micro exam 2

If price is less than marginal cost, a perfectly competitive firm willincrease its output

reduce its output

Antitrust laws may _________ the ability of firms to ______________.

restrict, capture efficiencies in production through mergers and economies of scale (synergies)

Price discrimination requires the firm to

separate customers according to their willingness to pay prevent arbitrage among buyers of their product both c and d

If rational profit-maximizing firms (like rational people) think at the margin, then marginal adjustments to production

should always increase profit (or decrease loss)

When price is below average variable cost, a firm in a competitive market will

shut down and incur the loss of both variable and fixed costs

In monopolistically competitive markets, economic profits ____________, and __________________ shifts the demand curve of incumbent firms to the ___________________.

signal new firms to enter, entry, left

In a monopolistically competitive market structure, because each good sold in the market is _________________ each firm is considered a _________________.

slightly different, price setter or price maker

A(n) ________ cost is a cost that has already been committed and cannot be recovered.

sunk

Passed by congress in 1914, ________ strengthened ________ by authorizing private antitrust lawsuits against highly efficient large-scale firms, benefiting less efficient small-scale firms.

the Clayton Act, the Sherman Act

Passed by congress in 1890, ________ attempted to reduced the market power and the economies of scale of large and powerful "trusts".

the Sherman Act

If players in a repeated game follow a tit-for-tat strategy

the cooperative solution is more likely to prevail than otherwise

An example of an explicit cost of production would be

the cost of flour for a baker

An example of an implicit cost of production would be

the cost of space in your home used for a home office

If marginal cost exceeds marginal revenue

the firm may still be generating economic profit, but will not be maximizing profit.

One problem with government regulation of natural monopolies is that

the government typically has poor information about the socially optimal level of production

An example of an implicit cost of production would be

the income an entrepreneur could have earned working for someone else

When a firm in a perfectly competitive market shuts down production,

the market supply curve shifts left.

For a firm that operates in a perfectly competitive market

the price it charges for its product is not dependent on the quantity sold

Categorizing a factor of production, such as a large piece of machinery, as a fixed cost or a variable cost often depends on

the time horizon being considered

The market for wheat is usually a close example of a perfectly competitive market because

the wheat produced by many farmers is largely the same from one farmer to another

If a perfectly competitive firm receives $500 in total revenue and has a marginal revenue of $10, what is the average revenue, and how many units were sold?

$10 and 50

What is the deadweight loss due to monopoly pricing under the following conditions: The price charged for goods produced is $16. The intersection of the marginal revenue and marginal cost curves occurs where output is 10 units and price is $8. The socially efficient level of production is 12 units.

$8

A profit maximizing monopolist will have economic profits roughly equal to

(P4 - P1) * Q1

Barriers to entry may arise if: (i) A key resource is owned by a single firm (ii) The government awards a firm the exclusive right to produce a product, such as a patent or special license (iii) Average total costs are always declining (iv) A firm faces perfectly elastic demand

(i), (ii), or (iii)

The fundamental source of monopoly market power arises from

barriers to entry

When many sellers are involved in selling their products in a market, the market structure could be which of the following: (i) perfect competition (ii) monopolistic competition (iii) monopoly (iv) oligopoly

both (i) and (ii)

Typically, the marginal cost curve ________ as output increases.

briefly decreases then increases

The supply curve for an individual firm in a perfectly competitive market

is reflected in its marginal cost curve above average variable cost in the short run is reflected in its marginal cost curve above average total cost in the long run both b and c are correct

When a profit maximizing oligopolist makes a production decision

it generally must consider the behavior of competing rival firms

The prisoners' dilemma is an important game to study because

it identifies the fundamental difficulty in maintaining cooperative agreements

When the player of a game chooses a dominant strategy

it is the best strategy, regardless of choices made by other players

If a regulated natural monopoly is unable to generate profits at the "marginal-cost pricing" regulated level of production

it may be necessary for the government to subsidize the natural monopolist, which requires raising taxes or cutting public spending elsewhere

Advertising enhances the competitive structure of markets when

it provides information that is useful to consumers in choosing among a variety of products

Equilibrium price in markets characterized by oligopoly is usually________________ than in monopoly markets and _______________ than in perfectly competitive markets.

lower, higher

Monopolistically competitive firms are typically characterized by

many firms selling similar, but not identical products

The cost to produce one additional unit is called

marginal cost

A profit-maximizing firm will choose to increase production when

marginal cost is less than marginal revenue

To the best of their ability, a profit maximizing producer always chooses to produce the level of output where

marginal revenue equals marginal cost.

