its demand curve.

along the elastic portion

In perfect competition, the marginal revenue of an individual firm

equals the price of the product

The law of diminishing marginal returns says that as the firm uses more of _____, with a given quantity of ______, the _______ product of the variable input eventually diminishes.

- a variable - fixed inputs - marginal

Total cost (TC) =

TFC + TVC or ATC * q

Which of the following is characteristic of oligopoly, but NOT of monopolistic competition?

The choices made by one firm have a significant effect on other firms.

Which of the following is true for BOTH a monopoly and a perfectly competitive firm?

The profit maximizing output level occurs where MR = MC

True/False: The profit maximizing single price monopolist produces along the elastic portion of its demand curve.

True

An example of a variable resource in the short run is

an employee

A public franchise is _______.

an exclusive right granted to a firm to supply a good or service.

A patent grants _____.

an exclusive right to an inventor of a product.

In a repeated game, punishments that result in heavy damages are an incentive for players to adopt the strategies that result in a _____ equilibrium

cooperative

Consider the following game: three co-workers choose to spend anywhere between 0 and 10 hours each working on a project. At the end of the project, they are each paid $10 per hour for the total number of hours worked between all three of them. All the co-workers care about is how much they can earn. Take the first employee, for example. Mark all of the following strategies of that employee that are dominated by some other strategy. a. contribute 10 hours b. contribute 5 hours c. contribute 1 hour d. contribute 0 hours

d. contribute 0 hours - Working 5, 1, or 0 hours means you will get paid at least $50 less at the end of the project compared to if you worked 10, since you should treat how much the other workers work as given.

To increase output, the monopolist must ______ price to all customers.

decrease

As output increases if marginal product is increasing, marginal costs is _____

decreasing

For a monopoly, the industry demand curve is the firm's

demand curve

In perfect competition, restrictions on entry into an industry

do not exist

When long-run average costs decrease as output increases, there are

economies of scale

A monopoly firm expands its output and lowers its price. The firm finds that its total revenue rises. Hence, the firm is producing in the

elastic range of its demand curve

The owner of a proprietorship might decide incorporate the firm as a corporation in order to

gain limited liability

A monopoly firm expands its output and lowers its price. The firm finds that its total revenue falls. Hence, the firm is producing in the

inelastic range of its demand curve.

A defining characteristic of a natural monopoly is that

its average total cost curve slopes downward as it intersects the demand curve.

When a firm is producing a given output at the least possible cost, it is producing on

its long-run average cost curve

Patents are ________ barriers to entry and public franchises are ________ barriers to entry.

legal; legal