economics 4
A monopolistic firm has a sales schedule such that it can sell 10 prefabricated garages per week at $10,000 each, but if it restricts its output to 9 per week it can sell these at $11,000 each. The marginal revenue of the 10th unit of sales per week is
$1,000.
Total Product Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost 1 $150.00 $25.00 $175.00 $ 25.00 2 75.00 23.00 98.00 21.00 3 50.00 20.00 70.00 14.00 4 37.50 21.00 58.50 24.00 5 30.00 23.00 53.00 31.00 6 25.00 25.00 50.00 35.00 7 21.43 28.00 49.43 46.01 8 18.75 33.00 51.76 68.07 9 16.67 39.00 55.67 86.95 10 15.00 48.00 63.00 128.97 The accompanying table gives cost data for a firm that is selling in a purely competitive market. We can infer that, at zero output, this firm's total fixed, total variable, and total costs are
$150, zero, and $150, respectively.
Total Product Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost 1 $150.00 $25.00 $175.00 $ 25.00 2 75.00 23.00 98.00 21.00 3 50.00 20.00 70.00 14.00 4 37.50 21.00 58.50 24.00 5 30.00 23.00 53.00 31.00 6 25.00 25.00 50.00 35.00 7 21.43 28.00 49.43 46.01 8 18.75 33.00 51.76 68.07 9 16.67 39.00 55.67 86.95 10 15.00 48.00 63.00 128.97 The accompanying table gives cost data for a firm that is selling in a purely competitive market. At 6 units of output, total fixed cost is ____ and total cost is ____.
$150; $300
The fixed cost of the firm is $500. The firm's total variable cost is indicated in the table. output Total Variable Cost 1 $ 400 2 720 3 1,000 4 1,400 5 2,000 6 3,600 The average variable cost of the firm when 5 units of output are produced is
$400.
Answer the question on the basis of the following cost data. Output Average Fixed Cost Average Variable Cost 1 $50.00 $100.00 2 25.00 80.00 3 16.67 66.67 4 12.50 65.00 5 10.00 68.00 6 8.37 73.33 7 7.14 80.00 8 6.25 87.50 Total fixed cost is
$50.00.
The following is cost information for the Creamy Crisp Donut Company. Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Creamy Crisp's economic profit is
$94,000.
Answer the question based on the demand and cost schedules for a monopolistically competitive firm given in the table below. Price Quantity Demanded Total Cost Output $20 1 $10 1 18 2 20 2 16 3 29 3 14 4 36 4 12 5 40 5 10 6 42 6 What will be the economic profit or loss for this monopolistically competitive firm at the profit-maximizing level of output?
+$20
Refer to the diagram and assume that price increases from $2 to $10. The coefficient of the price elasticity of supply (midpoint formula) relating to this price change is about
.25, and supply is inelastic.
Refer to the accompanying diagram. At the profit-maximizing output, total revenue will be
0AHE.
Refer to the diagram. At output level Q, total variable cost is
0BEQ.
Total Product Total Fixed Cost Total Variable Cost 0 $150 $ 0 1 150 50 2 150 75 3 150 105 4 150 145 5 150 200 6 150 270 7 150 360 8 150 475 9 150 620 10 150 800 The first table shows cost data for a single firm. Now suppose that there are 600 identical firms in this industry, each with the same cost data. Suppose, too, that the demand curve for this industry is as shown in the second table. Price Quantity Demanded $20 6,800 30 5,975 45 5,500 60 5,125 75 4,500 95 4,200 120 3,600 150 2,400 When the market is in equilibrium, each of the firms will be producing
7 units.
Assume that the only variable resource used to produce output is labor. Amount of Labor Total Product 1 6 2 16 3 24 4 30 5 34 6 36 Refer to the provided table. When the firm hires four units of labor, the average product of labor is
7.50 units of output.
Which of the following best expresses the law of diminishing returns?
As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra or marginal output will decline.
If this diagram represents a typical firm in the industry and the firm is producing at the profit-maximizing level of output in the short run, then in the long run we would expect economic profits in this market to rise
False
In the accompanying diagram, at the profit-maximizing output, total revenue will be 0GLD.