When a monopolist faces a downward sloping market demand curve, its

marginal revenue is always less than the price of the units it sells.

Use the graph below to answer the following questions. For the perfectly competitive firm depicted in the graph,

marginal revenue is equal to $5.00

A profit maximizing monopolist will produce the number of units that coincides with the level of output at which

marginal revenue is just equal to marginal cost.

Firms maximize profits when marginal cost equals

marginal revenue.

In standard economic theory, the goal of an oligopolist is assumed to be

maximize profits

Oligopolies would like to act like ________, but self-interest drives them closer to ________.

monopolies, competition

There are two types of markets in which firms face some competition yet are still able to have some control over the prices of their products. The names given these market structures are

monopolistic competition and oligopoly/duopoly

Under normal circumstances, hotels in New York City frequently experience an average vacancy rate of about 20% (i.e., on an average night, 80% of their rooms are full). This excess capacity is indicative of a (an) ________________ industry

monopolistically competitive

In order to sell more of its product a monopolist

must lower its price on all units it sells.

An industry is a(n) ________ when a single firm can supply a good or service to an entire market at a lower cost than two or more firms could.

natural monopoly

The goal of a(n) ________ is to maximize profit.

oligopoly monopoly monopolistically competitive firm perfectly competitive firm all of the above

Markets which are characterized by only a few sellers with large market shares that sell similar or nearly identical (homogeneous) products are typically referred to as

oligopoly markets

Firms can have (i) accounting profits and economic losses (ii) accounting profits and economic profits (iii) accounting losses and economic losses (iv) accounting losses and economic profits

only i ii iii

When analyzing a firm's behavior, it is important to include all ________ of production.

opportunity costs

When a monopolist increases the number of units it sells, there are two effects on revenue, the _________________ and the _______________________.

output effect, price effect

Which of the panels shown reflects a long run equilibrium in a monopolistically competitive market?

panal a

The graphs below depict the effect on incumbent firms of entry and exit in a monopolistically competitive market. If firms in a monopolistically competitive market are earning economic losses, which of the graphs shown would reflect the change in demand for incumbent firms as the market adjusts to its new equilibrium?

panal b

Which of the graphs shown above would be consistent with a monopolistically competitive firm that is making economic losses?

panal b

Which of the graphs shown below best depicts the demand side of the market for a typical monopolist?

panal b

Use the panel of figures below to answer the following questions. Which of the panels shown depicts a monopolistically competitive firm earning economic profits in the short run

panal c

Use the panel of figures below to answer the following questions. Which of the panels shown could not characterize a short-run or a long-run equilibrium in a monopolistically competitive market?

panal d

Which of the graphs shown below best describes the situation of a regulated natural monopolist with marginal-cost pricing regulation?

panel d

When a monopolist is able to sell its product at different prices to different consumers, it is engaging in

price discrimination

Economists typically assume that monopolists behave as

profit maximizers

In general, market structures that fall somewhere in between Monopoly and Perfect Competition are called

imperfectly competitive markets

Given the following prisoners' dilemma table, if Bonnie and Clyde make the appropriate self-interested decision independent of the other, how much time would each end up spending in jail?

1 year for each

Bill's Bones is an archaeology company and retail outlet that "mines" and sells common fossils directly to the public. The structure of his firm's costs are as follows. At what level of output would marginal cost (MC) equal average variable cost (AVC)?

120

Use the graph below to answer the following questions. Increasing returns to scale occur when output is at

120

Use this information and the graphic shown to answer the following questions. Bill's Bones is an archaeology company and retail outlet that "mines" and sells common fossils directly to the public. The structure of his firm's costs are as follows. At what level of output would marginal cost (MC) equal average total cost (ATC)?

