Economic Micro Midterm Prep

B

A homogeneous or standardized product is most likely to be produced in: A B C D

an economic profit of ABGH

At the profit-maximizing output, the firm will realize: a loss equal to BCFG a loss equal to ACFH an economic profit of ACFH an economic profit of ABGH

0BGE

At the profit-maximizing output, total cost is equal to: 0AHE 0BGE 0CFE BCFG

0AHE

At the profit-maximizing output, total revenue will be: 0AHE 0BGE 0CFE ABGE

ATC - AVC = $.20

At this quantity, AFC?

AR = Price Total Revenue = P * Q = $42.00 ATC = $0.90 Total Costs = ATC * Q = $31.50

Average Revenue ? Total Revenue ? Average Total Cost ? Total Costs ?

$0.50

Average Total Price?

Figure A

Government regulation of price and service is most likely to occur Figure A Figure D Both Figures A and C Both Figures A & D

No, because $0.45 is less than AVC

If P = $0.45 will this firm continue to produce?

When a monopolistically competitive firm is in long-run equilibrium: production takes place where ATC is minimized marginal revenue cost and price equals average total cost normal profit is zero and price equals marginal cost economic profit is zero and price equals marginal cost

marginal revenue cost and price equals average total cost

In the short run a monopolistically competitive firm's economic profit: will be maximized where price equals average total cost may be positive, zero, or negative are always positive will always be zero

may be positive, zero, or negative

An industry compromised of 40 firms, none of which has more than 3 percent of the total market for a differentiated product is an example of: monopolistic competition oligopoly pure monopoly pure competition

monopolistic competition

We would expect a cartel to achieve: both allocative efficiency and productive efficiency allocative efficiency, but not productive efficiency productive efficiency, but not allocative efficiency neither allocative efficiency nor productive efficiency

neither allocative efficiency nor productive efficiency

At its profit-maximizing output, a pure nonincriminating monopolist achieves: neither productive efficiency nor allocative efficiency both productive efficiency and allocative efficiency productive efficiency but not allocative efficiency allocative efficiency but not productive efficiency

neither productive efficiency nor allocative efficiency

Suppose that a particular industry has a four-firm concentration ratio of 85 and a Herfindahl Index of 3,000. Most likely, this industry would achieve: both productive efficiency and allocative efficiency allocative efficiency but not productive efficiency neither productive efficiency nor allocative efficiency productive efficiency but not allocative efficiency

neither productive efficiency nor allocative efficiency

An industry comprised of four firms, each with about 25 percent of the total market for a product, is an example of: monopolistic competition oligopoly pure monopoly pure competition

oligopoly

In the long run, new firms will enter a monopolistically competitive industry: provided economies of scale are being realized even though losses are incurred in the short run until minimum average total cost is achieved until economic profits are zero

until economic profits are zero

0Q

(Long Run) The allocatively efficient quantity is 0M 0N 0Q 0R

0N

(Long Run) The productively efficient quantity is 0M 0N 0Q 0R

Q = 0M; P = 0A

(Long Run) What quantity will this monopolist produce and what price will it charge Q = 0Q; P = 0B Q = 0M; P = 0C Q = 0M; P = 0A Q = 0N; P = 0B

profit of $480

(Short Term) This firm will realize an economic: loss of $320 profit of $480 profit of $280 profit of $600

0AJE

At the profit-maximizing level of output, total revenue will be: NM times 0M 0AJE 0EGC 0EHB

Losses Because the cost to shut down will cause the plant to loose more.

At P = $0.75, will it now earn profits or losses? Why does it continue to produce?

an economic profit of ABHJ

At the profit-maximizing level of output, the firm will realize an economic profit of ABHJ an economic profit of ACGJ a loss of GH per unit a loss of JH per unit

0BHE

At the profit-maximizing level of output, total cost will be: NM times 0M 0AJE 0CGC 0BHE

Figure B

Both allocative and productive efficiency are being realized in: All four figures Figures B & D Figure D Figure B

both productive and allocative efficiency are achieved

By producing output level Q: neither productive nor allocative efficiency are achieved both productive and allocative efficiency are achieved allocative efficiency is achieved, but productive efficiency is not productive efficiency is achieved, but allocative efficiency is not

Figure C

Collusion is most likely to occur in the industry(ies) represented by: Figure A Figure B Figure C Both Figures B & D

Yes, because quantity at 57 means the Total Revenue = Total Cost and the economic profit will be zero. Zero economic profit means the firm is making the most as the next best alternative.

