Econ Exam 2
If accounting profit for a firm is 20% of sales, and the implicit cost of financial capital is equal to 8% of sales, then what does the firm's economic profit equal?
12% of sales
Refer to Exhibit 25-7. A monopolistic competitive firm that seeks to maximize profits will sell __________ units and charge a price of __________ .
400; $7
_____________ has occurred if a government-owned firm becomes privately owned.
Privatization
If two firms that form a cartel agreement are in a prisoner's dilemma game, then
a and c
Perfect competition displays _____________________ because the social benefits of additional production, as measured by the price that people are willing to pay, are in balance with the ____________ to society of that production.
allocative efficiency; marginal costs
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
Antitrust regulations would most likely require one of the following in order to determine whether or not a merger may enhance competition. Which one is it?
analysis using numerical tools.
For the past two years, a cellphone manufacturer has been selling to a group of distributors, who then sell the products to retailers to sell to the general public. The firm has now informed its distributors that each of them must sell the cellphones for a minimum price the manufacturer has set. In these circumstances,
any resulting minimum resale price maintenance agreements will be illegal.
Refer to Exhibit 24-1. If the product is produced under single-price monopoly, what do profits equal at the profit maximizing level of output?
area P1P2CB
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
If a firm is experiencing _____________________, then as the quantity of output rises, the average cost of production rises.
decreasing returns to scale
The Herfindahl index measures the
degree of concentration in an industry.
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.
Refer to Exhibit 25-6. In the exhibit,
c and d
If the U.S. electricity and the telecommunications industry are deregulated, the challenge that will need to be met will involve
combining competition where possible with regulation where necessary.
The term "constant returns to scale" describes a situation where
expanding all inputs does not change the average cost of production.
If the government decides to regulate this natural monopoly by forcing them to produce at the point where the demand curve intersects average cost, then compared to the unregulated natural monopoly, the price will ____ and the quantity will ____.
fall, rise
If the government decides to regulate this natural monopoly by forcing them to produce at the point where the demand curve intersects marginal cost, then the firm will make a ____ and ____ continue in the long run.
loss of $33 million, will not
In economics, the term "shutdown point" refers to the point where the
marginal cost curve crosses the average variable cost curve.
Under perfect competition, any profit-maximizing producer faces a market price equal to its
marginal costs
Norway's government nationalized the country's oil resources, and it has been accumulating a massive sovereign wealth fund worth billions of dollars ever since. This sovereign fund is used as a monetary source for government funded national education and healthcare. This is because the wealth generated by nationalized industries
is used to serve the citizens of the country.
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.
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
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.
Refer to Exhibit 25-9. Fill in blanks (H), (I), (J), and (K), respectively.
no; no; yes; yes
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
Roughly speaking, patent law covers __________ and __________ law protects an author's original books.
original inventive creations; copyright
If a perfectly competitive firm is a price taker, then
pressure from competing firms will force acceptance of the prevailing market price.
If a firm's revenues do not cover its average variable costs, then that firm has reached its _________________ .
shutdown point
The most famous restrictive practices case of the last several decades involved a series of lawsuits by the U.S. government against Microsoft. These particular lawsuits were encouraged by
some of Microsoft's competitors.
Refer to the diagram above. 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
Refer to Exhibit 23-4. The firm sells its product at P1 and produces Q1. Given this situation,
total cost is equal to areas 1 + 2 + 3.
In a free market economy, firms operating in a perfectly competitive industry are said to have only one major choice to make. Which of the following correctly sets out that choice?
what quantity to produce
______________________ refers to the additional revenue gained from selling one more unit.
Marginal revenue
Refer to Exhibit 25-3. Profits of this profit maximizing monopolistic competitor is represented by the area
P3P1AC.
A situation where the level of output, scale and average costs are all rising is called
both a and b are correct
The demand curve as perceived by a monopolistic competitor is ______________ .
downward-sloping
Refer to the diagram above. Based on the information illustrated in this graph, which of the following is an accurate statement?
profits will be reduced by production in the zone beyond point 'e'
When a firm makes plans for investments in physical capital, it compares the _______________ on these investments with ______________________ .
projected rates of return; the cost of financial capital to the firm
Refer to Exhibit 25-7. Fixed costs are equal to.
There is not enough information given to answer the question.
