Micro ch 11 and 12

Which of the following is not an example of a barrier to entry

An innovative product

The US beer industry is characterized by market power for only a few firms, with the largest firm enjoying a 50% market share. One reason for this is economies of scale. Economies of scale means that

As beer production increases, the ATC of production falls

Suppose an industry initially had been perfectly competitive and then became a monopoly. Which of the following would occur

Consumer surplus would decrease

Suppose a monopoly firm has a constant marginal output equal to $10. It's demand and marginal revenue curves are given, respectively, by the equations P=86-2Q and MR=86-4Q. For this firm, the profit maximizing price and output levels are

P=21.50 Q=5

Suppose a monopoly firm has a constant marginal cost equal to $8. It's demand and marginal revenue curves are given, respectively, by the equations P=40-2Q and MR=40-4Q. For this firm, the profit-maximizing price and output levels are

P=24 and Q=8

In today's US economy which of the following industries has firms that have acted as a monopoly for an extended period

Pharmaceuticals

Often natural monopolies are regulated by

Setting the price equal to average total cost so as to maximize consumer surplus and allow the firm to break even

If the regulated price for a natural monopoly is set equal to the marginal cost

The firm will not cover all of its costs

One difference between monopoly and perfect competition is that

The marginal revenue curve for a monopolist is downward sloping; for a perfect competitor; it is horizontal

The monopolists marginal revenue curve is downward sloping because

The monopolist must lower it's price in order to sell more

Samir owns a coffee shop that has monthly variable costs equal to $8,560. If Samir sells 11,000 cups of coffee each month, what is the average variable cost per cup? a. $0.78 b. $0.85 c. $0.99 d. $1.30

a. $0.78

Luis operates a cherry orchard in Northern Oregon and sells the cherries in a perfectly competitive market at a price of $1.70 per pound. Last month Luis sold 2,000 pounds of cherries. His fixed cost of production was $800 and his average variable cost was $1.00 per pound. What was his profit? a. $600 b. $800 c. $2,600 d. $3,400

a. $600

Which of the following is NOT a characteristic of a perfectly competitive industry? a. Each firm seeks to undercut the price of its competitors. b. There is easy entry and exit. c. Each firm has a small share of the market. d. Each firm is a price-taking producer.

a. Each firm seeks to undercut the price of its competitors.

How does the long-run industry supply curve compare to the short-run industry supply curve? a. The long-run curve is always flatter than the short-run curve. b. The long-run curve is always steeper than the short-run curve. c. The long-run curve is based on the assumption that firms can control the price they charge, whereas the short-run curve assumes that the market sets the price. d. The short-run curve is based on the assumption that firms can control the price they charge, whereas the long-run curve assumes that the market sets the price.

a. The long-run curve is always flatter than the short-run curve.

Since the marginal product of labor equals the change in the quantity of output divided by the change in the quantity of labor, it stands to reason that: a. a firm would never operate in the range where marginal product is negative. b. a firm would never operate in the range where marginal product is decreasing. c. marginal product will continually increase as the firm produces more. d. there is no predictable relationship between marginal revenue and marginal cost.

a. a firm would never operate in the range where marginal product is negative.

Nadia operates a frame shop and charges the perfectly competitive price of $65 for custom framing of a standard size picture. She is a price-taking producer. To maximize her profit, Nadia will: a. accept framing orders up until the point where the marginal cost of doing so is $65. b. seek to produce at the point where her average variable cost is $65. c. seek to operate at the minimum point on her average variable cost curve. d. seek to operate at the minimum point on her marginal cost curve.

a. accept framing orders up until the point where the marginal cost of doing so is $65.

The quantity supplied by a perfectly competitive firm at a given market price is determined by the: a. firm's marginal cost curve. b. firm's average total cost curve. c. firm's marginal revenue curve. d. number of firms in the market.

a. firm's marginal cost curve.

How long is the long run? a. long enough that all costs can become variable b. long enough that all costs can become fixed c. long enough for the firm to make a profit. d. long enough for diminishing returns to set in

a. long enough that all costs can become variable

A firm experiencing constant returns to scale operates on the horizontal part of the: a. long-run average total cost curve. b. marginal cost curve. c. marginal product curve. d. total product curve.

a. long-run average total cost curve.

The existence of profit in a perfectly competitive industry means that: a. new producers will seek to enter the industry. b. consumers will switch to substitute goods. c. each producer is charging a different price. d. the current price exceeds marginal cost.

a. new producers will seek to enter the industry.