Could the monopolist "afford" to expand production to the level where price equals ATC, an output of 57 in this example?

Profits Profit = TR - TC = $10.50 AFC = ATC - AVC = $0.3 TFC = AFC * Q = $10.50

Does this firm earn profits or loses? How much profits or loses? At this quantity, AFC = ? TFC = ?

Yes, because MR > AVC

Does this firm earn profits or losses?

g

Equilibrium output is j h g f

d

Equilibrium price is e d c b

Equilibrium output would decline and equilibrium price would fall

If more firms were to enter the industry, then this firm: Resource misallocation would become more sever The demand curve would increase Equilibrium output would decline and equilibrium price would rise Equilibrium output would decline and equilibrium price would fall

150

If so, what quantity will it produce?

$400

If the above data was for a PERFECTLY PRICE DISCRIMINATING MONOPOLIST it total revenues be at the profit maximizing quantity? $60 $300 $400 zero

5 units

If the above data was for a PERFECTLY PRICE DISCRIMINATING MONOPOLIST it would maximize its profits by producing what quantity? 3 units 4 units 5 units 6 units

$152

If the above data was for a PERFECTLY PRICE DISCRIMINATING MONOPOLIST what would its profits be at the profit maximizing quantity? zero $152 $248 $400

zero units at a loss of $100

If the market price for the firm's product is $12, the competitive firm will produce? 4 units at a loss of $109 4 units at an economic profit of $31.75 8 units at a loss of $48.80 zero units at a loss of $100

8 units at an economic profit of $16

If the market price for the firm's product is $32, the competitive firm will produce: 8 units at an economic profit of $16 5 units at a loss of$10 8 units at a loss equal to the firm's total fixed cost 7 units at an economic profit of $41.50

No, because Price < AVC Since the plant shuts down, it will lose its total fixed costs.

If the price dropped to $.15, will this firm continue to produce? What will be its losses if the price = $.15?

Yes, because the MR > AVC

If the price dropped to $.30, will this firm continue to produce?

Yes, because price > AVC

If the price dropped to $.75 (due to decrease demand), ceterus paribus, will this firm continue to produce in the short run?

earn a normal profit.

If this competitive firm produces output Q, it will: suffer an economic loss earn a normal profit. earn an economic profit. achieve productive efficiency, but not allocative efficiency.

is realizing an economic profit of ad per unit

In equilibrium the firm: is realizing an economic profit of ad per unit should close down in the short run is incurring a loss is realizing an economic profit of bd per unit

less efficient than in a purely competitive market

In long-run equilibrium, production for the firm shown in the diagram above is: greater than would occur under pure competition less efficient than in a purely competitive market more efficient than in a purely competitive market optimally effiicient

earn a normal profit

In long-run equilibrium, the firm shown in the diagram above will: earn a normal profit go bankrupt incur a loss realize an economic profit

produce too little

In the long run equilibrium this firm will produce too much produce too little produce the efficient quantity not produce anything at all

A

Industry entry is likely to be most difficult in: A B C D

No, because ATC is not at its lowest point.

Is this firm achieving productivity efficiency?

diagram a only

Long run equilibrium is shown by: diagram a only diagram b only diagram c only both diagrams a and c

Figures A & C

Long-run economic profits are most likely to occur in: Figures A & B Figure B Figure D Figures A & C

D

Long-run equilibrium output will be greater than E E D C

A

Long-run equilibrium price will be above A EF A B

Same as price ($0.65)

Marginal Revenue?

When a monopolistically competitive firm is in long-run equilibrium: P = MC = ATC MR = MC and minimum ATC > P MR > MC and P = minimum ATC MR = MC and P > minimum ATC

P = MC = ATC

$0.65

Price?