False
In the accompanying graph, if demand fell to the level of FNJ, there would be no output at which the firm could realize an economic profit
False
In the long run, a firm can increase its output quantity, but it will be limited by the size of its existing production plant.
False
Marginal utility is total utility divided by the number of units consumed.
False
One reason why newspaper-publishers' cost per paper increases as their circulation numbers fall is due to diminishing marginal returns.
False
Product differentiation in a monopolistically competitive market always entails more costs than benefits.
False
Pure monopolists always earn economic profits.
False
The income effect explains an exception to the law of demand.
False
We would expect the cross-elasticity of demand between popcorn and potato chips to be negative.
False
When firms in a purely competitive industry are earning profits that are greater than normal, the supply of the product will tend to decrease in the long run.
False
When the price of a product falls, the income effect induces the consumer to purchase more of it, while the substitution effect prompts her to buy less.
False
Which of the following is true concerning purely competitive industries?
In the short run, firms may incur economic losses or earn economic profits, but in the long run they earn normal profits.
Which is true of pure competition but not of monopolistic competition?
Long-run equilibrium occurs at the minimum point on the ATC curve.
Refer to the above graph of a representative firm in monopolistic competition. If curve (2) represents ATC and line (3) represents demand, then curve (1) and line (4) would be
MC and MR, respectively.
Why do people tend to eat more at all-you-can-eat buffet restaurants than at restaurants where each item is purchased separately?
Once the all-you-can-eat meal is purchased, consumers view additional trips back to the buffet as having a price of zero.
Which of the following conditions is true for a purely competitive firm in long-run equilibrium?
P = MC = minimum ATC.
Refer to the accompanying diagram. The firm will realize an economic profit if price is
P4.
Which is true of a purely competitive firm in long-run equilibrium?
Price equals marginal cost.
In which of the following cases will total revenue increase?
Price rises and demand is inelastic.
The diagram concerns supply adjustments to an increase in demand (D1 to D2) in the immediate market period, the short run, and the long run. On the basis of this illustration, we can conclude that
S1 reflects a longer adjustment period for producers than does S2.
Answer the question on the basis of the following information. TFC = Total Fixed Cost Q = Quantity of Output MC = Marginal Cost P = Product Price TVC = Total Variable Cost Average total cost is _______.
TFC+TVCQ/Q
Refer to the graph. What could cause the consumer equilibrium point to shift from point a to point b?
The price of good 1 decreased.
Which of the following statements is inconsistent with an elastic demand curve?
Total revenue increases when price increases.
Assume that pizza and hamburgers are the only food items available to consumers. If the price of pizza increases, other factors constant, then which of the following will definitely happen?
Total revenues received by hamburger sellers will increase.
As long as an additional unit of output yields a marginal revenue larger than its marginal cost, it will be adding to total profits of the firm.
True
If the quantity demanded for good A increases from 40 to 60 when price decreases from $9 to $7, price elasticity of demand in this price range is 1.6.
True
The operation of the invisible hand means the pursuit of private interests promotes social interests in pure competition.
True
If the price of a good increases, the substitution effect will
always tend to make the quantity decrease, while the income effect could go either way.
Excess capacity refers to the
amount by which actual production falls short of the minimum ATC output.
The firm described in the accompanying diagram is selling in
an imperfectly competitive market.
Refer to the diagram. Other things equal, an increase of product price would be shown as
an increase in the steepness of curve (3), an upward shift in curve (2), and an upward shift in curve (1).
Refer to the diagram, where variable inputs of labor are being added to a constant amount of property resources. The total output of this firm will cease to expand
if a labor force in excess of Q3 is employed.
If the government tightens up on drug dealers and raises the costs of dealing illegal drugs, then the drug addicts' dollar expenditures to feed their addiction will tend to
increase because their demand is price-Inelastic.
An antidrug policy that reduces the supply of heroin might
increase street crime because the addict's demand for heroin is highly inelastic.
A monopolistically competitive firm is producing at a short-run output level where average total cost is $10.00, marginal cost is $5.00, marginal revenue is $6.00, and price is $12.00. In the short run, the firm should
increase the level of output.
Refer to the long-run cost diagram for a firm. If the firm produces output Q2 at an average cost of ATC2, then the firm is
incurring X-inefficiency but is producing that output at which all existing economies of scale might be realized
A nondiscriminating monopolist will find that marginal revenue
is less than average revenue or price.
