UCONN ECON1201 Final Prep

Suppose Eastland College does not have a summer program and could rent out the campus to various summer sports camps for $100,000. The potential revenue of the summer camps represents a(n):

implicit cost of capital.

Price discrimination leads to a _____ price for consumers with a _____ demand.

higher; less elastic

(Table: Cherry Farm) Use Table: Cherry Farm. Suppose there are 100 farms in this industry with identical cost curves, as shown in the table. If all farms are the same size, how much economic profit will each farm earn when the industry is in long-run equilibrium?

$0

(Figure: PPV) Use Figure: PPV. The figure shows the demand and marginal revenue for a pay-per-view football game on cable TV. Assume that the marginal cost and average cost are a constant $40. If the cable company practices perfect price discrimination, consumer surplus will be:

$0.

(Figure: Profit Maximization for a Firm in Monopolistic Competition) Use Figure: Profit Maximization for a Firm in Monopolistic Competition. Suppose that an innovation reduces a firm's costs from ATC to ATC′. Before the innovation reduced the cost, the firm's economic profit at the profit-maximizing quantity was:Figure: Profit Maximization for a Firm in Monopolistic Competition

$0.

(Figure: The Profit-Maximizing Output and Price) Use Figure: The Profit-Maximizing Output and Price. Assume that there are no fixed costs and AC = MC = $200. If this were a perfectly competitive industry, deadweight loss would be:Figure: The Profit-Maximizing Output and Price

$0.

(Table: Demand for Solar Water Heaters) Use Table: Demand for Solar Water Heaters. The marginal cost of producing solar water heaters is zero, and only two firms, Rheem and Calefi, produce them. If Rheem and Calefi get into a price war, the equilibrium price in the market will be:

$0.

(Table: Costs of Producing Bagels) Use Table: Cost of Producing Bagels. The average total cost of producing 2 bagels is:

$0.20.

Table: Spring Water. The table shows the demand and cost data for a firm in a monopolistically competitive industry producing drinking water from underground springs. At the profit-maximizing output, profit per unit is:

$1.17.

(Table: Competitive Market for Good Z) Use Table: Competitive Market for Good Z. The equilibrium price and quantity in this market are, respectively:

$10 and 30 units.

(Table: Marginal Cost of Sweatshirts) Use Table: Marginal Cost of Sweatshirts. The marginal cost of the second sweatshirt is:

$11

(Table: Marginal Benefit of Sweatshirts) Use Table: Marginal Benefit of Sweatshirts. The marginal benefit of producing the third sweatshirt is:

$14.

(Table: Cakes) Use Table: Cakes. Pat is opening a bakery to make and sell special birthday cakes. She is trying to decide how many mixers to purchase. Her estimated fixed and average variable costs if she purchases 1, 2, or 3 mixers are shown in the table. Assume that average variable costs do not vary with the quantity of output. If Pat purchases 1 mixer and bakes 200 cakes per day, what is her average total cost?

$15

(Figure and Table: Variable, Fixed, and Total Costs) Use Figure and Table: Variable, Fixed, and Total Costs. The marginal cost of increasing production from 51 to 64 bushels of wheat is:

$15.38.

(Table: Marginal Analysis of Sweatshirt Production II) Use Table: Marginal Analysis of Sweatshirt Production II. The profit at the optimal quantity of sweatshirts is:

$16.

(Figure: Short-Run Costs II) Use Figure: Short-Run Costs II. At 6 units of output, average total cost is approximately:

$170.

(Figure: A Profit-Maximizing Monopoly Firm) Use Figure: A Profit-Maximizing Monopoly Firm. This firm's cost per unit at its profit-maximizing quantity is:Figure: A Profit-Maximizing Monopoly Firm

$18.

(Problem 11a). The production of agricultural products like wheat is one of the few examples of a perfectly competitive industry. In this question, we analyze results from a study released by the U.S. Department of Agriculture about wheat production in the United States in 1998.The average variable cost per acre planted with wheat was $107 per acre. Assuming a yield of 50 bushels per acre, calculate the average variable cost per bushel of wheat.

