EC test 3/final

The length of the short run a. is different for different types of firms. b. can never exceed 3 years. c. can never exceed 1 year. d. is always less than 6 months.

a. is different for different types of firms

Refer to Table 13-13. One month, Teacher's Helper produced 18 instructional modules. What was the average fixed cost for that month? a. $60 b. $108 c. $811 d. It can't be determined from the information given.

A ; $60 $1080/18 = 60

For a profit-maximizing monopolist, a. P > MR = MC. b. P = MR = MC. c. P > MR > MC. d. MR < MC < P.

A. P > MR = MC

Refer to Figure 14-1. The firm will earn a positive economic profit in the short run if the market price is a. above $6.30. b. less than $6.30 but more than $4.50. c. less than $4.50. d. exactly $6.30.

A. above $6.30

The cost of producing the typical unit of output is the firm's a. average total cost. b. opportunity cost. c. variable cost. d. marginal cost.

A. average total cost

The fundamental source of monopoly power is a. barriers to entry. b. profit. c. decreasing average total cost. d. a product without close substitutes.

A. barriers to entry

Product differentiation causes the seller of a good to face what type of demand curve? a. downward sloping b. vertical c. horizontal d. Any of the above could be correct since product differentiation does not affect the shape of the demand curve.

A. downward sloping

Negative externalities lead markets to produce a. greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels. b. smaller than efficient output levels and positive externalities lead markets to produce greater than efficient output levels. c. greater than efficient output levels and positive externalities lead markets to produce efficient output levels. d. efficient output levels and positive externalities lead markets to produce greater than efficient output levels.

A. greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels

Refer to Figure 16-3. This firm is operating a. in the short run and earning a positive economic profit. b. in the short run and breaking even. c. in the long run and earning a positive economic profit. d. in the long run and incurring and economic loss.

A. in the short run and earning a positive economic profit.

Refer to Figure 10-8. If the government wanted to tax or subsidize this good to achieve the socially-optimal level of output, it would a. introduce a subsidy of $2 per unit. b. impose a tax of $2 per unit. c. introduce a subsidy of $4 per unit. d. impose a tax of $4 per unit.

A. introduce a subsidy of $2 per unit the answer key says C

A negative externality a. is an adverse impact on a bystander. b. causes the product in a market to be under-produced. c. is an adverse impact on market participants. d. is present in markets where the good or service does not have any impact on bystanders.

A. is an adverse impact on a bystander

Refer to Figure 16-5. Which of the graphs depicts a short-run equilibrium that will not encourage either the entry or exit of firms in a monopolistically competitive industry? a. panel a b. panel b c. panel c d. panel d

A. panel a because ATC curve is touching demand curve

In a perfectly competitive market, the process of entry and exit will end when a. price equals minimum marginal cost. b. marginal revenue equals marginal cost. c. economic profits are zero. d. accounting profits are zero.

A. price equals minimum marginal cost

In the long run, all of a firm's costs are variable. In this case the exit criterion for a profit-maximizing firm is to shut down if a. price is less than average total cost. b. price is greater than average total cost. c. average revenue is greater than average fixed cost. d. average revenue is greater than marginal cost.

A. price is less than average total cost

A profit-maximizing firm will shut down in the short run when a. price is less than average variable cost. b. price is less than average total cost. c. average revenue is greater than marginal cost. d. average revenue is greater than average fixed cost

A. price is less than average variable cost

A profit-maximizing firm will shut down in the short run when a. price is less than average variable cost. b. price is less than average total cost. c. average revenue is greater than marginal cost. d. average revenue is greater than average fixed cost.

A. price is less than average variable cost

Explicit costs a. require an outlay of money by the firm. b. include all of the firm's opportunity costs. c. include the value of the business owner's time. d. Both b and c are correct.

A. require an outlay of money by the firm *A = explicit cost *B and C = implicit costs

Refer to Figure 10-9. Which graph represents a market with a negative externality? a. Panel (a) b. Panel (b) c. Panel (c) d. Both (b) and (c) are correct

B

Refer to Figure 10-1. This graph represents the tobacco industry. The socially optimal price and quantity are a. $1.90 and 38 units, respectively. b. $1.80 and 35 units, respectively. c. $1.60 and 42 units, respectively. d. $1.35 and 58 units, respectively.

B ; $1.80 and 35 units, respectively.

Refer to Table 13-13. What is the average variable cost for the month if 6 instructional modules are produced? a. $180.00 b. $533.33 c. $700.00 d. $713.33

B ; $533.33 TC ($4,280)-FC($1,080) = $3280/6 = $533.33

Refer to Figure 16-9. The firm's maximum profit is a. $-5,000.00. b. $0. c. $5,000.00. d. $8,887.78.