Assume that a consumer purchases a combination of products Y and Z and that the MUy/Py = 30/2 and MUz/Pz = 45/3. To maximize utility, without spending more money, the consumer should
make no change in the quantities of Y and Z.
Refer to the short-run production and cost data. The curves of Figures A and B suggest that
marginal cost reaches a minimum where marginal product is at its maximum.
The firm's short-run marginal-cost curve is increasing when
marginal product is decreasing.
Curve (2) in the diagram is a purely competitive firm's
marginal revenue curve.
Refer to the diagram. If labor is the only variable input, the average product of labor is at a
maximum at point b.
If total utility is increasing, then marginal utility
may either be increasing or decreasing, but it must be greater than zero.
The restaurant, legal assistance, and clothing industries are each illustrations of
monopolistic competition.
We would expect the cross elasticity of demand between dress shirts and ties to be
negative, indicating complementary goods.
Outpuit AFC AVC ATC MC 1 $300 $100 $400 $100 2 150 75 225 50 3 100 70 170 60 4 75 73 148 80 5 60 80 140 110 6 50 90 140 140 7 43 103 146 180 8 38 119 156 230 9 33 138 171 290 10 30 160 190 360 The accompanying table shows cost data for a firm that is selling in a purely competitive market. If the market price for the firm's product is $80, the firm will
produce 4 units.
At P3 in the accompanying diagram, this firm will
produce 40 units and incur a loss.
Output Marginal Revenue Marginal Cost 0 -- -- 1 $16 $10 2 16 9 3 16 13 4 16 17 5 16 21 The data in the accompanying table indicates that this firm is selling its output in a(n
purely competitive market.
Any activity designed to transfer income or wealth to a particular individual or firm at society's expense is called
rent-seeking.
In which industry is monopolistic competition most likely to be found?
retail trade
Assume initially that the price of X (the quantity of which is measured on the horizontal axis) is $9 and the price of Y (the quantity of which is measured on the vertical axis) is $4. If the price of X now declines to $6, the budget line will
shift outward on the horizontal axis.
The larger the coefficient of price elasticity of demand for a product, the
smaller the resulting price change for an increase in supply.
If at the MC = MR output, AVC exceeds price,
some firms should shut down in the short run.
Assume that the only variable resource used to produce output is labor. Amount of Labor Total Product 1 6 2 16 3 24 4 30 5 34 6 36 Refer to the provided table. Diminishing marginal returns set in with the addition of the
third unit of labor.
Suppose that total sales in an industry in a particular year are $800 million and sales by the top four sellers are $50 million, $40 million, $30 million, and $30 million, respectively. We can conclude that
this industry is monopolistically competitive.
Curve (1) in the diagram is a purely competitive firm's
total economic profit curve.
Answer the question on the basis of the following information. Number of Workers Total Product Marginal Product 0 0 --- 1 8 8 2 10 3 25 4 30 5 3 6 34 When two workers are employed,
total product is 18.
Answer the question on the basis of the following output data for a firm. Assume that the amounts of all nonlabor resources are fixed. Number of Workers Units of Output 0 0 1 40 2 90 3 126 4 150 5 165 6 180 Average product is at a maximum when
two workers are hired.
Xavier produces and sells tomatoes in a purely competitive market. This implies that Xavier's marginal revenue from an extra unit of tomatoes is always equal to the
unit price.
The representative firm in a purely competitive industry
will earn zero economic profit in the long run.
Total Product Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost 1 $100.00 $17.00 $117.00 $17 2 50.00 16.00 66.00 15 3 33.33 15.00 48.33 13 4 25.00 14.25 39.25 12 5 20.00 14.00 34.00 13 6 16.67 14.00 30.67 14 7 14.29 15.71 30.00 26 8 12.50 17.50 30.00 30 9 11.11 19.44 30.55 35 10 10.00 21.60 31.60 41 11 9.09 24.00 33.09 48 12 8.33 26.67 35.00 56 The accompanying table gives cost data for a firm that is selling in a purely competitive market. If the market price for the firm's product is $12, the competitive firm should produce
zero units at a loss of $100.