150

XYZ corporation produced 300 units of output but sold only 275 of the units it produced. The average cost of production for each unit of output produced was $100. Each of the 275 units were sold for a price of $95. Total revenue for the XYZ corporation w

26125

se the graph below to answer the following questions. Constant returns to scale occur when output is at

320

Given the following prisoners' dilemma table, if Bonnie and Clyde make the appropriate self-interested decision independent of the other, how much time would each end up spending in jail?

8 years each

Use the table below to answer the following question: Quantity Price 1 $13 2 $13 3 $13 4 $13 5 $13 6 $13 7 $13 8 $13 9 $13 What level of output is associated with maximum revenue?

9

A monopolist who is able to engage in perfect price discrimination will have profit equal to

A + B + C + D + E

Use the figure below to answer the following questions. The socially efficient level of output will generate a total surplus equal to

A + B + C + D + E + F

Which of the following industries is generally assumed to be most closely associated with a perfectly competitive market?

Agriculture

Foregone interest from investing your own personal savings into a business is an example of

Implict cost

Quantity Price 1 $13 2 $13 3 $13 4 $13 5 $13 6 $13 7 $13 8 $13 9 $13 Over what range of output is marginal revenue (MR) declining?

None. Marginal revenue is constant over the whole range of output.

he graphs below depict the effect on incumbent firms of entry and exit in a monopolistically competitive market. If firms in a monopolistically competitive market are earning economic profits, which of the graphs shown would reflect the change in demand for incumbent firms as the market adjusts to its new equilibrium?

Panel a

Which of the average total cost curves shown in the graphs below would be consistent with a natural monopolist?

Panel c

Bill's Bones is an archaeology company and retail outlet that "mines" and sells common fossils directly to the public. The structure of his firm's costs are as follows. The most efficient or optimal scale of production for Bill's Bones occurs at

Q = 150

Decreasing (diminishing) returns to scale occur when output is at

Q = 400

When will a perfectly competitive firm be making zero economic profit?

When price equals minimum average total cost When price equals the level of average total cost at the efficient scale After the long-run process of entry and exit all of the above

As the number of firms in an oligopoly market _________________ the market approaches a ____________________________.

increases, competitive market equilibrium

Because P > MC, monopoly pricing prevents some mutually beneficial trades from taking place. These unrealized mutually beneficial trades are ________ to society.

a deadweight loss or excess burden

Dominant strategies in a two-person game often lead to

a less preferred outcome for both players

Panel b in the set of images shown above is consistent with

a monopolistically competitive firm in short-run equilibrium, but not a long-run equilibrium

Firms that have large advertising budgets, such as those firms that advertise during the Super Bowl, are likely to be providing consumers with

a potential signal about product quality

In a monopolistically competitive industry, price is likely to be _________________ marginal cost since each firm is a _________________.

above, price setter or price maker

Economies of scale can occur when

all of the above are possible

The process of buying a good in one market at a low price and selling it in another market at a higher price, such as in ticket-scalping or in stock market speculation, is called ________.

arbitrage

When large-scale firms have tacit agreements among themselves on the quantity to produce and the price at which to sell their output, they are organized

as a cartel

The cost to produce the typical unit of output is the firm's

average total cost

Economies of scale occur when

average total cost declines as output increases

When average total cost (ATC) is less than marginal cost (MC),

average total cost must be increasing

A "natural monopoly" occurs when

average total cost of production decreases continuously as more output is produced over the relevant range of product demand

The slope of the demand curve faced by a monopolist ________ the slope of the market demand curve.

is equal to

Since natural monopolies have a declining average cost curve, regulating natural monopolies by setting price equal to marginal cost would

cause the monopolist to operate at a loss

The marginal product of labor (MPL) can be defined as

change in total output\the change in the quamtity of labor

Individual members of a cartel almost always have an incentive to ________ to increase their own profits further.

cheat by increasing output and reducing price

Individual members of a cartel have a strong incentive to ________________ the cartel agreement (by increasing output) because pursuit of _______________ will maximize individual firm profits and potentially increase the individual firm's market share.

cheat on, self-interest

An agreement among firms over production output and price is called _______. This group of firms that are acting in unison is called a ________.

