Econ Test 2
Which two auctions are strategically equivalent?
1st price sealed-bid and descending
_____ is a group of firms that have made a collusive agreement.
A cartel
In the short run, a perfectly competitive firm will earn an economic profit as long as
P > ATC
Which of the following is true about a perfect price discriminating monopolist
There is no consumer surplus
Which of the following is NOT a decision firms must make in the short run?
Whether to enter or exit an industry
In a perfectly competitive firm finds itself producing where its marginal cost exceeds its price, it should
decrease its output to increase its profit
When new firms enter a monopolistically competitive industry, each existing firm's
demand curve shifts leftward
In perfect competition, an individual firm
determines the quantity it sells in the marketplace but has no influence over its price
Price discrimination is the practice of charging different prices to
different customers even though the cost of selling to each is the same
Collosions or cartel agreements are bound to fail because
each firm will earn higher profit by breaking from the cartel agreement.
Total revenue minus the sum of implicit and explicit costs is equal to ____ profit.
economic
The maximum economic profit that can be made by a duopoly that colludes is equal to the
economic profit made by a monopoly
high fixed costs are associated with
economies of scale
A firm incurs implicit costs when
the company uses capital equipment which it owns
In the long-run equilibrium in the perfectly competitive market
the economic profit for each firm equals zero
What happens in the long-run if competitive firms earn excess profits
the entrance of new firms and the loss of short-run profits
What happens in the long-run if competitive firms suffer economic losses
the exit of some firms and the elimination of the short-run losses
What marginal cost
the extra cost of producing 1 more unit of output
If a monopoly is operating along the portion of its demand curve where marginal revenue is positive, its
total revenue increase when price decreases
Economic profit is equal to
total revenue minus opportunity cost
An economic profit for a self-employed entrepreneur is
total revenue that exceeds the opportunity cost.
In the long-run perfectly competitive firms earn zero economic profit. This result is due mainly to which of the following assumptions?
unrestricted entry and exit
Total costs is the sum of fixed costs and
variable costs
When should a profit-maximizing firm increase production
when marginal revenue exceeds marginal cost
In the short-run, a competitive firm decides
whether to produce of shut down
In the long run, the economic profit of a firm in a perfectly competitive industry
will equal zero
A key difference between a monopoly and a perfectly competitive firm is that the monopolist
has a marginal revenue curve that lies below its demand curve
In perfect competition, the demand curve facing a single firm is
horizontal
The marginal product of labor is equal to the
increase in the total product that results from hiring one more worker
A monopolist
is a price setter
If firms in a monopolistically competitive industry are earning a positive economic profit, then
new firms will enter the industry
A firm in monopolistic competition can determine what price to charge for its product because of
product differentiation
Brand name drugs are chemically identical to their generic counterparts. Yet consumers often prefer the brand name product to the generic product. Making consumers think that a brand name drug differs from its generic counterpart is an example of
product differentiation
Which characteristic is associated with monopolistic competition
product differentiation
One benefit of monopolistic competition over perfect competition is
product variety
A firm's basic goal is to maximize its
profit
The profit maximizing condition for a perfectly competitive firm is
P = MC
Price wars can be the result of
new firms entering the industry and all firms then finding themselves in a prisoners' dilemma situation.
A company could produce 100 units of a good for $320 or produce 101 units of the same good for $324. The $4 difference in costs is
The marginal cost of producing the 101st unit.
Economies of scale refer to the range of output over which
the average cost falls as output increases
Which of the following statements true?
A perfectly competitive industry produces more output and charges a lower price than a single-price monopoly.
Pippi owns a pizza parlor . If Pippi owns a pizzaoven, for its use she incurs_____. If she instead rents a pizza oven from someone else, she incurs____.
An implicit cost; an explicit cost
Joe and Martha get to split $100. Suppose that Joe gets x dollars and Martha gets y dollars, and that 100-x-y dollars is thrown away. For which values of x and y is the allocation Pareto-efficient?
Any split will be Pareto efficient as long as the entire $100 is used up.
The distinguishing features of oligopoly are ______ and a_______ in the industry.
Barriers to entry; few firms
In the long-run, a competitive firm decides
Both A & B (what plant size, inputs, and technology to choose; whether to enter or exit an industry)
Which of the following is part of the market structure of monopolistic competition?
Both B & C (Profits are maximized by producing at the level of output where marginal revenue is equal to marginal cost.
Revenue Equivalence Theorem suggests that different auction designs will
Both B and C (Raise about the same expected revenue for the seller; produce an outcome similar to the law of one price)
In a perfectly competitive industry
Both b & c (there are no barriers to entry; there are many firms in it, each selling an identical product)
When will a perfectly competitive firm shut down?