$2.14

Figure: Demand and Supply of Gasoline) Use Figure: Demand and Supply of Gasoline. The initial equilibrium price and quantity (at intersection of S1 and D) of gasoline are:

$2.50 and 300 gallons.

If a perfectly competitive firm decreases production from 11 units to 10 units and the market price is $20 per unit, total revenue for 10 units is:

$200.

(Scenario: Betty's Cookie Shop) Use Scenario: Betty's Cookie Shop. Betty's implicit and explicit costs are equal to:Scenario: Betty's Cookie ShopBetty runs a cookie shop where she sells cookies for $1 each. She employs five people, each of whom worked a total of 500 hours last year; she paid them $10 per hour. Her costs of equipment and raw materials add up to $75,000. Her business ability is legendary, and other companies have offered to pay Betty $100,000 to come to work for them. She also knows she could sell her cookie shop for $150,000. The bank in town pays an annual interest rate of 3% on all funds deposited with it.

$204,500.

(Table: TC's Pizza Parlor) Use Table: TC's Pizza Parlor. Assume that the marginal benefit is constant in intervals of production. Suppose five slices of pizza are being produced. What is the marginal benefit of producing one more slice of pizza?

$3

(Table: Demand Schedule of Gadgets) Use Table: Demand Schedule of Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets with no marginal cost or fixed cost. Suppose that these two producers have formed a cartel, agreed to split production of output evenly, and are maximizing total industry profits. If Margaret decides to cheat on the agreement and sell 100 more gadgets, the market price of gadgets will be:

$4.

(Table: Cost Data) Use Table: Cost Data. The average total cost of producing 5 purses is:

$48.

A business produces 10 pairs of eyeglasses. It incurs $30 in average variable cost and $35 in average total cost. The total fixed cost of producing 10 pairs of eyeglasses is:

$50.

(Figure: Total Cost for Tomato Producers) Use Figure: Total Cost for Tomato Producers. The market for tomatoes is perfectly competitive. The market price of a bushel of tomatoes is $14. The farmer's total cost at the profit-maximizing number of bushels is:

$56.00.

Table: Costs of Birthday Cakes) Use Table: Costs of Birthday Cakes. Assume that fixed costs are $10. What is the marginal cost of the fourth cake?

$8

(Figure: PPV) Use Figure: PPV. The figure shows the demand and marginal revenue for a pay-per-view football game on cable TV. Assume that the marginal cost and average cost are a constant $20. If the cable company is a monopoly, how much consumer surplus is there when the monopolist maximizes profit?

$80

(Figure: The Demand and Supply of Wheat) Use Figure: The Demand and Supply of Wheat. A price of _____ will result in a _____.

$9; surplus

(Figure: Monopoly Model) Use Figure: Monopoly Model. When the firm is in equilibrium (that is, maximizing its economic profit), its total revenue is the area of rectangle: Figure: Monopoly Model

0PDJ.

(Table: Demand for Crude Oil) Use Table: Demand for Crude Oil. Assume that the crude oil industry is a duopoly and the marginal cost and fixed cost of producing crude oil equal zero. Suppose that the two firms are maximizing industry profit and splitting the profit evenly. If both firms decide to cheat and produce 10 more barrels each, industry output will be _____ barrels.

100

(Scenario: A Small-Town Monopolist) Use Scenario: A Small-Town Monopolist. If this monopolist must choose between selling 100 or 175 subscriptions, it will choose to sell _____ units at a price of _____ and earn economic profits equal to _____.Scenario: A Small-Town MonopolistA monopolist sells cable subscriptions in a small town and finds that it can sell 100 subscriptions when the price is $15 a week and 175 subscriptions when the price is $10 a week. The MC for the provision of the cable is $5 a week. There are no fixed costs.

100; $15; $1,000

(Table: TC's Pizza Parlor) Use Table: TC's Pizza Parlor. What is the optimal level of production?

15 slices

(Table: The Market for Chocolate-Covered Peanuts) Use Table: The Market for Chocolate-Covered Peanuts. The equilibrium quantity and the equilibrium price are _____ bags per month and _____.

175; $0.60

(Table: Total Product and Marginal Product) Use Table: Total Product and Marginal Product. The marginal product of the second worker is _____ units per period.

