Microeconomics Exam #2

At 600 units of output, total fixed cost is equal to $1,000 and total variable cost is equal to $12,000. Total cost is equal to____________.

$13,000

In the table below, what is the marginal product of the third worker?

55 units

Which situation would be labeled a "natural monopoly"?

A firm has large economies of scale, and is thus able to sell the good for a lower price than would if there were many firms.

For any firm, what is the long-run average cost curve?

A function which shows the lowest average cost of producing any output level

The supply curve in a perfectly competitive market is the sum of all of the individual firm's marginal cost curves. What is the supply curve for a monopoly?

A monopoly does not have a supply curve

Which of the following are true?

A perfectly competitive firm chooses the price of its own output.

For a firm, the short-run is defined as being_______.

A period of time in which at least one of the firm's inputs is unchangeable

Using the table below, calculate the average cost of producing 80, 120, and 160 computers per month.

A= $19.50, B= 150.00, C= 128.13

Assume that instead of the cost of the three computer work stations and space being $5,000 per month, it is $10,000 per month. Match the number of workers to the correct marginal cost.

A=$30.00, B=$27.27, C=$23.08

Which of the following most likely represents a short-run business decision?

Aaron hires two additional workers to help cover the holiday rush at his shop.

What is true about the long-run for a firm?

All inputs can be changed

What is a reason that monopolies exist?

All of the above are reasons

A merger that increases the four firm HHI index should be____________.

Analyzed further to see if it will reduce competition in such a way that hurts consumers.

What does diminishing marginal productivity mean?

As you increase the amount of a variable input, its marginal product eventually gets smaller.

Monopolies will price discriminate if which of the following is true?

At the current price, one group of consumers is elastic while another group is not as responsive (inelastic)

A monopoly will not necessarily be technically efficient because which of the following is true?

Barriers to entry will keep firms from entering

A decrease in variable costs will cause the monopoly to do what?

Lower the level of output

In the late 1990s the worldwide vitamin cartel with over $5 billion of sales included

Coca Cola

If the long-run average cost curve is horizontal, it implies that the firm is experiencing_________.

Constant returns to scale

An increase in fixed costs for a monopoly will do which of the following?

Decrease the economic profits

Which of the following is true about long run equilibrium in a competitive market?

Economic profits will be zero after being shared by all firms.

A natural monopolist will face which of the following?

Economies of scale

A monopoly produces a level of output where demand is(elastic, inelastic, or unit elastic)_______.

Elastic

A movie theater price discriminates by charging children and seniors lower prices than adults because their demand is__________(elastic/inelastic)

Elastic

The monopoly and perfectly competitive firm are allocatively efficient.

False

Which of the following is a characteristic of an oligopoly?

Firms are interdependent with each other.

Which one has nothing to do with price discrimination?

Marginal cost are different

Who is most likely to be involved in writing regulations for a particular industry and why?

Firms participating in the industry since the effect of the regulation is concentrated on a few who have a powerful incentive to shape it.

What are two of the reasons that average cost tends to have a "bowl" shape?

Fixed costs tend to dominate low levels of output and variable costs tend to dominate high levels of output

A monopoly will always charge a price that is__________(greater than/less than/equal to)marginal cost.

Greater than

Predatory pricing is:

Hard to distinguish from an industry in which firms are competing intensely and are discovering ways to lower average total cost

The marginal product of an automobile assembly line worker is currently one automobile per month. The wage and benefits of that typical worker is currently $4,000 per month. A new robot will cost $20,000 per month and its marginal product is four automobiles per month. If the automobile company wants to continue producing its current level of output, which of the following should it do?

Hire more labor and buy fewer robots.

Copyrights on movies, books, and music act as a barrier to entry in order to give people what?

Incentives to create

When a monopoly is price discriminating, they will increase the price for those consumers that are

Inelastic

A profit-maximizing monopoly will produce where which of the following is true?

Marginal revenue is less than the price, marginal revenue is equal to the marginal cost, marginal revenue is postive

Which one of the following markets have many rivalry firms producing differentiated products

Monopolistic competition

If a monopoly faces a demand curve that is downward-sloping, then marginal revenue will be which of the following?

Must be less than price

The Coca-Cola Company is the only producer of Coca-Cola. Is it considered a monopoly?

No, because Coca-Cola has many close substitutes.

Which one of the following markets have a few rivalry firms?

Oligopoly

Which of the following would most likely be considered a market with free entry?

Selling homemade crafts

Suppose an additional worker can handle and additional 10 orders per hour. That will cost $15 per hour. An additional telephone answering machine will handle and additional 20 calls per hour at a cost of $10 per hour. Which of the following is correct?

The firm should increase capital and decrease labor, because labor produces less per dollar spent.

Imagine two firms with identical cost structures that do not exhibit economies of scale at high levels of production. One is competing in a perfectly competitive market and one is a monopoly. In the long run which of the following is true?

The monopoly will charge a higher price than the perfectly competitive firm

Suppose a firm doubles its inputs in the long-run, and as a result, output doubles. Which of the following is true?