collusion, cartel

If a monopolist is able to price discriminate

consumer surplus and deadweight losses are transformed into producer surplus and monopoly profits at a point closer to the socially efficient level of output

When price is below average total cost, a firm in a competitive market will

continue to operate as long as average revenue exceeds average variable cost

In a two-person repeated game, a tit-for-tat strategy starts with ____________________ and then each player ______________________.

cooperation, mimics the other player's last move

An oligopolist is part of a cartel that is collectively producing at the monopoly level of output. The oligopolist, being self-interested will

increase production beyond the agreed-upon level to undercut rivals within the cartel

As some incumbent firms exit a monopolistically competitive market, economic losses of existing firms ____________ and product diversity in the market _________________.

decline, decreases

As new firms enter a monopolistically competitive market, economic profits of existing firms ____________ and product diversity in the market _________________.

decline, increases

In game theory, a strategy is called a ________ if it is the best strategy for a player to follow regardless of the strategies pursued by other players.

dominant strategy

The principle that rational people think at the margin (i) is important to understanding how firms decide how many workers to hire (ii) is of little use to firms who are trying to maximize profit (iii) provides the behavioral foundation for analyzing how firms make optimal decisions

i and iii only

The marginal product of capital

is equal to the increase in output obtained from a one-unit increase in capital

When advertising encourages customers to become more informed about all firms in the market, then

each firm is likely to have less market power and prices are likely to be lower

Monopolistic competition differs from standard or typical oligopoly because in monopolistically competitive markets

each of the sellers offers a somewhat different product

In the short run, a firm in a monopolistically competitive market

earns economic profits earns economic losses a or b

When new firms enter a market in pursuit of economic profit,

economic profit of existing firms in the market will begin to fall, all else equal.

The entry and exit decisions of firms are signaled by

economic profits and economic losses

For a competitive firm, marginal revenue ________ the price of its good, and for a monopolist, marginal revenue ________ the price of its good.

equal less than

When freedom of entry is one of the attributes of a market structure, economic profits are

eventually driven to zero

When compared to perfect competition, the theoretical disadvantages of monopolistic competition are __________ and __________, whereas the practical benefit that consumers get in return is __________.

excess capacity, deadweight losses, product variety

A profit maximizing monopolist will cause a deadweight loss equal to

f

A monopolistically competitive firm differs from a perfectly competitive firm because a monopolistically competitive firm

faces a downward sloping demand curve for its product due to product differentiation

A prisoners' dilemma game demonstrates how _______________ is often rational even though ________________________.

failure to cooperate, cooperation would make everyone better off

________ do not vary with the amount of output a firm produces.

fixed cost

Games which are repeated and played more than once

generally make collusive arrangements easier to enforce due to reputation building

One problem with regulating a natural monopolist on the basis of its average cost is

hat it does not provide an incentive for the monopolist to reduce or minimize its costs, possibly encouraging the monopolist to overstate costs or become less efficient

Equilibrium quantity in markets characterized by oligopoly is usually________________ than in monopoly markets and _______________ than in perfectly competitive markets.

higher, lower

Monopolistic competition is characterized by which of the following attributes: (i) Many sellers (ii) Product Differentiation (iii) Barriers to entry (iv) Natural monopolies

i and ii only

When regulating a natural monopoly, one of the problems with setting price equal to average total cost is that

there is no incentive for the monopolist to lower its costs there is an incentive for the monopolist to overstate its costs total social welfare is not optimized because P > MC consumer surplus is not maximized all of the above

Price discrimination is a rational strategy for a profit-maximizing monopolist when

there is no opportunity for arbitrage across market segmentations

The real economic problem with monopolies is their ability

to restrict output below the socially efficient level of production

Accounting profit is equal to

total revenue minus the explicit cost of producing goods and services

Economic profit is equal to

total revenue minus the total opportunity cost of producing goods and services

Profit is defined as

total revenue minus total (opportunity) cost

When analyzing the welfare cost of a monopoly, economists use ________ as the most accurate measure of economic well-being.

total surplus

Over a sufficiently long period of time, all costs are

variable

If price is greater than marginal cost for a profit maximizing firm in a perfectly competitive market, that firm

will increase its output