Microeconomics Exam 2
If accounting profits for a firm are 20% of output, and the opportunity cost of financial capital is 8% of output, then what do the firm's economic profits equal?
12% of output
The following table shows a monopolist's demand curve and cost information for the production of its good. What quantity will it produce?
30
Which of the following characteristics relate to minimum resale price maintenance agreement?
an agreement that requires a dealer who buys from a manufacturer to sell for at least a certain minimum price
Which of the following may be legal and even common practice in a market economy?
bundling several products together and selling them as a package
If the price that a firm charges is higher than its ________________ cost of production for that quantity produced, then the firm will earn profits.
average
If the average product for six workers is fifteen and the marginal product of the seventh worker is eighteen, then
average product is rising
What name is given to the long-run process of firms beginning and expanding production when they see opportunity for profits?
entry
In microeconomics, the term ___________________ is synonymous with decreasing returns of scale.
diseconomies of scale
Which of the following has become a common condition for allowing a merger of large firms?
commitment to sell off certain parts of the firms
Because attempting to define a particular market can be difficult and controversial the Federal Trade Commission has begun to look less at market share and more at the data on actual ______________________________.
competition between businesses
What term is used to describe when expanding all inputs does not change the average cost of production?
constant returns to scale
A narrowly defined market will tend to make concentration appear _________, while a broadly defined market will tend to make it appear _________.
higher; smaller
What is meant by marginal revenue product?
how much revenue a firm could receive from hiring an additional worker and selling the output of that worker
Which of the following can be thought of as an adjustment for the risks involved with respect to the cost of a firm acquiring financial capital?
imposition of hurdle rates of interest
City Gas is a natural monopoly that supplies natural gas to a particular city. Its cost and demand information are given below. If the government decides to regulate this natural monopoly by forcing them to produce at the point where the demand curve intersects average cost, then compared to the unregulated natural monopoly, the price will ____ and the quantity will ____.
fall, rise
In the ________, the perfectly competitive firm will react to profits by __________________________.
long run; increasing its production
Under perfect competition, any profit-maximizing producer faces a market price equal to its
marginal costs
The term __________________ refers to the quantity of goods produced by the addition of an additional input.
marginal physical product
In economic terms, a practical approach to maximizing profits requires an examination of how changes in production affect ________________ and ________________.
marginal revenue; marginal cost
I'maGoldMiner has benefited from a record rise in gold prices in the global commodities market. While the price of its output is highly influenced by market speculation, if it wants to increase production to take advantage of the current profit-maximizing opportunity, the company
must accept market price for its physical capital inputs
In 2008, Lawrence Ellison, a top executive at Oracle, had annual total compensation of $557 million, which was equal to the combined income of
more than 9,000 typical American families
Idaho farmers can sell as large a quantity of their potato crop as they wish,
provided each is willing to accept the prevailing market price
A method often used by economists to look at distribution of income in a society's economy involves
quintiles, or dividing a whole group into fifths.
Unions can be perceived as being economically harmful when they
none of the above
When a firm uses retained profits to invest in more energy efficient equipment, an economist would calculate the _________________ of investing in physical capital
opportunity cost
When a firm uses retained profits to invest in more energy efficient equipment, an economist would calculate the _________________ of investing in physical capital.
opportunity cost
Roughly speaking, patent law covers __________ and __________ law protects an author's original books.
original inventive creations; copyright
When a business adopts a strategy of reducing and/or discontinuing production in response to a sustained pattern of losses, it is
preparing to exit operations
In the _________, if profits are not possible, the perfectly competitive firm will seek out the quantity of output where _____________________.
short run; losses are smallest
The concept of a poverty line raises a number of complex questions. Which of the following represents such a question?
should the national poverty line be applied in all states?