Which of the following would a market competition regulator be most likely to assign the maximum HHI valuation to?
a monopoly
In monopolistic competition, firms can compete in terms of
all of the above
The result of regulatory capture is that government price regulation can often become a way for existing competitors to work together to
all of the above
The typical pattern of costs for a monopoly can be analyzed by using: I) total cost II) fixed cost III) variable cost IV) marginal cost V) average cost VI) average variable cost
all of the above
Refer to Situation 22-4. What are Joe's economic profits?
25,000
Copyright protection legislation provides protection for original works
during the author's life plus 70 years
____________________________ occur when the marginal gain in output diminishes as each additional unit of input is added.
Diminishing marginal returns
The imported question text for this question was too long.
$0
Refer to Situation 22-1. What will Diane's total variable costs be if she sells 36,500 donuts in one year?
$10,950
If a firm holds a pure monopoly in the market and is able to sell 5 units of output at $4.00 per unit and 6 units of output at $3,90 per unit, it will produce and sell the sixth unit if its marginal cost is
$3.40 or less
Given the data provided in the table below, what will the marginal revenue equal for production at quantity (Q) level 4?
$5.00
Refer to Exhibit 22-7. The total variable cost of producing 3 units is
$60.00.
Refer to Exhibit 24-8. A profit-maximizing single-price monopolist will set the price at
$75 per unit.
Refer to Exhibit 24-4. The profit-maximizing single-price monopolist's maximum profit is
$85
If the top four firms account for $25 million in sales and total industry sales are $87 million, it follows that the four-firm concentration ratio is
0.29
The table below shows a monopolist's demand curve and cost information for the production of its good. What quantity will it produce?
1,000
I'MABigCorp. produces and sells kitchen wares. Last year, it produced 7,000 can openers and sold each one for $6. To produce the 7,000 can openers, the company incurred variable costs of $28,000 and a total cost of $45,000. I'MABIGCorp.'s average fixed cost to produce the 7,000 can openers was
2.43
Refer to Exhibit 23-10. What price does this firm charge for its product?
20
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?
3 workers
Refer to the table below. The information pertains to the demand curve and the average cost curve for a natural monopoly firm. What will the price be in this market?
50
Refer to Exhibit 24-6. The marginal revenue curve of a perfectly competitive firm producing X and selling it at the price P0 is represented by
D
Refer to Exhibit 26-5. If the natural monopoly firm were to maximize profits it would produce __________ quantity of output and charge a price of __________ per unit.
Q1; P3
Which of the following is a true statement?
The government approves most proposed mergers.
_____________ is calculated by taking the quantity of everything that is sold and multiplying it by the sale price.
Total revenue
In a perfectly competitive market setting, which of the following would be a true statement?
Wage rates trend toward marginal revenue product levels.
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.
By 2007, US market deregulation has proven to be most toxic to the overall health of the US economy in the ________________________ .
banking sector
Antitrust laws were created to give government the power to
block certain mergers and break up large firms into smaller ones.
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
Which of the following falls outside of the classification of business expenditures that fall into the category of variable costs?
costs of research and development
The term __________________ describes a situation where the quantity of output rises, but the average cost of production falls.
economies of scale
The demand curve as perceived by a perfectly competitive firm is __________ .
flat
The demand curve perceived by a perfectly competitive firm
is horizontal
The term _____________ is used to describe the additional cost of producing one more unit.
marginal cost
If a monopolist increases quantity by one unit, but sells the increased output at a slightly lower price,
marginal revenue is affected by adding one additional unit sold at the new price.
Refer to the table below. In this instance, confirmation that this firm is operating in a perfectly competitive market can readily be ascertained by the fact that its
marginal revenue is constant.
Shopping malls typically lease retail space to a large number of clothing stores. When this group of retailers competes to sell similar but not identical products, they engage in what economists call ________________________.
monopolistic competition
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
When the regulator sets a price that a firm cannot exceed over the next few years, the regulator is enforcing
price cap regulation.
Why would labor be treated as a variable cost?
producing larger quantities of a good or service generally requires more workers
City Gas is a natural monopoly that supplies natural gas to a particular city. Its cost and demand information are given below.
profit, $24 million
Splitting up a the natural monopoly held by a public utility that produces and provides electricity would
raise the average cost of production and force consumers to pay more.
The term ______________ refers to a situation where the firms supposedly being regulated end up playing a large role in setting the regulations that they will follow.
regulatory capture
Product differentiation may occur in _______________ because ____________________ created strong preferences for certain brands.
the minds of buyers; past habits and advertising
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.
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
If the two smallest firms in a competitive market merged, the four-firm concentration ratio _______________ because ____________________________ .
would not change; the degree of competition isn't notably diminished