20

(Figure: Payoff Matrix for Gehrig and Gabriel) Use Figure: Payoff Matrix for Gehrig and Gabriel. The figure describes two people who sell handmade Davy Crockett figurines in San Antonio. Both Gehrig and Gabriel have two strategies available to them: to produce 5,000 figurines each month or to produce 7,000 figurines each month. The combined profits of the two are maximized if Gehrig produces _____ figurines and Gabriel produces _____ figurines.Figure: Payoff Matrix for Gehrig and Gabriel

5,000; 5,000

(Figure: The Demand and Supply of Wheat) Use Figure: The Demand and Supply of Wheat. What is the equilibrium quantity in this wheat market each period?

6,000 bushels

(Table: Demand Schedule of Gadgets) Use Table: Demand Schedule of Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets at a marginal cost of $2 and no fixed cost. If industry output is 300 gadgets produced by Margaret and 200 gadgets produced by Ray and if Ray decides to increase output by an additional 100 gadgets, industry output will be:

600.

(Table: Demand Schedule of Gadgets) Use Table: Demand Schedule of Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets with no marginal cost or fixed cost. If industry output is 350 gadgets produced by Margaret and 250 gadgets produced by Ray and if Ray decides to increase output by an additional 100 gadgets, industry output will be:

700.

(Figure: The Profit-Maximizing Output and Price) Use Figure: The Profit-Maximizing Output and Price. Assume that there are no fixed costs and AC = MC = $200. The profit-maximizing output for a monopolist is:Figure: The Profit-Maximizing Output and Price

8.

(Table: Production of Bagels) Use Table: Production of Bagels. The marginal product of the fifth worker is _____ bagels.

9,000

(Figure: Marginal Product of Labor) Use Figure: The Marginal Product of Labor. The total product of labor for eight workers is _____ bushels.

96

Which cost concept is CORRECTLY defined?

ATC = AVC + AFC

(Figure: The Profit-Maximizing Firm in the Short Run) Use Figure: The Profit-Maximizing Firm. O is the _____ curve.

AVC

(Problem 1a). Use the three conditions for monopolistic competition discussed in the chapter to decide whether the following firm is likely to be operating as a monopolistic competitor. If it is not a monopolistically competitive firm, is it a monopolist, an oligopolist, or a perfectly competitive firm?A local band that plays for weddings, parties, and so on

All three conditions for monopolistic competition are fulfilled.

(Figure: Four Markets for Online Movie Rentals) Use Figure: Four Markets for Online Movie Rentals. If D1 or S1 is the original curve and D2 or S2 is the new curve, which of the graphs shows a change that results in a decrease in the quantity of online movie rentals supplied?

C

Chapter 11

Chapter 11

Chapter 12

Chapter 12

Chapter 13

Chapter 13

Chapter 14

Chapter 14

Chapter 15

Chapter 15

Chapter 3

Chapter 3

Chapter 9

Chapter 9

Which scenario is MOST likely to cause firms to exit a perfectly competitive industry?

Consumer income falls.

(Figure: Supply and Demand in the Orange Juice Market) Use Figure: Supply and Demand in the Orange Juice Market. The market is in equilibrium at point C. Suppose most people drink orange juice only with champagne. What will be the new equilibrium point in the orange juice market if a law banning alcohol passes?

D

(Figure: Supply, Demand, and Equilibrium) Use Figure: Supply, Demand, and Equilibrium. In the figure, there will be an excess supply of the good at a price of P1.

False

(Figure: Supply, Demand, and Equilibrium) Use Figure: Supply, Demand, and Equilibrium. In the figure, there will be excess demand for the good at a price of P3.

False

An attempt by a firm to convince buyers that its product is different from the products of other firms in the industry is tacit collusion.

False

An increase in income will always shift the demand curve to the right.

False

If the Boston doughnut market is monopolistically competitive and the firms are earning short-run profits, consumers in Boston will see less diversity in the doughnuts offered over time.

False

In the long run, some of a firm's costs are fixed, while others are variable.

False

Monopolistic competition is unique among the four market structures in that it is the only one that is always characterized by product differentiation.

False

Price discrimination can never occur in oligopoly.

False

Price leadership is an attempt by a firm to convince buyers that its product is different from the products of other firms in the industry.