Both Figures C & D

Product differentiation may be present in: Figure A Figure B Figure C Both Figures C & D

TR - TC = $37.50

Profit or Losses?

Q = 35 P = $1.20 Yes, because the price above AVC

Quantity = ? Price = ? Will the firm produce the Quantity?

250

Quantity?

elastic portion of its demand curve

Refer to the above data for a nondiscriminating monopolist. At its profit-maximizing output, this firm will be operating in the: perfectly elastic portion of its demand curve perfectly inelastic portion of its demand curve elastic portion of its demand curve inelastic portion of its demand curve

$82

Refer to the above data for a nondiscriminating monopolist. At its profit-maximizing output, this firm's total profit will be: $82 zero $54 $27

4 units

Refer to the above data for a nondiscriminating monopolist. This firm will maximize its profit by producing: 3 units 4 units 5 units 6 units

diagram c only

Short run equilibrium entailing economic loss is shown by: diagram a only diagram b only diagram c only both diagrams a and c

diagram b only

Short run equilibrium entailing economic profits is shown by: diagram a only diagram b only diagram c only both diagrams a and c

noncollusive oligopoly

The above diagram portrays: pure competition collusive oligopoly noncollusive oligopoly pure monopoly

Figure A

The monopolistic (monopoly) market model in long run equilibrium is portrayed in the above figures by: Figure A Figure B Figure C Figure D

Figure B

The purely competitive market model is portrayed in the above figures by: Figure A Figure B Bother Figures B and D Figure C

the production of the product-mix most desired by consumers

The term allocative efficiency refers to: the level of output that coincides with the intersection of the MC and AVC curves minimization of the AFC in the production of any good the production of the product-mix most desired by consumers the production of a good at the lowest average total cost

the production of a good at the lowest average total cost (where MC = ATC)

The term productive efficiency refers to: any short-run equilibrium position of a competitive firm. the production of the product-mix most desired by consumers. the production of a good at the lowest average total cost (where MC = ATC) fulfilling the condition P = MC

the equilibrium position of a competitive firm in the long run.

This diagram portrays: a competitive firm that should shut down in the short run. the equilibrium position of a competitive firm in the long run. a competitive firm that is realizing an economic profit. the loss-minimizing position of a competitive firm in the short run.

rivals will ignore a price increase, but match a price decrease.

This firm's demand and marginal revenue curves are based on assumption that: the firm has no immediate rivals rivals will match both a price increase and a price decrease rivals will match a price increase, but ignore a price decrease rivals will ignore a price increase, but match a price decrease.

E units at price A

To maximize profit or minimize losses this firm will produce: K units at price C D units at price J E units at price A E units at price B

E units and charge price A

To maximize profits or minimize losses this firm should produce: E units and charge price C E units and charge price A M units and charge price N L units and charge price LK

Average Total Cost * Quantity = $125.00

Total Cost?

AFC*Q = $50.00

Total Fixed Cost?

PxQ = $162.50

Total Revenue?

Bother Figures B & D

We would expect industry entry and exit to be relatively easy in: Figure A Figure C Both Figures A & D Bother Figures B & D

The firm's short run supply curve is the MC above the AVC curve.

Which curve and what portion of it constitutes the firm's short run supply curve?

firms to leave the industry, market supply to fall, and product price to rise

Which pertain to a purely competitive firm producing output q and the industry in which it operates. In the long run we should expect: firms to enter the industry, market supply to rise, and product price to fall firms to leave the industry, market supply to rise, and product price to fall firms to leave the industry, market supply to fall, and product price to rise no change in the number of firms in this industry.

The diagrams portray short-run equilibrium, but not long-run equilibrium

Which pertain to a purely competitive firm producing output q and the industry in which it operates. Which of the following is correct? The diagrams portray neither long-run nor short-run equilibrium The diagrams portray both long run and short-run equilibrium The diagrams portray short-run equilibrium, but not long-run equilibrium The diagrams portray long-run equilibrium, but not short-run equilibrium

losses TR - TC = -$30 Because it would cost the firm more money if the plant shuts down.

Will the firm earn profits or losses, when the price drops to $.30? How much profits or losses? Why does it continue to produce?