This firm experiencing constant returns to scale.

Which one of the concepts are not essential when we analyze business cases using game theory?

Time

A firm's long-run total cost curve is__________.

Upward sloping

For the next three questions, the following abbreviations are used. MPL= marginal product of labor. MPK= marginal product of capital. W= wage rate (the cost of a unit of labor). R= rental rate (the cost of a unit capital). Assume a firm is operating in the long-run. At the current level of output, MPL=30 and MPK=50. Also assume that is the industry, W=5 and R= 10. Keeping output the same, how can this firm lower production cost?

Use more L and less K

A monopolist will engage in price discrimination, if it can, in order to increase profits by doing which of the following?

While continuing to produce the same amount

Will a change in fixed costs change average cost?

Yes

Will a change in fixed costs change total fixed cost?

Yes

In the figure above, the firm's profit would be_____.

positive

The observation that increase in output get smaller as more of one input is added to production is called:

the law of diminishing output

The slope of a firm's production function will__________ as the amount of a variable input used increases if the input experiences diminishing marginal productivity.

Decrease

Diminishing marginal returns means that marginal product will eventually_______ and marginal cost will eventually_________.

Decrease, increase

The law of diminishing marginal returns is the cause of__________ marginal product and_______ marginal cost.

Decreasing; increasing

The amount of time a firm operates with the ability to make long-run decisions is how long?

Differs by industry

A long-run average cost curve that rises through all levels of possible outputs represents which effect?

Diseconomies of scale

An electric power plant most likely experiences which of the following?

Economies of scale

In a model with only labor and capital as inputs, in the short run the amount of_________ is fixed, while in the long run the amount of __________ is variable.

Either labor or capital, both labor and capital

Which of the following are good examples of natural monopolies?

Electricity delivery, Sewer treatment plant, Residential data connection (coaxial cable or fiber optic)

Economies of scale happen when increases in output results in________.

Lower average costs

Use the information from the table. If the weekly wage is $200, the marginal cost of increasing weekly production from 10 to 22 scarves per week is_______ than the marginal cost of increasing weekly production from 40 to 46 scarves per week because the marginal product of the second worker is __________ than the fifth worker.

Lower, higher

A monopoly would never produce where marginal revenue is negative because which of the following is true?

Marginal cost is always positive

If a monopoly increases the quantity above the profit-maximizing level which of the following will be true?

Marginal cost will be greater than marginal revenue, Price would decrease, Marginal revenue will be lower than before

Suppose a firm doubles its inputs (therefore doubling its total costs as well). If this firm is experiencing diseconomies of scale, then________.

Output will increase, but less than double

Suppose that as a firm grows, it is able to use larger volume equipment in production. This will most likely result in...

diseconomies of scale

When comparing a monopoly and a perfectly competitive market where the costs are the same, the monopoly will produce a__________(greater/lower/same)quantity.

lower

In the figure above, if a monopoly charged the price of F and produced the monopoly quantity, then there would be a(n)________.

shortage

In the long-run, marginal cost will be_______ average cost if the firm is experiencing economies of scale.

Below

At 1,000 units of output, the fixed cost of production is $12,500 per week. Total cost of producing 1,000 units per week is $28,500 per week. The variable cost of producing 1,000 units of output per week is equal to________.

$16,000

Alicia is currently spending $6,000 per week on total variable costs to produce 500 hats. To produce 505 hats per week she would have to spend $6,100 per week. The marginal cost per hat is______.

$20

Peter can produce 50 lunches per hour for $1,250. If he hires one more cook for $15 an hour, he can produce 55 lunches per hour. The marginal cost of expanding hourly lunch production from 50 to 55 is________.

$3.00

At 2,00 units of output, the variable cost of production is $12,500 per week. Total cost of producing 2,000 units per week is $45,500. The fixed cost of producing 2,000 units of output per week is equal to__________.

$33,000

Santa Claus's only variable input is labor. The wage he must pay is 200 candy canes per week. What is Santa's total weekly variable cost if he hires 200 elves?

$40,000 candy canes

Using the information from the table above, if the monthly wage of an office chair factory worker is $2,160, what is the marginal cost of increasing output from 190 office chairs per month to 235 chairs per month?

$48.00

If the average product of labor is 12 units of output per worker per day when eight workers are hired, eight workers will be able to produce_______ units per day.

96

At 1,000 units of output the fixed cost of production is $12,500 per week. Total cost of producing 1,000 units per week is $28,500 per week. If labor is the only variable input and the weekly wage is $1,600, how much labor is being used produce 1,000 units of output?

10.0

What is the average score if the third student has an SAT score equal to 1000?

1200

Considering two students, each earning 1300 on the quantitative and verbal portions of the SAT. The average SAT score for our group of two is 1300, of course. (1300+1300)/2. Suppose we add one more student to the group and calculate the new average. What will the new average be if the third student has an SAT that is equal to 1300?

1300

What is the average score if the third student has an SAT score equal to 1600?