False

In which situation does overt collusion take place?

Firms in an industry agree openly on price and output, and they jointly make other decisions aimed at achieving monopoly profits.

(Problem 2a). Marty's Frozen Yogurt is a small shop that sells cups of frozen yogurt in a university town. Marty owns three frozen-yogurt machines. His other inputs are refrigerators, frozen-yogurt mix, cups, sprinkle toppings, and, of course, workers. He estimates that his daily production function when he varies the number of workers employed (and at the same time, of course, yogurt mix, cups, and so on) is as shown in the accompanying table.

Frozen-yogurt machines are a fixed input.

(Figure: Profits in Monopolistic Competition) Use Figure: Profits in Monopolistic Competition. In panel (A) of the figure, the profit-maximizing quantity of output is determined by the intersection at point:Figure: Profits in Monopolistic Competition

G.

(Figure: Shifts in Demand and Supply II) Use Figure: Shifts in Demand and Supply II. The figure shows how supply and demand might shift in response to specific events. Suppose the birthrate decreases. Which panel BEST describes how this will affect the market for diapers?

Panel B

After three years at an expensive college, Pierre realizes that he doesn't want to finish school but really wants to be a chef. When Pierre suggests that he leave college for culinary school, his parents insist that he stay for one more year to get his degree. Which statement is TRUE?

Pierre's parents are wrong: the marginal benefit to Pierre of another year of college is less than the marginal cost of college.

_____ firms have the MOST market power.

Monopoly

(Problem 2b). For the following, is the industry perfectly competitive?Alicia Keys concerts

No, the industry is not perfectly competitive, because entry and exit are not free.

(Problem 2c). For the following, is the industry perfectly competitive?SUVs

No, the industry is not perfectly competitive, because producers have a large market share.

_____ occurs if Coke hires Lebron James to make a commercial and Pepsi follows by hiring Peyton Manning for its commercial.

Nonprice competition

(Figure: A Perfectly Competitive Firm in the Short Run) Use Figure: A Perfectly Competitive Firm in the Short Run. The minimum price that the firm must receive to produce in the short run is:

P.

(Figure: Short-Run Monopoly) Use Figure: Short-Run Monopoly. The marginal cost of producing the profit-maximizing quantity is cost:Figure: Short-Run Monopoly

P.

Monopolistic competition is often found in service industries.

True

_____ is the practice of selling _____ product(s) at different prices to different consumers, without corresponding differences in costs.

Price discrimination; the same

Scattered

Scattered

Which statement is TRUE?

The inefficiency of monopolistic competition is arguably a small price to pay for the wide range of product choices it offers.

(Problem 9a). A new vaccine against a deadly disease has just been discovered. Presently, 55 people die from the disease each year. The new vaccine will save lives, but it is not completely safe. Some recipients of the shots will die from adverse reactions. The projected effects of the inoculation are given in the accompanying table:

The marginal benefit is the additional lives saved due to inoculation.

If the price is below average total cost, then in the short run a perfectly competitive firm should:

There is not enough information given to answer this question.

When perfect competition prevails, which characteristic of firms are we likely to observe?

They are all price takers.

(Problem 1b). Use the three conditions for monopolistic competition discussed in the chapter to decide whether the following firm is likely to be operating as a monopolistic competitor. If it is not a monopolistically competitive firm, is it a monopolist, an oligopolist, or a perfectly competitive firm?Minute Maid, a producer of individual-serving juice boxes

This is an oligopoly.

(Problem 10a). Suppose you are an economist working for the Antitrust Division of the Department of Justice. In the following case you are given the task of determining whether the behavior warrants an antitrust investigation for possible illegal acts or is just an example of undesirable, but not illegal, tacit collusion. Two companies dominate the industry for industrial lasers. Several people sit on the boards of directors of both companies.

This warrants an antitrust investigation.

Which statement describes a "how much" decision?

Tim is trying to decide the amount of money to save each month to buy a new car next year.

A competitive market occurs when there are many buyers and sellers of the same good.

True

Although price discrimination never occurs in perfect competition, it may occur in monopolistic competition.

True

Because resources are scarce, the true cost of anything is its opportunity cost.

