Microeconomics final

Formula for TC (total cost)

TC = ATC x Q

Marginal product

the increase in output that arises from an additional unit of input

Marginal cost

the increase in total cost that arises from an extra unit of production

In a perfect competition, a firm's marginal revenue is equal to...

the market price

Explicit costs are...

the opportunity costs of production that require a monetary payment. Some examples of explicit costs include: - wages - labor services - raw materials - fuel - transportation - utilities - advertising

Average total cost

total cost divided by the quantity of output

Formula for ATC (Average total cost)

ATC = TC/Q (TC = ATC x Q)

Average total cost exceeds average variable costs by the value of marginal cost. True False

False Average total cost - average variable cost = average fixed cost. The difference between the two curves is average fixed costs.

The monopolist's supply curve is shown by the marginal cost curve above the minimum point of average total cost, like the competitive firm's supply curve. True False

False Monopoly firms do not have supply curves. Because they are price makers rather than price takers, it is not meaningful to ask what amount such a firm would produce at any price because the firm sets the price at the same time it chooses the quantity to supply.

Implicit costs are...

Implicit costs are the opportunity costs of production that do not require a monetary payment.

Profit maximation is ____=____

MR=MC (Marginal Revenue = Marginal Cost)

In a graph that shows quantity vs the average total cost, (that looks like) \_____/

\ = is when it's long run ATC decreases as Q increases ___ = long run ATC is at a constant, firm is experiencing constant returns to scale (CRTS) / = when it's ATC increases as Q increases

Which of the following statements is not correct? a.The government should never intervene to improve monopoly inefficiency. b.By regulating a natural monopoly where price equals average total cost, the monopoly earns zero profits. c.The government may use antitrust laws to prevent a merger if the government believes the merger will reduce competition and increase prices. d.Private ownership is typically preferred to public ownership.

a.The government should never intervene to improve monopoly inefficiency. Because monopolies fail to allocate resources efficiently, they produce less than the socially desirable quantity of output and charge prices above marginal cost. Sometimes it is desirable for the government to intervene to improve monopoly inefficiency either by using antitrust laws, regulation, or public ownership.

Monopoly pricing prevents some mutually beneficial trades from taking place. Which of the following is not true about those unrealized, mutually beneficial trade? a.They are offset by the higher profits earned by a monopolist. b.They are a function of a reduction in the quantity produced by a monopolist in comparison to a competitive market. c.They are not a concern if a market is perfectly competitive. d.They represent a deadweight loss to society.

a.They are offset by the higher profits earned by a monopolist. Deadweight loss is the reduction in economic well-being that results from the monopoly's use of market power. Because the profit-maximizing quantity produced by a monopolist is less than the socially-efficient output, the value of the unrealized trades represents deadweight loss in this market. Because a perfectly competitive market produces the socially-efficient output, these unrealized-mutually beneficial trades are not a concern under this market structure.

In the long run market supply will be horizontal if a.firms have identical cost structures. b.inputs are only available in limited quantities. c.the cost of production for firms increases as new firms enter the market. d.firms have different cost structures.

a.firms have identical cost structures.

The market demand curve faced by a competitive firm is ______, and it is ______ for a typical monopolist. a.horizontal; downward sloping b.downward sloping; horizontal c.horizontal; horizontal d.downward sloping; downward sloping

a.horizontal; downward sloping

When a monopolist chooses the profit-maximizing level of output, he sets the marginal cost equal to a.marginal revenue and reads the price from the demand curve at that quantity. b.the minimum of average total cost and charges a price equal to minimum average total cost. c.price and computes profit as (P − ATC) × Q. d.marginal revenue, which is also the price.

a.marginal revenue and reads the price from the demand curve at that quantity. When a monopolist profit-maximizes, he chooses the quantity at which marginal revenue and marginal cost are equal, like all other firms. Because demand is downward-sloping for the monopolist, price and marginal revenue are not equal, so the price is read from the demand curve at the profit-maximizing quantity.