If a firm's revenues do not cover its average variable costs, then that firm has reached its _________________.
shutdown point
Every Lorenz curve diagram begins with a line __________________.
sloping up at a 45-degree angle
The most famous restrictive practices case of the last several decades involved a series of lawsuits by the U.S. government against Microsoft. These particular lawsuits were encouraged by
some of Microsoft's competitors
Which of the following should typically be ignored because spending has already been made and cannot be changed?
sunk costs
For a perfectly competitive firm, the marginal cost curve is identical to the firm's ________________.
supply curve
Refer to the diagram above. In this instance, point e shown on the graph indicates
the point where profits will increase by reducing output
Refer to the diagram above. Which of the following explains the slope of the total revenue curve illustrated in this graph?
the slope of the total revenue curve is explained by both a and b above
Prior to the onset of deregulation in the US during the 1970s, it was common for measurements of concentration ratios and HHIs
to stop at national borders
Which of the following denotes the typical shape of the monopolist's total cost curve?
total costs rise and grow steeper as output rises
What name is given to methods of production kept secret by the producing firm?
trade secret
In a perfectly competitive market setting, which of the following would be a true statement?
wage rates trend toward marginal revenue product levels
In a free market economy, firms operating in a perfectly competitive industry are said to have only one major choice to make. Which of the following correctly sets out that choice?
what quantity to produce
Which of the following characteristics relate to predatory pricing?
when an existing firm uses sharp but temporary price cuts to discourage new competition
What is meant by regulatory capture?
when the firms supposedly being regulated end up playing a large role in setting the regulations that they will follow
Which of the following characteristics relate to price cap regulation?
when the regulator sets a price that a firm cannot exceed over the next few years
Union members earn ______________ than non-union members, even after adjusting for factors such as _____________________________.
about 20% more; years of work experience and education level
What Act was passed to allow American workers to opt out of the union in their workplace?
Taft-Hartley Act of 1947
When a firm makes plans for investments in physical capital, it compares the _______________ on these investments with ______________________.
projected rates of return; the cost of financial capital to the firm
There seems to be little evidence that poor families experienced _______________ as a result of ____________.
a reduced standard of living; TANF
What is meant by trademark?
a word, name, symbol, or device that indicates the source of the goods and can only be used by the firm that registered it
The result of regulatory capture is that government price regulation can often become a way for existing competitors to work together to
all of the above
The typical pattern of costs for a monopoly can be analyzed by using: I) total cost II) fixed cost III) variable cost IV) marginal cost V) average cost VI) average variable cost
all of the above
The typical pattern of costs for a perfectly competitive firm can be analyzed by using: I) total cost II) fixed cost III) variable cost IV) marginal cost V) average cost VI) average variable cost
all of the above
Government policy-makers often must decide how to balance the potential benefits of ______________ against the potential benefits of _____________.
corporate size; competition
Regulations that permit a regulated firm to cover its costs and to make a normal level of profit are commonly referred to as
cost-plus regulation.
Copyright protection legislation provides protection for original works
during the author's life plus 70 years
City Gas is a natural monopoly that supplies natural gas to a particular city. Its cost and demand information are given below. The marginal cost of going from a production of 4 million therms to a production of 5 million therms is
$20 million
In 2011, the median American family had income of ___________.
$50,054
The table below sets out the amount of capital needed for certain investment projects and the rate of return for each project. What is this firm's demand for physical capital if their hurdle rate is 8%?
$500,000
Given the data provided in the table below, what will the fixed costs equal for production at quantity (Q) level 4?
$9.00
In the United States, a pharmaceutical company's exclusive patent rights last for
20 years
The information below sets out the estimated market shares for the cellular phone manufacturing market. Firm Market Share Nokia 36% Fujitsu 3% Kyocera 3% LG 6% Motorola 16% Samsung 6% Sanyo 4% Siemens 7% Sony Ericsson 11% Plus 8 more firms with 1% each Based on this information, the four-firm concentration ratio is
70
The information below sets out the estimated market shares for the cellular phone manufacturing market. Firm Market Share Nokia 36% Fujitsu 3% Kyocera 3% LG 6% Motorola 16% Samsung 6% Sanyo 4% Siemens 7% Sony Ericsson 11% Plus 8 more firms with 1% each If Samsung were to acquire Sanyo, the four-firm concentration ratio would be
73
Which of the following government institutions bears the responsibility of enforcing US antitrust laws?