True

Firms choose their level of fixed cost in the long run based on the amount of output that they expect to produce.

True

Firms in monopolistic competition can gain some market power by engaging in product differentiation.

True

If consumer tastes for electric cars increase over the next 10 years and there is no change in supply, we expect to see an increase in the demand for electric cars, higher electric car prices, and an increase in the equilibrium quantity of electric cars.

True

In the 1960s and 1970s, General Motors often set prices for the new model year and Ford and Chrysler would follow. This was a form of tacit collusion known as price leadership.

True

The pattern of behavior in which one company tacitly sets prices for the industry as a whole is known as price leadership.

True

(Figure: Collusion) Use Figure: Collusion. The price charged by the industry with collusion is shown by:Figure: Collusion

W.

(Problem 2a). For the following, is the industry perfectly competitive?Aspirin

Yes, the industry is perfectly competitive.

You own a lemonade stand in a competitive market, and as such, you are a price-taking firm. Which event would MOST likely increase your market power?

You acquire exclusive rights to harvest lemons from all domestic citrus orchards.

An industry with a firm that is the only producer of a good or service for which there are no close substitutes and for which entry by potential rivals is prohibitively difficult is:

a monopoly.

To be called an oligopoly, an industry must have:

a small number of interdependent firms.

The demand curve for a monopoly is:

above the MR curve.

The demand curve for a monopoly is:

also the industry demand curve.

In much of the country, homeowners choose to heat their houses with either natural gas or heating oil, both of which are normal goods. Which factor would cause an increase in the demand for natural gas?

an increase in consumer incomes

A recent news story reported that the Organization of Petroleum Exporting Countries is expected to decrease the supply of oil next summer. Summer is traditionally a time of increased demand for oil because of vacation travel. What would be the combined effect of these two events on the summer market for gasoline?

an increase in the price and an unpredictable change in the quantity

If the price of mozzarella cheese (an ingredient in pizza) declines, there will be:

an increase in the supply of pizza.

An industry with a few interdependent firms is BEST described as being:

an oligopoly.

A perfectly competitive industry is said to be efficient because the:

average total cost of production of the industry's output is minimized in the long run.

A monopoly is an industry structure characterized by:

barriers to entry and exit.

Conditions that keep new firms out of a monopoly market are:

barriers to entry.

Control of a scarce resource or input, economies of scale, technological superiority, and government-set rules and regulations are forms of:

barriers to entry.

(Scenario: Two Identical Firms) Use Scenario: Two Identical Firms. If one firm decides to cheat, the cheating firm will:Scenario: Two Identical FirmsTwo identical firms make up an industry in which the market demand curve is represented by Q = 5,000 - 4P, where Q is the quantity demanded and P is price per unit. The marginal cost of producing the good in this industry is constant and equal to $650. Fixed cost is zero.

be able to increase its profits initially.

Economists' and psychologists' attempts to understand and explain why people make decisions that appear to be irrational is the field of study called _____ economics.

behavioral

Tara notices that studying for one hour after class increases her economics grade by 11 points. The second hour yields a 7-point gain, the third hour yields a 4-point gain, and the fourth hour yields only a 1-point gain. This means that the marginal _____ of studying decreases with study hours.

benefit

Marginal cost _____ over the range of increasing marginal returns and _____ over the range of diminishing marginal returns.

decreases; increases

A _____ is an organization that produces goods or services for sale.

firm

In a perfectly competitive market, _____ are price takers.

both producers and consumers

You plan to attend a movie on Saturday night. You buy a ticket for $7 and then lose it. According to marginal analysis, you should:

buy another ticket and attend the movie only if your marginal benefit of seeing the movie is more than $14.

Both monopolists and monopolistic competitors:

charge a price that is greater than the marginal cost of production.

In long-run equilibrium, a firm in monopolistic competition is similar to a monopoly because it:

charges a price greater than marginal cost.

In the classic prisoners' dilemma with two accomplices in crime, the dominant strategy for each individual is to:

confess.

The law of demand implies that:

consumers will buy more at lower prices.

As George ate pizza during one recent outing, he found that he enjoyed each additional slice less and less. This implies that his marginal benefit was:

decreasing.

