Microeconomics exam 2 review questions

Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were:

$200,000 and its economic profits were $0

Refer to the diagram. At output level Q, total variable cost it

0 BEQ

Refer to the diagram. At the profit maximizing level of output, total cost will be

0 BHE

The total utility yielded by 4 units of X is

17 -total utility is the accumlation of marginal utility

Refer to the short-run data in the accompanying graph. The profit maximizing output for this firm

320 units

If the consumer has money income of $52 and the prices of J and K are $8 and $4 respectively, the consumer will maximize her utility by purchasing

4 units or J and 5 units of K

The first Pepsi yields Craig 18 units of utility and the second yield him an additional 12 units of utility. His total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi is

8 units of utility

Balin's burger Barn operates in a perfectly competitive market. Balin's is currently earning economic profits of $20,000 per year. Based on this information, we can conclude that

Balin's is operating in the short run, but not the long run

The law of diminishing marginal utility states that

Beyond some, additional units of product will yield less and less extra satisfaction to a consumer

To the economist, total cost includes

Explicit and implicit costs

Which of the following statements applies to a purely competitive producer?

It will not advertise its product

An unregulated pure monopolist will maximize profits by producing that output at which:

MR = MC

Units consumed/Total Utility/Marginal Utility -4/40/Z -(table in original document)

Marginal utility becomes negative beginning with the FOURTH UNIT

A consumer's demand for a product is downsloping because

Marginal utility diminishes as more of a product is consumed

Which if the following conditions is true for a purely competitive firm in the long-run equilibrium?

P = MC = minimum ATC

Refer to the diagram for a pure monopolist. Suppose a regulatory commission is created to determine a legal price for the monopoly. If the commission seeks to provide the monopolist with a "fair return," it will set price at

P1

Refer to the diagram for a pure monopolist. If a regulatory commission seeks to achieve the socially optimal allocation of resources to this line of production, it will set a price of

P2

The diagram, total product will be at maximum at

Q3 units of labor

Which of the following statements about utility is true?

Utility is difficult to measure quantitatively

The law of diminishing returns results in

a total product curve that eventually increase at a decreasing rate

for a purely competitive seller, price equals

all of these

According to the accompanying diagram, at the profit maximizing output, the firm will realize

an economic profit of ABGH

Refer to the diagram. At the profit maximizing level of output, the firm will realize

an economic profit of ABHJ

The budget line shift from ab to cd in the figure is consistent with

an increase in the price of M and a decrease in the price of N

If MU a/Pa = 100/$35 = MU b/Pb =300/? = MU c/Pc =400/?, the prices of the products B and C in consumer equilibrium

are $105 and $140, respectively

Which of the following is a characteristic of pure monopoly?

barriers to entry

To practice long-run price discrimination, a monopolist must

be able to separate buyers into different markets with different price elasticities.

Refer to the diagram. Diseconomies of scale

begin at output Q3

Refer to the diagram for a purely competitive producer. The firm will produce at a loss at all prices

between P2 and P3

Marginal revenue is the

change in total revenue associated with the sale of one more unit of output

The graphs represent the demand for use of a local golf course for which there is no significant competition. (It has a local monopoly.) Pdenotes the price of a round of golf, and Qis the quantity of rounds "sold" each day. If the left graph represents the demand during weekdays and the right graph the weekend demand, this profit-maximizing golf course should

charge $7 for each round on weekdays and $10 during the weekend.

An indifference curve shows all

combinations of two products yielding the same total utility to a consumer

The provided graph represents

decreasing cost-industry: Firms may be paying lower prices for their inputs when the industry expands

the competitive firm depicted in this diagram produces output Q, it will

earn a normal profit

Refer to the diagram for a purely competitive producer. If product price is P3:

economic profits will be zero

the provided diagram, at the profit maximizing output, total profit is

efbc

Refer to the diagrams, which pertain to a purely competitive firm producing output q and the industry in which it operates. In the long run we should expect

firms to leave the industry, market supply to fall, and product price to rise

For a purely competitive firm, total revenue

has all of these characteristics.

Refer to the diagram, where variable inputs of labor are being added to a constant amount of property resources. The total output of this firm will cease to expand

if a labor force in excess of Q 3 is employed

the accompanying diagram, demand is relatively elastic

in the P2 P4 price range

To economists, the main difference between the short run and the long run is that

in the long run all resources are variable, while in the short run at least one resource is fixed

The accompanying diagram, if price is reduced from P1 to P2, total revenue will

increase by C-A

Refer to the diagram. At output level Q, average fixed cost

is measured by both QF and ED

If total utility is increasing marginal utility

is positive but may be either increasing or decreasing

If a price-discriminating monopolist sells the same product in two markets but charges a higher price in market X and a lower price in market Y, the pricing difference indicates that demand is

less elastic in market X than in market Y.

A natural monopoly occurs when

long-run average costs decline continuously through the range of demand.

Refer to the diagram for a natural monopolist. If a regulatory commission were to set a maximum price of P3, the monopolist would

maximize profits

Suppose the MU x/Px exceeds MU y/Py. To maximize utility, the consumer who is spending all her money income should buy

more of X and less and/or less of Y

Mary says "You would have to pay me $50 to attend that pro wrestling event." For Mary, the marginal utility of the event is

negative

Refer to the diagram, where xy is the relevant budget line and I1, I2, and I3 are indifference curves. The equilibrium position for the consumer is at

point K (where the budget line meets in the middle of the I2 line)

Which of the following is a characteristic of a purely competitive seller's demand curve?

price and marginal revenue are equal at all levels of output

When a purely competitive firm is in long-run equilibrium

price equals marginal cost

Refer to the diagram. Suppose the budget line shifts so that the consumer's equilibrium changes from point A to point B. This means that the

price of Y has decreased

If the budget line shifts from BB to bb in the diagram, we can infer that the

price of Y has increased and the price of X has decreased

Which of the following is not a characteristic of pure competition?

pricing strategies by firms

Refer to the diagram for a natural monopolist. If a regulatory commission set a maximum price of P2, the monopolist would

produce output Q3and realize a normal profit.

At the profit maximizing level of output, a purely competitive firm will:

produce the quantity of output at which marginal cost equals price

Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting

profits were $0 and its economic losses were $500,000

Refer to the diagram for a non discriminating monopolist. Marginal revenue will be zero at output

q 2

The industry represented by the accompanying graph must be one where

resource prices fall when the industry contracts

Refer to the diagram. At output level Q2

resources are over-allocated to this product and productive efficiency is not realized.

Long-run competitive equilibrium

results in zero economic profits

the provided diagram, the short-run supply curve for this firm is the

segment of the MC curve lying to the right of output level h

If all of the firms in a competitive industry are legally required to meet new regulations that increase their costs of production:

supply of the product will decrease

Refer to the diagram for a purely competitive producer. The firm's short-run supply curve is

the bcd segment and above on the MC curve

In the diagram,

the consumer is indifferent between points A and B, but neither point maximizes his utility

Implicit and explicit costs are different in that

the former refer to non-expenditure costs and the latter to monetary payments

What do the economies of scale, the ownership of essential raw materials, and patents have in common?

they are all barriers to entry

At each point on an indifference curve...

total utility is the same

The diagram suggests that

when marginal product lies above average product, average product is rising.