Department of Justice
Under which of the following antipoverty programs does the federal government give a fixed amount of money to each state?
TANF
What term is used to describe total revenues minus the firm's costs, without taking opportunity cost into account?
accounting profit
An _________________ is calculated by subtracting the firm's costs from its total revenues, _______________________________.
accounting profit; excluding opportunity cost
What term is used to describe when one firm purchases another?
acquisition
There are only three manufacturers of solar energy converters with differentiated products competing in the small, but expanding solar power distribution industry. Under these market conditions, these manufacturers are an example of _________________.
an oligopoly
Antitrust regulations would most likely require one of the following in order to determine whether or not a merger may enhance competition. Which one is it?
analysis using numerical tools
The fact that a consumer is not required to buy the goods that a given firm produces, as well as the fact that the consumer might want the goods a firm produces, but may choose to buy from other firms instead
are two stark realities any business firm must recognize
Members of labor unions are able to use their ________________ to achieve better economic outcomes.
bargaining power
What name is given to the legal, technological, or market forces that may discourage or prevent potential competitors from entering a market?
barriers to entry
Refer to the table below. In this instance, expansion of output
causes input prices to rise as demand for inputs increases
Which of the following refers to a form of legal protection to prevent copying for commercial purposes original works of authorship, including books and music?
copyright
Say the average increase in pay for non-union workers in 2011 is 2% across the U.S. If a workers' union successfully negotiates a 3 year collective agreement that provides a 4.5% raise in 2011, and a 4.3% raise in 2013, then the for-profit employer will typically
curtail expansion of labor as a trade-off
If a firm is experiencing _____________________, then as the quantity of output rises, the average cost of production rises.
decreasing returns to scale
The slope of the demand curve for a monopoly firm is
downward sloping
Once the U.S. government opened its domestic markets to international trade, the competition from imported cars, steel, and other products caused demand for similar U.S. goods to
fall, leading to lower output, fewer workers, and an overall decline in union membership.
About 1.95 million U.S. families were classified by the federal government as being below the poverty line in 2011.
false
If the United States decided to reduce immigration substantially, the economic losses would be large relative to the overall economy.
false
Market share is an agreement that requires a dealer who buys from a manufacturer to sell for at least a certain minimum price.
false
The term economic profit describes reveals how much revenue a firm could receive from hiring an additional worker and selling the output of that worker.
false
The term marginal revenue describes the long-run process of firms beginning and expanding production when they see opportunity for profits.
false
The term oligopoly refers to a firm that faces no competitors.
false
What term is used to describe what percentage share of the total sales in the industry is accounted for by the largest four firms?
four-firm concentration ratio
Any government policy that provides __________________ and _________________ deserves to be looked at twice, or even three times.
gains to those with higher incomes; imposes costs on those with lower incomes
A perfectly competitive industry is a
hypothetical extreme
The application of current US antitrust law
includes a wide arrange of anticompetitive practices
Economic profit can be derived from calculating total revenues minus all of the firm's costs,
including its opportunity costs
Refer to the diagram above. In this instance, the range of production possibilities at point d,
is a steeper slope reflecting a return to losses due to diminishing returns
I'maSolarPanelCo. manufactures and distributes solar panels in the US market. Two years ago, it had 5 US competitors, but government stimulus in the industry has encouraged 7 new US competitors to enter the market. In these circumstances, I'maSolarPanelCo.'s price for its output
is dictated by the forces of demand and supply
How does being caught in a poverty tap affect an individual's future job prospects?