(Problem 1b). For the following, is the business a price-taking producer?

definitely not

Diamond rings are relatively scarce because:

diamond producers limit the quantity supplied to the market.

The De Beers company is described as a monopolist in the production of:

diamonds.

In the short run, the average total cost curve slopes upward because of:

diminishing returns.

The MAIN reason a monopoly engages in price discrimination is that:

doing so increases its profits.

A strategy that is the same, regardless of the action of the other player in a game, is a _____ strategy.

dominant

The demand curve facing a monopolist is:

downward sloping.

The wedding dress industry is monopolistically competitive. As a result:

dresses tend to be differentiated among the many sellers serving this market.

Monopolistically competitive firms:

earn a positive economic profit if price is greater than ATC.

Large barriers to entry are one reason that a monopoly:

earns an economic profit in the long run.

The difference between total revenue and total cost is:

economic profit or loss.

The purpose of the trusts established in the United States in the late 1800s was to:

engage in monopoly pricing.

The model of monopolistic competition characterizes the market for plumbing services in a city. Suppose that the market is in long-run equilibrium. For a typical plumbing firm, price:

equals average total cost.

Entry barriers:

exist in monopoly and oligopoly markets.

If firms are taking economic losses in the short run, then in the long run, firms will leave the industry, industry output will _____, and economic losses will _____.

fall; decrease

When marginal cost is BELOW average variable cost, average variable cost must be:

falling.

When a monopolistically competitive industry earns economic profit, the result of competition among sellers is usually that:

firms in the industry lose market share.

A cost that does NOT depend on the quantity of output produced is:

fixed.

Monopolistic competition is characterized by:

free entry and exit in the long run.

Which industry is MOST likely to be monopolistically competitive?

fresh bagel shops

An analytical approach through which strategic choices can be assessed is called:

game theory.

The study of behavior in situations of interdependence is known as:

game theory.

Once diminishing returns have set in, as output increases, the total cost curve:

gets steeper.

A perfectly competitive firm will earn a profit and will continue producing the profit-maximizing quantity of output in the short run if the price is:

greater than average total cost.

(Figure: Demand for Online Movie Rentals) Use Figure: Demand for Online Movie Rentals. A decrease in the price of Google Chromecast adapters (a complement good) would result in a change illustrated by the move from:

h to i in Panel B.

Price takers are individuals in a market who:

have no ability to affect the price of a good in a market.

Because of monopoly, consumers experience _____ than they do with perfect competition.

higher prices

The demand curve for a monopoly is:

the industry demand curve.

(Scenario: Betty's Cookie Shop) Use Scenario: Betty's Cookie Shop. Betty is trying to decide at what point she should stop selling cookies, and she knows she cannot change the price of a cookie. She should stop selling cookies if her:Scenario: Betty's Cookie ShopBetty runs a cookie shop where she sells cookies for $1 each. She employs five people, each of whom worked a total of 500 hours last year; she paid them $10 per hour. Her costs of equipment and raw materials add up to $75,000. Her business ability is legendary, and other companies have offered to pay Betty $100,000 to come to work for them. She also knows she could sell her cookie shop for $150,000. The bank in town pays an annual interest rate of 3% on all funds deposited with it.

implicit costs are greater than her accounting profits.

An industry with easy entry and exit of a large number of small firms producing a standardized product is:

in perfect competition.

If a perfectly competitive firm is producing a quantity where P > MC, then the firm can increase profit by:

increasing production.

An oligopoly may result from:

increasing returns to scale.

If your firm is operating in the negatively sloped portion of a long-run average total cost curve, then your production exhibits:

increasing returns to scale.

The assumptions of perfect competition imply that:

individuals in the market accept the market price as given.

Game theory is commonly used to explain behavior in oligopolies because oligopolies are characterized by:

interdependence.

A monopolistically competitive firm has a downward-sloping demand curve for its product, primarily because:

its product is differentiated.

Which two goods are most likely substitutes in consumption?

loaves of bread and hamburger buns

Oligopolies are industries:

made up of few firms, each with some market power and therefore aware of their interdependence with the other firms.

A monopolistically competitive industry is made up of:

many firms producing a slightly differentiated product.

