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