it creates the outcomes presented in both a and b
Kate's 24-Hour Breakfast Diner menu offers one item, a $5.00 breakfast special. Kate's costs for servers, cooks, electricity, food, etc. average out to $3.95 per meal. Her costs for rent, insurance cleaning supplies and business license average out to $1.25 per meal. Since the market is highly competitive, Kate should
keep the business open in the short-run, but plan to go out of business in the long-run
A _____________ is an organization of workers that negotiates with employers as a group over wages and working conditions.
labor union
What is meant by monopolistic competition?
many firms competing to sell similar but differentiated products
______________________ refers to the additional revenue gained from selling one more unit.
marginal revenue
Refer to the table below. In this instance, confirmation that this firm is operating in a perfectly competitive market can readily be ascertained by the fact that its
marginal revenue is constant
What name is given to how much revenue a firm could receive from hiring an additional worker and selling the output of that worker?
marginal revenue product
The Herfindahl-hirschman index is calculated by taking ___________________, squaring it, and adding them up to get a total.
market share of each firm in the industry
Which of the following is a valid criticism of the reduction of competition that results from corporate mergers?
merged firms can increase price and maintain permanently higher profits
The term _______________ is used to describe circumstances where government takes over ownership of a business.
nationalization
A government sanctioned merger between two companies can sometimes lead to a clash _______________________ that makes both firms worse off.
of corporate personalities
Which of the following is most likely to have a large union membership that experiences little import competition?
police services
_____________ has occurred if a government-owned firm becomes privately owned.
privatization
City Gas is a natural monopoly that supplies natural gas to a particular city. Its cost and demand information are given below. An unregulated monopoly will have a ____ of ____.
profit, $24 million
Refer to the diagram above. In this instance, at the range of output represented at point c,
profits will be maximized
Following the commencement of deregulation of US airline industry in the 1970s, reduced airfares saved consumers billions of dollar a year however, the more recent string of airline mergers has
raised new concerns over how competition in the industry can once again be strengthened
Refer to the diagram above. In this instance, the marginal revenue curve
reflects each of the above
In the 1980s, the FTC followed guidelines stipulating that, should a proposed merger result in an HHI of less than 1,000,
the FTC would probably approve it
The following figure shows the average cost curve, demand curve, and marginal revenue curve for a monopolist.
the area of rectangle ADEH
Refer to the diagram above. Based on the information illustrated in the graph, which of the following is correct?
the transition point between where MC is pulling down and pulling up AC always occurs at the minimum point of the AC curve
When a firm pursues a predatory pricing strategy, it does so
to maximize profits in the long run
Why would a profit-seeking firm need to tailor its decisions about the quantity of labor inputs that it purchases?
to produce the profit-maximizing quantity of output at the lowest possible average cost
Fixed costs is expenditures that must be made before production starts and that do not change regardless of the level of production.
true
Marginal revenue product is reveals how much revenue a firm could receive from hiring an additional worker and selling the output of that worker.
true
Natural monopoly means when the quantity demanded in the market is less than the quantity at the bottom of the long-run average cost curve.
true
Predatory pricing is when an existing firm uses sharp but temporary price cuts to discourage new competition.
true
Privatization means when a government-owned firm becomes privately owned.
true
Production technologies is alternative methods of combining inputs to produce output.
true
The term economic profit describes total revenues minus all of the firm's costs, including opportunity costs.
true
The term inequality describes when one group receives a higher share of total income or wealth than others.
true
The term marginal revenue describes the additional revenue gained from selling one more unit.
true
The term monopolistic competition describes many firms competing to sell similar but differentiated products.
true
The term oligopoly refers to when several large firms have all or most of the sales in an industry.
true
If I'maJuiceCo. establishes a bottling plant in Delaware, it will most likely
use production technologies that conserve on the number of workers
According to the textbook, the largest industry concentration ratio (and HHI) in the U.S. Economy during 2012 was:
wireless