The market for corn in Kansas is considered to be competitive. This means there are _____ buyers and _____ sellers of corn in Kansas.

many; many

To maximize total profit from a particular activity, consumers and firms evaluate each activity at the:

margin.

The amount by which an additional unit of an activity increases total benefit is:

marginal benefit.

The GoSports Company is a profit-maximizing firm with a monopoly in the production of school team pennants. The firm sells its pennants for $10 each. We can conclude that GoSports is producing a level of output at which:

marginal cost equals marginal revenue.

The amount by which an additional unit of an activity increases total cost is:

marginal cost.

At a monopoly's profit-maximizing level of output:

marginal revenue equals marginal cost.

(Table: The Lemonade Market) Use Table: The Lemonade Market. If the price of lemonade is $1.25 per cup, we expect to see a:

market in equilibrium.

An industry with a large number of relatively small firms producing differentiated products in a market with easy entry and exit of firms is:

monopolistically competitive.

Industries that are made up of many competing producers, each selling a differentiated product, and whose firms earn zero economic profits in the long run are:

monopolistically competitive.

An industry with a single producer that sells a single product with no substitutes is a:

monopoly.

You own a small deli that sells sandwiches, salads, and soup. Which factor is an implicit cost of the business?

the job offer you did not accept at a local catering service

(Figure: Profit Maximization in Monopolistic Competition) Use Figure: Profit Maximization in Monopolistic Competition. When the demand curve for a firm in monopolistic competition shifts, the marginal revenue curve:Figure: Profit Maximization in Monopolistic Competition

must also shift.

Most electric, gas, and water companies are examples of _____ monopolies.

natural

A feature of monopolistic competition that makes it different from monopoly is the:

number of firms in the industry.

If there are two gas stations in a very small town, then the gas station business there is probably BEST characterized as:

oligopolistic.

Marginal analysis is relevant for:

only "how much" decisions.

The market for grade A large eggs in California is BEST considered to be an example of:

perfect competition.

The market structure in which price discrimination CANNOT occur is:

perfect competition.

The practice of selling the same product at different prices to different consumers, without corresponding differences in costs, is:

price discrimination.

Excess supply occurs when the:

price is above the equilibrium price.

A perfectly competitive firm is a:

price taker.

When a firm cannot affect the market price of the good that it sells, it is said to be a:

price taker.

Individuals in a market who must take the market price as given are:

price takers.

To determine the quantity of any activity that will maximize total profit, economists employ the:

principle of marginal analysis.

Two players in a game both have an incentive to cheat no matter what the other player does. Furthermore, if both players cheat in this manner, both players will be worse off. This is a:

prisoners' dilemma.

(Problem 1a). For the following, is the business a price-taking producer? A cappuccino café in a university town where there are dozens of very similar cappuccino cafés

probably

If the price is greater than the average variable cost and less than the average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:

produce at an economic loss.

A monopoly:

produces a product with no close substitutes.

A monopolistically competitive firm has excess capacity in the long run. This means that it:

produces less than the output at which average total costs are minimized.

(Figure: Monopolistic Competition IV) Use Figure: Monopolistic Competition IV. The firm in the figure is producing at the output level that maximizes profits (minimizes losses). The shaded rectangle represents the firm's:Figure: Monopolistic Competition IV

profit.

Defenders of advertising argue that it:

provides education and information about products.

The downward-sloping demand curve for a monopolistically competitive firm:

reflects product differentiation.

(Figure: The Restaurant Market) Use Figure: The Restaurant Market. The figure shows curves facing a typical restaurant. Assume that many firms, differentiated products, and easy entry and exit characterize the market. In the long run:Figure: The Restaurant Market

restaurants will enter the market.

For consumers, pizza and hamburgers are substitutes. A rise in the price of a pizza causes a _____ in the equilibrium price of a hamburger and a(n) _____ in the equilibrium quantity of hamburgers.

rise; increase

People are willing to buy insurance because of:

risk aversion.

Figure: Demand for Coconuts) Use Figure: Demand for Coconuts. If coconuts are a normal good and consumers believe that the price of coconuts will rise significantly in the near future, it will be represented in the figure as a:

shift from D1 to D2

A monopoly is a market characterized by a:

single seller.