1400

The production of 12,000 candy bars per day requires 60 workers. The average product of each worker is ___________ candy bars per day.

200

Using the information from the table below, what is the marginal product of the 4 worker?

45.00 office chairs

The production 75 sofas per week requires 15 workers. The average product of each worker is________ sofas per week.

5

Marcus has four employees. The four employees produce 55 floral arrangements in a day. Marcus hires a fifth employee. The five employees produce 60 floral arrangements in a day. The fifth employee's marginal product is__________.

5 floral arrangements in a day

In the table below what is the Marginal Cost of the 30th unit of output?

7

Calculate marginal revenue in the following case: price is $100 and 20 units are sold, then price drops to $99 and 21 units are sold.

79

Fill in the missing value for A from the table below.

80

If a monopoly is not producing at the profit-maximizing quantity, then it must be the case that which of the following is true?

All of the above are possible

The Sherman Antitrust Act of 1890 considered the following illegal

All the above

As a firm increase output, long-run average costs typically_________.

Fall, hit a minimum, then rise

What is the main source of diseconomies of scale?

Limited ability to manage and coordinate larger amounts of inputs

When can diseconomies of scale occur?

In the long-run

Which of the following is a cause of diminishing marginal productivity?

In the short run, labor runs out of available capital as more labor gets added to the production process.

An increase in the prices of an input will cause long-run average costs to________.

Increase

If the quantity of an input is variable in the short run, its total cost will______ as output increases.

Increase

An increase in technology will cause the total product function to_______ and average cost to _______.

Increase, decrease

A monopoly producing where marginal revenue equals marginal cost will do which of the following

It cannot increase quantity and make a greater profit, It is producing at the highest profit possible in their market, It is producing where the additional revenue is just equal to the additional cost for each output.

Consider that table below showing different average costs for three different firm sizes across a range of output levels. At a long-run chosen output level of 400, which firm size (amount of capital) would the firm want to use?

K= 2

Assume that wages are $20 per hour; at the current number of hours of labor employed, the marginal product of an hour of labor is 10 units of output. Labor is the only variable input. What will happen to marginal cost if you hire one more hour of labor and the marginal product of the next hour of labor employed increases to 15 units of output?

N/A

At the monopoly profit maximizing point, price will be....

N/A

If a fixed cost does not change as output changes, why do you still have to pay it fi you produce zero output?

N/A

Is it possible for marginal cost to be falling and average cost to be rising?

N/A

When a monopoly is making a profit, other firms will enter the market.

N/A

When it comes to regulating a natural monopoly, each of the simple solutions has its problems. Match the problem with the solution:

N/A

Working from the table, if Patricia is currently producing 450 web pages per month. If her landlord increases her rent such that her fixed costs rise from $5,000 per month to $6,000 per month, calculate her new________.

N/A

Will a change in fixed costs change marginal cost?

No

Will a change in fixed costs change total variable cost?

No

Assume the following data. The marginal product of labor is 150 washed cars per day. The daily wage is $60. If the marginal product of machines that would wash cars is 200 per day and the rent for the machines is $80, what will the firm do?

Not change the number of machines or workers

Which of the following is NOT one of the reasons a firm might be expected to experience economies of scale?

Reducing issues with diminishing marginal product of labor

In the long-run, what will diminishing marginal returns be?

Relevant if one input is changed while the other input is held constant or reduced.

Assume an additional waiter can increase the number of customers served in a restaurant $50 per day. On the other hand, a new microwave oven will speed the cooking process and allow each customer to be served with no additional labor. The oven can be rented for $75 per day. What should the restaurant do?

Rent a microwave, because the increase in output per dollar spent is greater than the increase in output per dollar spent from hiring another worker

Currently, the marginal product of labor is 45 units per week. The average product of labor at the current level of output is 32 units per week. If the employer hires one more worker, the marginal product of labor will be 47 units per week. The average product of labor will______________________.

Rise

At output equal to 100 the MP of labor is 5 and the AP of labor is 7. At output equal to 101 the MP of labor is 4. At output equal to 101 AP of labor will:

Rise above 7

If the marginal productivity of labor is rising at a certain level of output (while all other inputs remain unchanged), marginal cost must be:

Rising at that level of output

An industry trade group who's purpose is to increase the profitability of industry members__________.

Should probably be investigated by the FTC to makes sure members aren't colluding to fix prices.

The marginal product of labor (MPL) can be defined as which of the following?

The change in output level as the results of hiring another worker

See the table below. Suppose the firm chooses a permanent output level of 500 units but remains in firm size K= 2. What is the result of this?

The firm will be operating inefficiently at higher costs, therefore not maximizing profits.

Regarding input choices, how would a firm respond to an increase in the wage rate?

The firm would use less labor and more capital.

The market demand in a monopoly market differs (or not) from the demand the monopoly itself faces by______.

The monopoly is the only firm in the market, so it does not differ.

A production function can best be described as which of the following?

The relationship between the quantity of inputs and quantity of outputs produced in a given amount of time.

Marginal cost is the slope of__________.

The total cost curve