Microeconomics Exam 2

price is less than the average variable cost.

A profit-maximizing firm will shut down in the short run when-

Quantity of inputs and quantity of output.

For a firm, the production function represents the relationship between-

no legal barriers prevent a firm from entering an industry.

Free entry means-

Free entry, product differentiation, and many sellers.

Monopolistic competition is characterized by which of the following attributes?

Cooperation and self interest

A distinguishing feature of an oligopolistic industry is the tension between-

influence the market price of the good it sells.

A firm has market power if it can-

competitive market.

A firm that has little ability to influence market prices operates in a-

it produces a smaller level of output tan would be produced in a competitive market.

A monopoly is an inefficient way to produce a product because-

can set the price is charges for its output but faces a downward-sloping demand curve so it cannot earn unlimited profits.

A monopoly-

there are economies of scale over the relevant range of output.

A natural monopoly arises when-

That the average price of eyeglasses in states where advertising was restricted was higher than the average price in states where advertising was not restricted.

An empirical study compared the price of eyeglasses in states that restricted advertising by optometrists with those that did not. The study revealed-

Lease payments for the land on which a firm's factory stands.

An example of an explicit cost of production would be the-

What decisions lie behind the market supply curve.

Analyzing behavior of the firm enhances our understanding of-

not in the best interest of society, one that fails to maximize total economic well-being, and inefficient.

Because monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly is often-

competitive firms do not have to worry about the price effect lowering their total revenue, marginal revenue for a competitive firm equals price, while marginal revenue for a monopoly is less than the price it is able to charge, monopolies must lower their price in order to sell more of their product, while competitive firms do not.

Competitive firms differ from monopolies-

are indistinguishable from generic products.

Critics of markets that are characterized by firms that sell brand name products argue that brand names encourage consumers to pay more for branded products that-

Maximizing profits

Economists assume that the typical person who starts her own business does so with the intention of-

requires an outlay of money by the firm.

Explicit cost-

Do not require an outlay of money by the firm.

Implicit costs-

$75, $85, or $95.

Refer to Figure 14-7 on page 4. In the long run, the firm will exit the market if the price of the good is-

$20.

Refer to Figure 15-7 on page 6. In order to maximize profits, the monopolist should charge a price of-

Price = B; Quantity = Y

Refer to Figure 15-8 on page 7. What is the socially efficient price and quantity?

Panel B

Refer to Figure 16-1 on page 8. Which of the graphs illustrates the demand curve most likely faced by a firm in a monopolistically competitive market?

Fixed costs.

Some costs do not vary with the quantity of output produced. These costs are called-

differentiated product and charge a price above marginal cost.

Some firms have an incentive to advertise because they sell a-

75 cents.

Suppose that a firm has only one variable input, labor, and firm output is zero when labor is zero. When the firm hires 6 workers the firm produces 90 units of output. Fixed costs of production are $6 and the variable cost per unit of labor is $10. The marginal product of the seventh unit of labor is 4. Given the information, what is the average variable cost of production when the firm hires 7 workers?

continue to operate her business, but in the long run she will probably face competition from newly entering firms.

Susan quit her job as a teacher, which paid her $36,000 per year, in order to start her own catering business. She spent $12,000 of her savings, which had been earning 10% interest per year, on equipment for her business. She also borrowed $12,000 from her bank account at 10% interest, which she also spent on equipment. For the past several months she has spent $1,000 per month on ingredients and other variable costs. Also for the past several months, she has earning $4,500 in monthly revenue. In the short run, Susan should-

produces an output level less than the socially optimal level.

The dead weight loss associated with a monopoly occurs because the monopolist-

Average total cost.

The firm's efficient scale is the quantity of output the minimizes-

profit is maximized.

The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which-

The efficient scale, the minimum point on the average total cost curve, and a point where the marginal cost curve is rising.

The marginal cost curve crosses the average total cost curve at-

difficulty of maintaining cooperation.

The prisoners' dilemma provides insights into the-

positive; the more differentiated the product, the more a firm is likely to spend on advertising.

The relationship between advertising and product differentiation is-

An opportunity cost

The value of a business owner's time is an example of-

the Starbucks brand name suggests consistent quality.

Two college students, Mary and Maggie, are spending spring break in Florida. Mary buys a cup of coffee each morning at the local Starbucks rather than from one of the local coffee shops. Maggie claims that Mary is irrational because she never purchases Starbucks coffee at home, and Starbucks coffee costs more than the coffee sold bu local shops. An economist would most likely explain Mary's behavior b suggesting that-

Diminishing marginal product.

When adding another unit of labor leads to an increase in output that is smaller than the increases in output that resulted from adding previous units of labor, the firm is experiencing-

Cookies

Which of the following goods is most likely to be associated with monopolistic competition?

barriers to entry

Which of the following is a characteristic of a monopoly-

a product without close substitutes.

Which of the following is a characteristic of monopoly-

Foregone rent on office space owned and used by the firm.

Which of the following is an example of an implicit cost?