If the marginal benefit received from consuming a good is equal to the marginal cost of production:

society's well-being cannot be improved by changing production.

The market price of airline flights increased recently. Some economists suggest that the price increased because several airlines went out of business. They believe that, in the market for flights:

supply decreased.

You notice that the price of Blu-ray players falls and the quantity of Blu-ray players sold increases. You suspect that _____ Blu-ray players shifts to the _____.

supply of; right.

If a California avocado stand operates in a perfectly competitive market, that stand's owner will be a price:

taker.

The perfectly competitive model does NOT assume:

that firms attempt to maximize their total revenue.

You own a deli. Which input of production is MOST likely fixed at your deli?

the dining room

Suppose a monopoly can separate its customers into two groups. If the monopoly practices price discrimination, it will charge the lower price to the group with:

the higher price elasticity of demand.

Perfect competition is characterized by:

the inability of any one firm to influence price.

Price discrimination can occur if:

the market structure is monopolistic competition.

Market structures are categorized by:

the number of firms and whether products are differentiated.

Network externalities exist when a good's value to the consumer rises as:

the number of people who use the good increases.

In economic analysis, the principle of marginal analysis refers to:

the result that the optimal quantity of an activity is that at which marginal benefit is equal to marginal cost.

An oligopoly is characterized as an industry in which:

there are few firms, each producing a differentiated or similar product.

A monopolistically competitive industry, such as corn snack chips, and a perfectly competitive industry, like wheat farming, are alike in that:

there are many firms in each industry.

Market equilibrium occurs when:

there is no incentive for prices to change in the market, quantity demanded equals quantity supplied, and the market clears.

Suppose the equilibrium price of good Y is $5 and the equilibrium quantity is 150 units. Supply in this market is upward sloping. If the price of good Y is $12:

there will be an excess supply of good Y.

If the several companies in the tobacco industry produce similar products but have very different marginal costs:

they are less likely to engage in tacit collusion than firms with similar costs.

(Figure: Pricing Strategy in Cable TV Market II) Use Figure: Pricing Strategy in Cable TV Market II. If CableNorth followed a high-price strategy one period but found that CableSouth followed a noncooperative low-price strategy, and CableNorth decided to lower prices for the next month, we would say that CableNorth is following a:Figure: Pricing Strategy in Cable TV Market II

tit-for-tat strategy.

If marginal costs of production are greater than marginal benefits of production:

too much of the good is being produced.

A firm's total output times the price at which it sells that output is _____ revenue.

total

The sum of fixed and variable costs is _____ cost.

total

Total revenue is a firm's:

total output times the price of that output.

The total cost curve shows how _____ cost depends on the quantity of _____.

total; output

(Figure: Monopoly Profits in Duopoly) Use Figure: Monopoly Profits in Duopoly. Suppose there are two firms in this industry. Each firm faces an identical demand curve, D1, and the market demand curve is D2. The figure illustrates how firms can reap monopoly profits, even in an industry with:Figure: Monopoly Profits in Duopoly

two firms.

(Figure: The Supply of Online Movie Rentals) Use Figure: The Supply of Online Movie Rentals. A decrease in the price of online movie rentals would result in a change illustrated by the move from:

u to v in panel D.

Cindy just graduated from college and started working at a large accounting firm. Although the firm will match her contributions to a retirement account, Cindy wants to wait several years before participating since there are so many things she needs to buy right now. What type of behavior does this represent?

unrealistic expectations about the future

In the long run, all costs are:

variable.

In the short run, the costs associated with variable inputs are _____, and the costs associated with _____ inputs are _____.

variable; fixed; fixed

Suppose Bob has a part-time business washing cars. He has washed nine cars on a given day; the marginal benefit of washing the tenth car is $20 and the marginal cost is $12. Bob should:

wash the tenth car.

The total product curve:

will become flatter as output increases if there are diminishing returns to the variable input.

Buford Bus Manufacturing installs a new assembly line. As a result, the output per worker increases. The marginal cost of output at Buford:

will decrease (the MC curve will shift down).

While eating pizza, you discover that the marginal benefit of eating one more slice is greater than the marginal cost of that slice. You conclude that:

you will be better off if you eat one more slice.