B. $0 revenue = cost so you can't make any money

Refer to Figure 15-7. In order to maximize profits, the monopolist should produce a. 9 units. b. 12 units. c. 15 units. d. more than 15 units.

B. 12 units. MR=MC

Refer to Table 14-9. At which quantity of output is marginal revenue equal to marginal cost? a. 3 units b. 5 units c. 7 units d. 9 units

B. 5 units

Which of the following is not a characteristic of a perfectly competitive market? a. Firms are price takers. b. Firms have difficulty entering the market. c. There are many sellers in the market. d. Goods offered for sale are largely the same.

B. Firms have difficulty entering the market *memorize the characteristics

Refer to Figure 16-3. Which of the following will occur in the long run in this industry? a. Firms will exit this industry. b. Firms will enter this industry. c. This firm will continue to earn positive economic profits. d. This firm will incur losses.

B. Firms will enter this industry

What is the shape of the monopolist's marginal revenue curve? a. a downward-sloping line that is identical to the demand curve b. a downward-sloping line that lies below the demand curve c. a horizontal line that is identical to the demand curve d. a horizontal line that lies below the demand curve

B. a downward-sloping line that lies below the demand curve

Foregone investment opportunities are an example of a. an explicit cost. b. an implicit cost. c. revenues. d. profits.

B. an implicit cost

Foregone investment opportunities are an example of a. an explicit cost. b. an implicit cost. c. revenues. d. profits.

B. an implicit cost

The market demand curve for a monopolist is typically a. unit price elastic. b. downward sloping. c. horizontal. d. vertical.

B. downward sloping

Economies of scale occur when a. long-run average total costs rise as output increases. b. long-run average total costs fall as output increases. c. average fixed costs are falling. d. average fixed costs are constant.

B. long-run average total costs fall as output increases

Refer to Figure 15-1. Considering the relationship between average total cost and marginal cost, the marginal cost curve for this firm a. must lie entirely above the average total cost curve. b. must lie entirely below the average total cost curve. c. must be upward sloping. d. does not exist.

B. must lie entirely below the average total cost curve

Refer to Figure 15-1. The shape of the average total cost curve reveals information about the nature of the barrier to entry that might exist in a monopoly market. Which of the following monopoly types best coincides with the figure? a. ownership of a key resource by a single firm b. natural monopoly c. government-created monopoly d. a patent or copyright monopoly

B. natural monopoly

Price discrimination is the business practice of a. bundling related products to increase total sales. b. selling the same good at different prices to different customers. c. pricing above marginal cost. d. hiring marketing experts to increase consumers' brand loyalty

B. selling the same good at different prices to different customers.

The overuse of a common resource relative to its economically efficient use is called a. the free rider problem. b. the Tragedy of the Commons. c. a public good. d. cost-benefit analysis.

B. the Tragedy of the Commons

In the long run, each firm in a competitive industry earns a. zero accounting profits. b. zero economic profits. c. positive economic profits. d. positive, negative, or zero economic profits.

B. zero economic profits

Refer to Table 13-13. What is the average fixed cost for the month if 9 instructional modules are produced? a. $108.00 b. $120.00 c. $150.00 d. $811.11

B; $120 $1080/9 = $120

Scenario 13-7 Julia prepares tax returns and does bookkeeping. Last year her revenues from the tax and bookkeeping business were $150,000, and her expenses for the business were $15,000. When she started her tax and bookkeeping business, Julia gave up her supplemental job doing in-home pet sitting. She used to earn $10,000 per year from pet sitting. Assume that she incurred no costs for her pet sitting business. Refer to Scenario 13-7. Julia's accounting profits are a. $160,000. b. $150,000. c. $135,000. d. $125,000.

C ; $135,000 $150,000-$15000 = $135,000

Refer to Table 13-13. What is the marginal cost of creating the tenth instructional module in a given month? a. $900 b. $1,250 c. $2,500 d. $3,060

C ; $2500 $1,080+$7300 = $8380-$10,880 = $2500

The efficient scale of the firm is the quantity of output that a. maximizes marginal product. b. maximizes profit. c. minimizes average total cost. d. minimizes average variable cost.

C ; minimizes average total cost

An externality is the impact of a. society's decisions on the well-being of society. b. a person's actions on that person's well-being. c. one person's actions on the well-being of a bystander. d. society's decisions on the poorest person in the society

C ; one person's actions on the well-being of a bystander

Refer to Figure 15-7. A profit-maximizing monopolist would earn profits of a. $96. b. $117. c. $120. d. $126.