A firm produces children's bicycles in the short run using two inputs, capital and labor. The quantity of capital is fixed and generates a monthly cost of $6,000. The quantity of labor can be varied, and the wage rate per hour of labor is $20. If 400 hours of labor are hired for the month, and 140 bicycles units of output are produced, what is the firm's average total cost for the month? a. $123 b. $100 c. $43 d. $2

b. $100

For the perfectly competitive firm, economic profit equals: a. (price - marginal cost) x quantity. b. (price - average total cost) x quantity. c. (price - average variable cost) x quantity. d. total revenue - total fixed cost

b. (price - average total cost) x quantity.

A firm will choose to shut down in the short run when: a. price is above the minimum point of AVC but below the minimum point of ATC price b. is below the minimum point of AVC. c. marginal cost begins to increase. d. total revenue is not sufficient to cover total cost.

b. is below the minimum point of AVC.

A perfectly competitive firm earns an economic profit when: a. price is above average variable cost. b. price is above average total cost. c. total cost exceeds total revenue. d. total variable cost exceeds total revenue.

b. price is above average total cost.

A perfectly competitive ebook publishing firm currently sells its ebook at the market price of $6. Its average total cost is $5.50. In this case: a. since average total cost is less than the price, the firm will shut down. b. the firm has positive economic profits. c. the firm is losing money but will continue to operate. d. the firm has zero economic profits.

b. the firm has positive economic profits.

Which cost curve is continually upward sloping? a. the average total cost curve b. the total cost curve c. the marginal cost curve d. the average variable cost curve

b. the total cost curve

The marginal cost is the slope of the: a. marginal product curve. b. total cost curve. c. total product curve. d. long-run average total cost curve.

b. total cost curve.

A firm is producing 100 racing bicycles at a total cost of $84,000. The firm's fixed cost is $24,000. What is the average variable cost? a. $840 b. $640 c. $600 d. $240

c. $600

A firm produces 200 pop-up speakers at an average total cost of $27 and an average variable cost of $24. What is the firm's level of total fixed cost? a. $3 b. $200 c. $600 d. $4,800

c. $600

Gabriel operates a tree-trimming business in Maine. He charges the perfectly competitive price of $47 per hour. The marginal cost of working the 36th hour each week is $42; the marginal cost of working the 37th hour is $44; the 38th hour is $46; and the 39th hour is $48. How many hours should he work each week? a. He should work 40 hours per week, because he can always earn more revenue by working more. b. He should work 39 hours per week, because he would have to lower his price if her wanted to work more than that. c. He should work 38 hours per week, because this is the workload that maximizes his net gain. d. He should work 36 hours per week, because the marginal cost of working rises after this point.

c. He should work 38 hours per week, because this is the workload that maximizes his net gain.

Suppose that firms in the perfectly competitive potato-growing industry are earning economic profits. According to economic theory, what is likely to happen? a. The costs of the firms will increase, eventually eliminating the profit. b. The existence of profits will lead to a drop in the demand for potatoes. c. More firms will enter the market, thereby increasing the industry supply and lowering the market price. d. More firms will enter the market, thereby decreasing the industry supply and raising the market price.

c. More firms will enter the market, thereby increasing the industry supply and lowering the market price.

Tara sells her organic carrots in a perfectly competitive market for a price that is just higher than her minimum average variable cost of production, but lower than her minimum average total cost of production. Which of the following statements is then true? a. Although she is currently incurring a loss, she could restore profitability by advertising her carrots. b. She can minimize her losses by shutting down her operations now. c. She is incurring a loss, because price is less than ATC. d. She is earning a profit, because price is above AVC.

c. She is incurring a loss, because price is less than ATC.

Suppose that the long-run industry supply in the production of synthetic fabrics is perfectly elastic. Which of the following statements is then true? a. The marginal cost curve of each synthetic-producing firm is horizontal. b. The existence of profit within the industry will not draw new firms into the market. c. The long-run industry supply for synthetics is horizontal. d. The long-run industry supply for synthetics is upward sloping.

c. The long-run industry supply for synthetics is horizontal.

In what way does the spreading effect change the average total cost as output rises? a. The spreading effect increases ATC, because it reflects the fact that workers are spread out across more tasks when output rises. b. The spreading effect increases ATC, because it reflects the fact that firms are less efficient when they operate on a larger scale. c. The spreading effect reduces ATC, because a given fixed cost is spread across more units of output. d. The spreading effect reduces ATC, because a firm's total fixed cost will decline as more is produced.

c. The spreading effect reduces ATC, because a given fixed cost is spread across more units of output.