In the short-run, when price falls below the average variable cost.
In the short run, a firm in monopolistic competition produces where
MR = MC
Which of the following is true regarding the long run for a firm in monopolistic competition?
P = ATC
Which of the following is true for BOTH monopoly and perfect competition?
Profits are maximized by producing at the level of output where marginal revenue is equal to marginal cost.
When producers agree to restrict output, raise the price, and increase profits, the agreement is called
a collusive agreement
How do monopoly outcomes differ from competitive outcomes
a monopoly limits its output and charges a higher price for its product
A barrier to entry is
a natural or legal impediment that makes it difficult for new firms to enter a market
If economic profits are equal to zero then
accounting profits are being earned and they are equal to implicit costs
The long run is a period of time in which
all factors of production are variable
In perfect competition
all firms in the market sell their product at the same price
An example of a variable resource in the short run is
an employee
If a duopoly has a collusive agreement that maximizes joint profit, then each duopolist has
an incentive to cheat by lowering its price
A natural monopoly is defined as
an industry in which one firm can supply the entire market at a lower price than two or more firms
The key feature of an oligopoly is that there
are only a few sellers
In the long-run, a monopolist will
be able to continue to earn economic profits as long as the market remains a monopoly
Why do economists say that monopoly is "inefficient"
because P > MC
Perfect price discrimination
converts all consumer surplus into economic profit
Economies of scale exist when the
cost of producing a unit of a good falls as its output increases
What are variable costs
costs that change as output changes
Total variable cost is the sum of all
costs that rise as output increases.
Explicit costs differ from implicit costs in that
explicit costs are paid in money, but implicit costs are often non-paid opportunity cost
Opportunity cost equals
explicits costs plus implicit costs
One difference between oligopoly and monopolistic competition is that
fewer firms compete in oligopoly than in monopolistic competition
In the long-run equilibrium in the perfectly competitive market
firms produce at the lowest average cost per unit
In a perfectly competitive industry...
firms take the price as given
For a single-price monopolist, price is ______ marginal revenue
greater than
A single-price monopolist is inefficient because
it creates a deadweight loss
Which of the following best describes average fixed cost
it decreases continually as output is increased
Which of the following best descrives the typical average total cost
it decreases initially when output inceases, but the increases
A perfectly competitive firm maximizes profit when
its marginal revenue equals its marginal cost
Which of the following groups lists the four factors (inputs) of production?
labor, capital, land, entrepreneurship
The more perfectly a monopoly can price discriminate, the
larger its output and the higher its profits
A single-price monopolist produces a ______ quantity than a perfectly competitive industry and charges a _______ price than the perfectly competitive industry
lesser; higher
A single-price monopolist produces a _______ quantity than a perfectly competitive industry and charges a _______ price than the perfectly competitive industry.
lesser; higher
Perfect competition is an industry with
many firms producing identical goods
A single-price monopolist maximizes profits by producing the output at which
marginal revenue equals marginal cost
If a monopolist can perfectly price discriminate, then
marginal revenue equals marginal cost
Total revenue equals
market price multiplied by quantity sold
The fundamental objective of a firm is
maximizing profits
An industry in which one firm can supply the entire market at a lower price than can two or more firms is called a
natural monopoly
A duopoly is a form of
oligopoly
Which market type has characteristics as follows: small number of firms, competition between the firms?
oligopoly
Explicit costs are____ and implicit costs are ______
paid in money; incurred when a firm gives up an alternate action
If a monopolist can perfectly price discriminate, then
price equals marginal cost for the last unit it sells
As perfectly competitive firms leave an industry because they are incurring an economic loss, the price of the good______, and the economic loss of each remaining firm______.
rises; decreases
A period of time in which the quantity of at least one factor of production used by a firm is fixed is called the
short run
In the short run a perfectly competitive firm will
shut down if P < AVC
In the long run, monopolistically competitive firms are _____ to perfectly competitive firms because _______.
similar; both firms earn zero economic profit
game theory is a tool of studying
strategic behavior
Marginal Cost is calculated as
the increase in total cost divided by the increase in output
The equilibrium price charged by firms in a perfectly competitive industry is determined by
the market
Which of the following is an example of a fixed cost in a bicycle factory
the mortgage payment on the property
Cost, as measured by an accountant, generally does not include
the opportunity cost of the firm
The long run is distinguished from the short run because only in the long run
the quantities of all resources can be varied
The short run is a period of time in which
the quantity used of at least one resource is fixed
What is total cost
the sum of total variable cost and total fixed cost
An industry is perfectly competitive if
there are many firms in it, each selling an identical product
A firm that shuts down and produces no output incurs a loss equal to its
total fixed costs
Average total costs are total costs divided by
total output