Yes

Will the firm produce quantity at this price?

Which of the following industries most closely approximates pure competition? agriculture farm implements clothing steel

agriculture

Economists would describe the U.S. automobile industry as: purely competitive an oligopoly monopolistically competitive pure monopoly

an oligopoly

Under pure competition in the long run: neither allocative efficiency nor productive efficiency are achieved both allocative efficiency and productive efficiency are achieved productive efficiency is achieved, but allocative efficiency is not allocative efficiency is achieved, but productive efficiency is not

both allocative efficiency and productive efficiency are achieved

If for a firm P = minimum ATC = MC, then: neither allocative efficiency nor productive efficiency is being achieved. productive efficiency is being achieved, but allocative efficiency is not. both allocative efficiency and productive efficiency are being achieved. allocative efficiency is being achieved, but productive efficiency is not.

both allocative efficiency and productive efficiency are being achieved.

X-inefficiency refers to a situation in which a firm: is not as technologically progressive as it might be encounters diseconomies of scale fails to realize all existing economies of scale fails to achieve the minimum average total costs attainable at each level output

fails to achieve the minimum average total costs attainable at each level output

An industry compromised of a small number of firms, each of which considers the potential reactions of its rivals in making price-output decisions is called: monopolistic competition oligopoly pure monopoly pure competition

oligopoly

In which of the following market structures is there clear-cut mutual interdependence with respect to price-output policies? pure monopoly oligopoly monopolistic competition pure competition

oligopoly

The conclusion that oligopoly is inefficient relative to the competitive ideal must be qualified because: industry price leaders often select a price equal to marginal cost over time oligopolistic industries may promote more rapid product development and greater improvement of production techniques than if they were purely competitive increased output due to persuasive advertising may perfectly offset the restriction of output cause by monopoly power many oligopolists sell their products in monopolistically competitive or even purely competitive industries

over time oligopolistic industries may promote more rapid product development and greater improvement of production techniques than if they were purely competitive

Comparing a pure monopoly and a purely competitive firm with identical costs, we would find in long-run equilibrium that the pure monopolist's: price, output, and average total cost would be higher price and average total cost would be higher, but output would be lower price, output, and average total cost would all be lower price and output would be lower, but average total cost would be higher.

price and average total cost would be higher, but output would be lower

Which of the following is not characteristic of long-run equilibrium under monopolistic competition? price equals minimum average total costs marginal costs equal marginal revenue price is equal to average total costs price exceeds marginal costs

price equals minimum average total costs

The profit-maximizing output of a pure monopoly is allocatively inefficient because in equilibrium: price equals minimum average total cost marginal revenue equals marginal cost marginal cost exceeds price price exceeds marginal cost

price exceeds marginal cost

Suppose that an industry is characterized by a few firms and price leadership. We would expect that: Price would equal marginal cost price would equal average total cost price would exceed both marginal cost and average total cost marginal revenue would exceed marginal cost.

price would exceed both marginal cost and average total cost

An industry comprised of a very large number of sellers producing a standardized product is known as: monopolistic competition oligopoly pure monopoly pure competition

pure competition

A one-firm industry is known as monopolistic competition oligopoly pure monopoly pure competition

pure monopoly

In which of the following industry structures is the entry of new firms the most difficult? pure monopoly oligopoly monopolistic competition pure competition

pure monopoly

Long-run equilibrium for a monopolistically competitive firm where economic profits are zero results from: rising marginal costs a perfectly elastic product demand curve relatively easy entry product differentiation and development

relatively easy entry

If the price of product Y is $25 and its marginal cost is $18 Y is being produced with the least-cost combination of resources society will realize a net gain if less of Y is produced resources are being under allocated to Y resources are being overallocated to Y

resources are being under allocated to Y

If some firms leave a monopolistically competitive industry, the demand curves of the remaining firms will: be unaffected shift to the left become more elastic shift to the right

shift to the right

Economists use the term imperfect competition to describe: all industries which produce standardized products any industry in which there is no nonprice competition a pure monopoly only those markets which are not purely competitive

those markets which are not purely competitive