ECON100- Exam 2

A producer tries to maximize profits by operating at an output where

MC equals price

Which of the following is consistent with a competitive market?

Zero economic profit in the long run

In a competitive market where firms are earning economic profits, which of the following is likely as the industry moves toward long-run equilibrium?

a lower price and more firms

A text NEWSWIRE article about Microsoft reported: "Microsoft mounted a deliberate assault upon entrepreneurial efforts that...could well have prevented the introduction of competition..." This passage suggests that Microsoft was able to erect barriers to entry and behave like

a monopoly

Which of the following statements is true, assuming the same cost and demand conditions?

a monopoly produces less output than a competitive firm

The long run refers to

a period of time long enough for all inputs to be varied

Which of the following is likely to be a monopolist?

a small firm with a patent granting it the exclusive right to produce a drug

Explicit costs

are the sum of actual monetary payments made for resources used to produce a good

A monopolist sets its price

at the rate of output where marginal revenue equals marginal cost

Which of the following is not characteristic of a perfectly competitive market?

brand loyalty

A perfectly competitive firm

can sell all of its output at the prevailing price

A monopolist sets price at a point on the ___ curve, corresponding to the rate of output determined by the intersection of ___

demand; marginal revenue and marginal cost

In the perfectly competitive catfish market, the market demand curve is

downward sloping

Which of the following is not a barrier to entry into a monopoly market?

economic profits

If price equals ATC and equals MC then

economic profits would be zero

In defining costs, economists recognize

explicit and implicit costs while accountants recognize only explicit costs

Cost of production that do not change with the rate of output are

fixed costs

Which of the following is equivalent to total cost?

fixed costs plus variable costs

Which of the following is a factor of production for Cathy's Cookies?

flour

For a monopoly in long-run equilibrium, economic profits are likely to be

greater than zero

If a seafood restaurant can raise the price of its fried shrimp without losing all of its customers, then the restaurant definitely

has market power

If the price market price is $50, MC equals $45, ATC equals $40, the firm should

increase output

The demand curve for an individual monopolist

is the same as the market demand curve

If firms in an industry are experiencing economic losses, firms will ___ the industry and the price of the good will ___

leave; increase

The demand curve for a monopolist

lies above the marginal revenue curve at every point but the first

The short-run supply decision focuses on

marginal cost versus price

Ceteris paribus, the law of diminishing returns states that beyond some point the

marginal physical product of a variable input declines as more of it is used

The goal of most business firms is to

maximize total profit

In the long-run competitive market equilibrium, price equals ___ and economic profit is ____

minimum average total cost; zero

The market structure of the U.S. fast food industry is most likely

monopolistically competitive

Monopoly may not be a problem in contestable markets if

potential competition exists

A profit maximizing producer wants to produce where

price equals marginal cost

In a long-run competitive market equilibrium

price equals the minimum of average total cost

In the short run, a manufacturer should produce the next unit of output as long as

price is greater than marginal cost

Which of the following do a monopolist and a competitive firm have in common?

profit-maximization rule

Which of the following is most likely a fixed cost?

property taxes

If a firm converts a previously competitive industry into a monopoly without any changes in the cost curves, it will

reduce output and raise price to generate more profit

In order to sell one additional unit of output, a profit-maximizing monopolist must

reduce the price of all units sold

The planning period over which at least one resource input is fixed in quantity is the

short run

Suppose a perfectly competitive firm increases its output. In order to sell this additional output, the firm

should price it at the market price

The market supply curve is calculated by

summing the marginal cost curves of all firms

The MC curve is a competitive firm's short-run ___ curve

supply

If the first, second, third and fourth worker employed by the firm add 15, 21, 12, and 8 units of total product respectively, we can conclude that

that after the second worker marginal product declines

Which of the following is true for a monopoly?

the demand curve indicates the highest price consumers are willing to pay for the rate of output

Rising marginal costs are the result of

the law of diminishing returns

When firms exit a market, all of the following occurs except

the market demand curve shifts to the right

A production function describes

the maximum amount of output attainable from a given combination of factor inputs

As more labor is hired in the short run, diminishing returns are observed because

the new workers have less capital and land to work with

Competitive firms cannot individually affect market price because

their individual production is insignificant relative to the production of the industry

Which of the following in an argument in support of monopolies?

they are protected from competition so they have greater ability to pursue research and development

Drug companies are willing to spend millions of dollars on developing new drugs because

they can patent the new drug and have a monopoly on its production and sale

If an additional unit of labor costs $40 and has an MPP of 50 units of output, the marginal cost is

$0.80

Suppose a monopoly firm produces software and can sell 10 items per month at a price of $50 each. In order to increase sales by one item per month, the monopolist must lower the price of its software by $1 to $49. The marginal revenue of the 11th item is

$39