Which of the following is not a possible strategy for the government to follow to remedy the inefficient allocation of resources associated with monopolies? a.Regulate the prices that monopolies can charge b.Mandate that the firm release more stock options c.Prevent mergers through antitrust laws d.Do nothing

b.Mandate that the firm release more stock options

Which of the following is not correct with respect to firms in a competitive market in the long-run? a.Price is equal to marginal cost. b.Price is above average total cost. c.Price is equal to average total cost. d.Economic profits are zero.

b.Price is above average total cost. For a competitive firm in the long-run economic profits will be zero. Price is equal to marginal cost and average total cost. If price were above average total cost then economic profits would be positive and firms would enter into the market.

Firms will have an incentive to exit a competitive market when a.price is equal to marginal cost. b.economic profits are negative. c.economic profits are positive. d.price is less than marginal cost.

b.economic profits are negative.

Consider a profit-maximizing monopoly pricing under the following conditions. The profit-maximizing quantity is 30 units, the profit-maximizing price is $150, and the marginal cost of the 30th unit is $120. If the good were produced in a perfectly competitive market, the equilibrium quantity would be 50, and the equilibrium price would be $140. The demand curve and marginal cost curves are linear. What is the value of the deadweight loss in this situation? a.$100 b.$200 c.$300 d.$600

c.$300 Deadweight loss is the area of the triangle formed by the demand curve, the marginal cost curve, and the monopoly quantity. The height of that triangle is the difference between the monopoly and socially-efficient quantities, which is 50 units - 30 units = 20 units in this case. The base is the difference between the monopoly's marginal cost and the monopoly's price, which is $150 - $120 = $30 per unit. Because the area of a triangle is (1/2 x Base x Height), the deadweight loss is 1/2 x 20 units x $30 per unit = $300.

Which of the following is correct with respect to firms in a competitive market in the long-run? a.Price is equal to average fixed costs. b.Price is below average total costs. c.Price is equal to average total costs. d.Economic profits are positive.

c.Price is equal to average total costs. In the long-run, from entry and exit, price equates average total costs. This condition explains why economic profits are zero in the long-run.

Total revenue(TR) is a.price divided by quantity. b.the cost of what you give up to get something. c.the amount of money that a firm receives from the sale of its output. d.output minus input.

c.the amount of money that a firm receives from the sale of its output

When regulators use a marginal-cost pricing strategy to regulate a natural monopoly, which of the following is not true? a.The regulated monopoly will experience a loss. b.The regulated monopoly may rely on a government subsidy to remain in business. c.The regulated monopoly will experience a price below average total cost. d.Deadweight loss still remains in this market.

d.Deadweight loss still remains in this market. If the regulated price for a natural monopolist equals marginal cost, the monopoly suffers from an economic loss because price is below average total cost. Often times the regulated monopoly will rely on a government subsidy to remain in business because of this profit loss. Because the monopolist's price reflects the marginal cost of producing the good, deadweight loss no longer exists in this market.

Which of the following is correct with respect to firms in a competitive market in the long-run? a.Price is below average total costs. b.Economic profits are positive. c.Price is equal to average fixed costs. d.Price is equal to average total costs.

d.Price is equal to average total costs. In the long-run, from entry and exit, price equates average total costs. This condition explains why economic profits are zero in the long-run.

When a monopolist chooses the profit-maximizing level of output, he sets the marginal cost equal to a.the minimum of average total cost and charges a price equal to minimum average total cost. b.marginal revenue, which is also the price. c.price and computes profit as (P − ATC) × Q. d.marginal revenue and reads the price from the demand curve at that quantity.

d.marginal revenue and reads the price from the demand curve at that quantity. When a monopolist profit-maximizes, he chooses the quantity at which marginal revenue and marginal cost are equal, like all other firms. Because demand is downward-sloping for the monopolist, price and marginal revenue are not equal, so the price is read from the demand curve at the profit-maximizing quantity.

An increase in market demand in a competitive market will have which effect in the short run? a.the market price will decline b.the demand curve faced by firms will shift left c.the market price will not change d.profits for the firm will increase

d.profits for the firm will increase

A firm's efficient scale is...

quantity of output that minimizes average total cost

If a price is equal to ATC, the profit is...

zero, which is known as breaking even