Midterm

Generally, ... motivates firms to enter an industry, while ... motivates firms to exit an industry.

economic profit; economic loss

According to the textbook, the most important and enduring source of market power is:

economies of scale

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive If the market supply curve is given by S3, then in the long run firms will:

exit the market, leading the market supply curve to shift back to S2

The essential feature that differentiates imperfectly competitive firms from perfectly competitive firms is that an imperfectly competitive firm:

faces a downward-sloping demand curve

To sell an extra unit of output, a perfectly competitive firm ... , and an imperfectly competitive firm ... .

need not alter its price; must lower its price

A monopolistically competitive firm is one:

of many firms that sell products that are close but not perfect substitutes

if a firm functions in an oligopoly, it is:

one of a small number of firms that produce goods that are either close or perfect substitutes

The free entry and exit of firms is a characteristic of

perfectly competitive industry

"Market power" refers to a firm's ability to:

raise its price without losing all of its sales

Suppose all firms in a perfectly competitive industry are experiencing economic profits. One would expect that, over time, the number of firms will ... and the market price will ... .

rise; fall

Refer to the table below. An output level of 15 units, this firm's accounting profit is ... , and its economic profit is ...

$12; $6

Pat used to work as an aerobics instructor at the local gym earning $35,000 a year. Pat quit that job and started working as a personal trainer. Pat makes $50,000 in total annual revenue. Pat's only out-of-pocket costs are $12,000 per year for rent and utilities, $1,000 per year for advertising and $3,000 per year for equipment. Pat's explicit costs are ... , and Pat's implicit costs are ... .

$16,000; $35,000

The accompanying figure shows the demand curve, marginal revenue curve, marginal cost curve and average total cost curve for a monopolist At this monopolist's profit-maximizing level of output, the deadweight loss to society equals:

$24 per day

Last year Christine worked as a consultant. She hired an administrative assistant for $15,000 per year and rented office space for $3,000 per month. Her total revenue for the year was $100,000. If Christine hadn't worked as a consultant, she would have worked at a real estate firm earning $40,000 a year. Last year, Christine's accounting profit was ... and her economic profit was ...

$49,000; $9,000

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive In the long run, there will be ... firms in this market

10

Imagine that you are an entrepreneur, making designer t-shirts in your garage. Your total cost (in dollars) is given by the equation TC+ 300 + 10Q, where Q represents the number of t-shirts you make. Your fixed cost is $ ... and your marginal cost is $ ...

300; 10

The accompanying figure shows the demand curve, marginal revenue curve, marginal cost curve and average total cost curve for a monopolist This monopolist maximizes its profit by producing ... units per day and charge

4; $18

The accompanying figure shows the demand curve, marginal revenue curve, marginal cost curve and average total cost curve for a monopolist The socially optimal level of output is:

8 units per day

Consider an industry with two firms producing similar products. Each firm's total cost (in dollars) is given below Mega Corp: TC = 5,000 + 100Q Big Inc: TC = 4000 +200Q When each firm produces 8 units, ... has a lower total cost, and when each firm produces 12 units, ... has a lower total cost

Big Inc; Mega Corp

When more firms enter an industry:

Decline in economic profits

Suppose farmers in a given market can either grow soy beans or corn on their land. In addition, suppose an increase in the demand

Economic profit in a short run

The profit-maximizing level of output for a perfectly competitive firm is socially efficient, while the profit-maximizing level of output for a monopolist is not because under perfect competition ... , while under monopoly ...

P=MC; P>MC

Which of the following industries does not fit the natural monopoly model?

Fast food restaurants

Suppose several United States software design companies compete with each other in a perfectly competitive environment. If one company decides to move some of these offices to a low wage country in order to reduce operating cost, then:

Other companies will have an incentive move to the low wage country in order to remain competitive

Which of the following is not an example of an explicit cost?

The income the owner could have earned in his or her next best employment opportunity

Which of the following firms is most likely to be a pure monopolist?

The only gas station in a small, isolated town

Which of the following best describes how a perfectly competitive industry would respond to a sudden increase in popularity of the product The market demand curve would shift to the right, leading to:

a higher equilibrium price in the short run and entry into the market in the long run

Suppose that in an effort to help single parents, the government decides to pay part of the cost of childcare. This measure would increase ... the market for childcare

consumer surplus

One problem with government ownership of natural monopolies is that:

government-owned firms have weaker incentives to cut costs than do privately-owned firms

If a monopolist's marginal revenue exceeds its marginal cost at its current level of output, then to maximize its profit the monopolist

increase output until marginal revenue equals marginal cost

The accompanying figure shows the demand curve, marginal revenue curve, marginal cost curve and average total cost curve for a monopolist At the socially optimal level of output, this monopolist would:

incur an economic loss of $64

The accompanying figure shows the demand curve, marginal revenue curve, marginal cost curve and average total cost curve for a monopolist At this monopolist's profit-maximizing level of output, it:

incurs an economic loss of $16 per day

In a perfectly competitive market, if supply and demand fully reflect all of the costs and benefits associated with production and consumption

the market is in equilibrium

When marginal revenue is zero:

total revenue is maximized