Why does economic theory predict that a perfectly competitive firm will produce at the point where price equals marginal cost? a. This point provides an efficient allocation of society's resources. b. This point results in zero economic profit. c. This point maximizes profit for the firm. d. This point will minimize ATC for the firm.

c. This point maximizes profit for the firm.

Which of the following statements is true? a. Whenever marginal cost is below average total cost, marginal cost is decreasing. b. Whenever marginal cost is above average total cost, marginal cost is decreasing. c. Whenever marginal cost is above average total cost, average total cost is increasing. d. When marginal cost equals average total cost, marginal cost is minimized

c. Whenever marginal cost is above average total cost, average total cost is increasing.

The short-run individual supply curve of the perfectly competitive firm is: a. the upward-sloping portion of its average variable cost curve. b. its average total cost curve. c. its marginal cost curve above average variable cost. d. its marginal cost curve above average total cost.

c. its marginal cost curve above average variable cost.

For cities that provide snow removal, which of the following is a fixed cost? a. gasoline for snow plows b. wages for snow plow drivers c. purchase of snow removal equipment d. purchase of salt or other substances used to melt snow

c. purchase of snow removal equipment

The marginal product is the slope of the: a. marginal cost curve. b. total cost curve. c. total product curve. d. long-run average total cost curve

c. total product curve.

Which of the following is not a characteristic of the long-run equilibrium in perfect competition a. Each firm is producing an efficient quantity. b. Price equals ATC for each firm. c. Each firm earns a zero economic profit. d. Each firm produces at the minimum point on the MC curve.

d. Each firm produces at the minimum point on the MC curve.

A perfectly competitive firm charges the market price of $18 to sell its product. The firm produces and sells the profit-maximizing quantity of 50 units at this price. Its average total cost is $17 and its average variable cost is $15. Which of the following statements is then true? a. This firm should shut down now. b. At this current level of production, the firm's marginal cost is $17. c. At this current level of production, the firm's marginal cost is $15. d. The firm is earning an economic profit of $50

d. The firm is earning an economic profit of $50

How does the long run differ from the short run in perfect competition? a. In the long run, some firms will charge higher prices than others. b. In the short run, a firm seeks to maximize profit; in the long run it seeks to minimize cost. c. In the short run, a firm seeks to maximize profit; in the long run it seeks to maximize revenue. d. The long run is long enough to allow for the entry of new firms into the industry.

d. The long run is long enough to allow for the entry of new firms into the industry.

Daisy incurs $7,200 per month in fixed costs operating her floral shop. She pays her employees $9.00 per hour and has three assistants, each working 120 hours per month. Her other variable costs are $800 per month. What are Daisy's total variable costs and total costs each month? a. Total variable costs are $800; total costs are $8,000. b. Total variable costs are $800; total costs are $11,240. c. Total variable costs are $3,240; total costs are $11,240. d. Total variable costs are $4,040; total costs are $11,240.

d. Total variable costs are $4,040; total costs are $11,240.

All of the following curves are U-shaped, except the: a. long-run average total cost. b. average total cost. c. average variable cost. d. average fixed cost.

d. average fixed cost.

The minimum-cost output is the quantity corresponding to the minimum point of the: a. marginal cost curve. b. marginal product curve. c. average variable cost curve. d. average total cost curve.

d. average total cost curve.

If a firm experiences economies of scale as it expands production, then: a. it is not subject to diminishing returns. b. its marginal cost curve will be downward sloping in that range. c. its marginal product curve will be downward sloping in that range. d. its long-run average total cost curve will be downward sloping in that range.

d. its long-run average total cost curve will be downward sloping in that range.

The argument in the book called The Mythical Man-Month is that: a. there are constant returns to scale in computer programming no matter how much labor is used. b. computer programming costs should always be viewed as fixed costs. c. computer programming costs should always be viewed as variable costs. d. labor applied to computer programming is subject to such diminishing returns that the marginal product will eventually turn negative.

d. labor applied to computer programming is subject to such diminishing returns that the marginal product will eventually turn negative.

In maximizing net gains, the perfectly competitive firm will seek to: a. minimize average variable cost. b. minimize average total cost. c. minimize marginal cost. d. maximize profit.

d. maximize profit.

What is on the horizontal axis when we draw a total product curve? a. total cost b. marginal cost c. quantity of output d. quantity of a variable input

d. quantity of a variable input

Which cost curve is continually falling as output increases? a. the average total cost curve b. the total cost curve c. the average variable cost curve d. the average fixed cost curve

d. the average fixed cost curve