Micro Test 2
At 50 units of output a firm's MC is $10 and its ATC is $30. Use MC = Δ TC The TC of producing 51 units is $__________. Δ Q
$1,510
20. If Q = 1,000 units, TVC = $5,000, and AFC = $3, then total cost (TC) equals $_________.
$8,000
If AVC = $74 and TFC = $100 at 5 units of output, then average total cost (ATC) at this level of output is $________.
$94
If TFC = $400, ATC = $3, and AVC = $2.50, then total product or output (Q) equals __________.
800 units
Each firm's market share data for four industries is given below. Calculate the Herfindahl Index (HHI) for each industry. Industry A: 50%, 50% HHI = ____. Industry B: 60%, 40% HHI = __________. Industry C: 70%, 20%, 10% HHI = __________. Industry D: 25%, 25%, 25%, 25% HHI = __________. The Herfindahl Index is largest for industry ______, thus of the four industries this industry has the ______ degree of market power.
C.... Greater
1. T F Normal profit equals total revenue minus the sum of explicit and implicit costs
F
14. T F If a firm decides to produce no output in the short run, its costs will be zero
F
17. T F Diseconomies of scale are caused by diminishing returns.
F
5. T F In the short run a firm's level of output is fixed, while in the long run a firm can increase or decrease production.
F
6. T F The law of diminishing returns states that as additional units of a variable input are added to a fixed input, beyond some point total output will diminish.
F
7. T F The law of diminishing returns implies that to produce an additional unit of output,given the quantity of fixed inputs, eventually fewer and fewer workers are required.
F
T F A purely competitive firm can be identified by the fact that it experiences diminishing marginal returns.
F
T F A cartel refers to an informal agreement among a few competitive firms to fix the price for their product.
F
T F A constant-cost industry is one in which the total cost of producing 100 units is the same as the TC of producing 200 units is the same as the TC of producing 300 units.
F
T F A firm determines the profit-maximizing level of output by producing where the difference between marginal revenue and marginal cost is maximized.
F
T F A firm will earn a per-unit economic loss whenever MR < MC.
F
T F A firm will earn a per-unit economic profit whenever MR > MC.
F
T F A firm will earn an economic profit whenever it produces where MR = MC.
F
T F A monopolistically competitive industry is like a purely competitive industry in that firms in both industries face a perfectly elastic demand curve.
F
T F A natural monopoly occurs when a single firm controls the entire quantity of a natural resource.
F
T F A profit-maximizing firm will produce that level of output where total revenue is at a maximum.
F
T F A profit-maximizing monopolist producing at the optimal level of output will always earn above-normal economic profits.
F
T F A source of inefficiency for a monopolistically competitive industry is that firms earn only a normal profit in the long run.
F
T F An increasing-cost industry is the result of diminishing marginal returns to labor.
F
T F An individual firm's demand curve will become more elastic if brand loyalty toward the firm's product increases
F
T F At the optimal level of output, a profit-maximizing monopolist will be on the downward- sloping portion of its MC-curve.
F
T F Diminishing returns to labor occur because, as production increases, workers become more fatigued as they are required to produce more.
F
T F If a firm's long-run cost curve exhibits constant returns to scale, the total cost of producing a product does not change when it increases or decreases output.
F
T F In the long run, firms in a purely competitive industry can at best just breakeven because firms produce identical products.
F
T F In the short run a pure monopolist will charge the highest price the market will bear
F
T F Oligopoly refers to a market structure in which there are few buyers
F
T F Productive efficiency is achieved when output is maximized.
F
T F The Herfindahl index measures the number of firms in an industry
F
T F The greater the CR4 or HHI, the greater the profitability of the industry
F
T F When a purely competitive industry is in long-run equilibrium firms earn zero normal profit.
F
Suppose that when 100 units of output are produced, the MC of the 101st unit is $2. This is equal to the minimum average total cost, and MC is rising. In the short run, if the optimal level of production is 150 units, then at that level MC must be [ greater than, equal to, less than ] $2.
Greater than
In a monopolistic competition there is an under-allocation of resources or allocative inefficiency at the profit-maximizing level of output because ______________________
P> MC due to barriers
Monopolistic competitive firms are productively inefficient at the profit maximizing level of output because ______
P>min ATC due to bariers
10. T F If average total cost is declining, then marginal cost must be less than average total cost
T
11. T F If marginal cost is rising average total cost could be falling or rising
T
2. T F Normal profit is a cost of production
T
3. T F Normal profit is the implicit return that is just sufficient to satisfy the owner(s) of the business
T
4. T F Normal profit is the return to the firm's owner-manager when economic profits are zero.
T
9. T F Diminishing returns to labor explain the rise in short-run marginal costs as output increases
T
T F A firm will always earn an economic profit whenever P > ATC.