Ouput Total Cost 0 $10 1 20 2 28 3 38 4 53 5 73 6 98 Refer to the provided table. The total fixed cost of productio
$10.
AA is Al's indifference curve, and BB is Betty's. Al and Betty have the same budget line, LL. This information implies that
Al's demand for Y is greater than Betty's.
While eating at Alex's "Pizza by the Slice" restaurant, Kara experiences diminishing marginal utility. She gained 10 units of satisfaction from her first slice of pizza consumed and would only receive 5 units of satisfaction from consuming a second slice, at the same price. Based on this information, we can conclude that
Alex may have to lower the price to convince Kara to buy a second slice.
If a firm doubles its resource inputs and as a result output triples, then the long-run average cost curve must be upward-sloping
False
If a firm increases all its inputs by 10 percent and its output increases by 15 percent, the firm is experiencing diseconomies of scale.
False
If total utility increases as consumption of a good increases, then marginal utility must be increasing also.
False
Which of the following is not correct?
Where total product is at a maximum, average product is also at a maximum.
The diagram suggests that
X and Y are independent goods.
If the demand for a product is elastic, then
a higher tax on the product will generate less tax revenue.
If the demand curve faced by an individual firm is downward-sloping, the firm cannot be
a purely competitive firm.
When a bakery manager reports that at her bakery, productivity of her 15 workers last month was 1,800 loaves per worker, she is referring to the
average product of labor.
At any level of output
average total cost will exceed average variable cost by the level of average fixed cost.
To practice long-run price discrimination, a monopolist must
be able to separate buyers into different markets with different price elasticities.
Refer to the graph above. The time horizon depicted in the graph
cannot be the immediate market period.
Which is not a common form of nonprice competition in monopolistic competition?
cash rebates and discount coupons
Marginal revenue is the
change in total revenue associated with the sale of one more unit of output.
To the average consumer, the marginal utility of a second copy of today's newspaper is
close to zero.
Suppose that a monopolist calculates that at its present output level, marginal cost is $4.00 and marginal revenue is $5.00. The firm could increase profits by
decreasing price and increasing output.
The total-revenue test for elasticity
does not apply to supply, because price and total revenue have a positive correlation.
An industry that has increasing returns to scale and fixed factor prices will have a long-run supply curve that is
downward-sloping.
Output Total Cost Product Price 0 $250 $500 1 260 300 2 290 150 3 350 200 4 480 150 5 700 100 At its profit-maximizing output, the nondiscriminating pure monopolist whose information is in the accompanying table
earns an economic profit of $250.
The larger the diameter of a natural gas pipeline, the lower is the average total cost of transmitting 1,000 cubic feet of gas 1,000 miles. This is an example of one reason for
economies of scale.
Economic profits are
equal to the difference between accounting profits and implicit costs.
The movement of the budget line from BB to bb in the figure suggests that income has
fallen and the price of Y has increased.
(Last Word) Patents are most likely to infringe on innovation
for products that incorporate many different technologies into a single product.
Refer to the above graphs. Which graph depicts a situation where sellers are increasing their output because their product is becoming more popular among buyers?
graph B
Accounting profits are typically
greater than economic profits because the former do not take implicit costs into account.
Assume a purely competitive decreasing-cost industry is initially in long-run equilibrium but then there is a decrease in market demand for the product. After all economic adjustments to this new situation have taken place, product price will be
higher, but total output will be lower.
Refer to the diagrams. The price will be _______ and the quantity will be _______ with the industry structure represented by diagram (B) compared to the one represented in (A).
higher; lower
For an increase in demand, the price effect is smallest and the quantity effect is largest
in the long run.
We would expect the cross elasticity of demand between Pepsi and Coke to be
positive, indicating substitute goods.
The market for agricultural products such as wheat or corn would best be described by which market model?
pure competition
The price elasticity of supply measures how
responsive the quantity supplied of X is to changes in the price of X.
Refer to the graph. As the consumer equilibrium point shifts from point a to point b,
the consumer's purchase of good 2 decreases even though its price stays constant.
Suppose that the price of peanuts falls from $3 to $2 per bushel and that, as a result, the total revenue received by peanut farmers changes from $16 to $14 billion. Thus,
the demand for peanuts is inelastic.