T
T F A firm will maximize economic profit at that level of output where total revenue exceeds total cost by the maximum amount.
T
T F A goal of product differentiation and advertising in monopolistic competition (and oligopoly) is to make price less of a factor and product differences more of a factor in consumer decisions to buy.
T
T F A profit-maximizing monopolist would definitely raise its price if marginal cost was greater than marginal revenue.
T
T F A reason why there is no advertising by individual firms under pure competition is that firms produce a homogeneous product.
T
T F Allocative efficiency is achieved when P = MC.
T
T F Comparing marginal revenue to marginal costs indicates the contribution of the last unit of production to total profit.
T
T F Creative destruction is the idea that entrepreneurial innovations are beneficial to society, but that is also leads to many jobs, businesses, and industries disappearing.
T
T F Demand and marginal revenue curves are downward sloping for monopolistically competitive firms because product differentiation allows each firm some degree of market power
T
T F Downward-sloping demand curves characterize both purely competitive and monopoly markets.
T
T F For a single-price monopolist (and any imperfectly competitive firm) price always exceeds MR because the firm faces a downward-sloping demand curve.
T
T F For a single-price, profit-maximizing monopolist producing at the optimal level of output price always exceeds marginal cost because the firm has market power.
T
T F Homogeneous oligopoly exists where a few firms are producing virtually identical products
T
T F If a firm employs more labor to produce more output, it is impossible for average fixed cost to increase.
T
T F If a firm employs more labor to produce more output, the firm's total variable cost always increases.
T
T F If a firm has a limited degree of "price-making" ability this means that the firm will set price above marginal cost (P > MC) at the profit-maximizing level of output
T
T F If a purely competitive firm is in short-run equilibrium and its marginal cost exceeds its average total cost, then we can conclude that firms will enter the industry in the long run.
T
T F If there are significant economies of scale in an industry, then a firm that is large may be able to produce at a lower unit cost than can a small firm
T
T F Imperfectly competitive producers find that, when they reduce price, their total revenue increases by less than the new price.
T
T F In long-run equilibrium, a profit-maximizing firm in a monopolistically competitive industry will produce the quantity of output where P = ATC and P > MR = MC
T
T F In pure competition, price is determined where the industry demand and supply curves intersect.
T
T F Marginal cost is a measure of the alternative goods which society forgoes in using resources to produce an additional unit of some specific product.
T
T F Suppose an industry has a CR4 = 85 and a HHI = 3000. Most likely, this industry would achieve neither allocative efficiency nor productive efficiency.
T
T F The U.S. breakfast cereal industry is an example of a differentiated oligopoly
T
T F The break-even point (P = ATC or TR = TC) means that the firm is realizing a normal profit, but not an economic profit.
T
T F The demand curve facing a purely competitive firm is perfectly elastic, therefore price always equals marginal revenue
T
T F The firm's long-run ATC-curve shows the lowest attainable per unit cost of producing any level of output when capital and labor are variable.
T
T F The kinked-demand curve model of non-collusive oligopoly predicts that for an individual firm small changes in marginal cost will have no effect on equilibrium price and output
T
T F The monopolistically competitive seller's demand curve will become more elastic the larger the number of competitors
T
T F The mutual interdependence that characterizes oligopoly arises because a small number of firms produce a large proportion of industry output
T
T F The short-run supply curve for a competitive firm is the rising portion of the marginal cost curve (at or) above the shut down point.
T
T F The under-allocation of resources in imperfectly competitive industries means that at the profit-maximizing level of output, price is greater than MC
T
T F When firms in a purely competitive industry are earning profits that are less than normal, the industry supply of the product will eventually decrease.
T
The MR = MC rule can be restated for a purely competitive firm as P = MC because each additional unit of output adds exactly its price to total revenue.
T
Purely competitive industry X is a constant-cost industry. The economy enters a recession, household income decline, decreasing the demand for X. Total industry output will ____________ and the market price of X will ________________.
decrease, not change
T F A single firm in a purely competitive industry is a price taker because each firm produces a standardized product.
f
Assume that the market for soybeans is purely competitive. Currently, firms growing soybeans are experiencing economic profits. In the long run, we can expect this market's supply curve to ____________________ and the market price to ____________________.
increase, fall
A pure monopoly firm (or any imperfectly competitive firm) will never charge a price in the inelastic range of its demand curve because raising price will ______________ total revenue, ______________ total cost, and ______________ profit.
increase,decrease,increase
A monopolist is producing an output such that ATC = $4, P = $5, MC = $2, and MR = $3. This firm is realizing an economic ___________ that could be ___________ by producing ___________ output.
profit, increase,more