C. $120 12 x 20 = 240 12 x 10 = 120 240 - 120 = 120

Refer to Figure 15-7. In order to maximize profits, the monopolist should charge a price of a. $9. b. $12. c. $20. d. $23.

C. $20

Highway engineers want to improve a dangerous stretch of highway. They expect that it will reduce the risk of someone dying in an accident from 5.3 percent to 2.1 percent over the life of the highway. If a human life is worth $10 million, then the project is worth doing as long as it does not cost more than a. $53,000. b. $210,000. c. $320,000. d. $2.1 million.

C. $320,000 5.3% - 2.1% = 3.2% 3.2% x 10,000,000 x 0.032 = $320,000

Refer to Figure 14-1. The firm's short-run supply curve is its marginal cost curve above a. $1. b. $3. c. $4.50. d. $6.30.

C. $4.50

Scenario 15-7 Black Box Cable TV is able to purchase an exclusive right to sell a premium movie channel (PMC) in its market area. Let's assume that Black Box Cable pays $150,000 a year for the exclusive marketing rights to PMC. Since Black Box has already installed cable to all of the homes in its market area, the marginal cost of delivering PMC to subscribers is zero. The manager of Black Box needs to know what price to charge for the PMC service to maximize her profit. Before setting price, she hires an economist to estimate demand for the PMC service. The economist discovers that there are two types of subscribers who value premium movie channels. First are the 4,000 die-hard TV viewers who will pay as much as $150 a year for the new PMC premium channel. Second, the PMC channel will appeal to 20,000 occasional TV viewers who will pay as much as $20 a year for a subscription to PMC. Refer to Scenario 15-7. If Black Box Cable TV is able to price discriminate, what would be the maximum amount of profit it could generate? a. $500,000 b. $600,000 c. $850,000 d. $925,000

C. $850,000 150 x 4,000 = 600,000 200,000 x 20 = 400,000 600,000+400,000 = 1,000,000 1,000,000 - 150,000 = 850,000

When a profit-maximizing firm is earning profits, those profits can be identified by a. P x Q. b. (MC - AVC) x Q. c. (P - ATC) x Q. d. (P - AVC) x Q.

C. (P-ATC) x Q

Economists normally assume that the goal of a firm is to (i) sell as much of its product as possible. (ii) set the price of the product as high as possible. (iii) maximize profit. a. (i) and (ii) only b. (ii) and (iii) only c. (iii) only d. (i), (ii), and (iii)

C. (iii) only

Which of the following is an example of a positive externality? a. air pollution b. a person littering in a public park c. a nice garden in front of your neighbor's house d. the pollution of a stream

C. a nice garden in front of your neighbor's house

When adding another unit of labor leads to an increase in output that is smaller than the increases in output that resulted from adding previous units of labor, the firm is experiencing a. diminishing labor. b. diminishing output. c. diminishing marginal product. d. negative marginal product.

C. diminishing marginal product

In a perfectly competitive market, the process of entry and exit will end when a. price equals minimum marginal cost. b. marginal revenue equals marginal cost. c. economic profits are zero. d. accounting profits are zero.

C. economic profits are zero

. Abe owns a dog; the dog's barking annoys Abe's neighbor, Jenny. Suppose that the benefit of owning the dog is worth $200 to Abe and that Jenny bears a cost of $400 from the barking. Assuming Abe has the legal right to keep the dog, a possible private solution to this problem is that a. Jenny pays Abe $150 to give the dog to his parents who live on an isolated farm. b. Abe pays Jenny $350 for her inconvenience. c. Jenny pays Abe $300 to give the dog to his parents who live on an isolated farm. d. There is no private transaction that would improve this situation.

C. jenny pays Abe $300 to give the dog to his parents who live on an isolated farm

Refer to Figure 14-1. The firm will earn a negative economic profit but remain in business in the short run if the market price is a. above $6.30 but less than $8. b. above $6.30. c. less than $6.30 but more than $4.50. d. less than $4.50.

C. less than $6.30 but more than $4.50

In order to sell more of its product, a monopolist must a. sell to the government. b. sell in international markets. c. lower its price. d. use its market power to force up the price of complementary products.

C. lower its price

A monopolistically competitive firm chooses the quantity to produce where a. price equals marginal cost. b. demand equals marginal cost. c. marginal revenue equals marginal cost. d. Both a and c are correct.

C. marginal revenue equals marginal cost

At the profit-maximizing level of output, a. marginal revenue equals average total cost. b. marginal revenue equals average variable cost. c. marginal revenue equals marginal cost. d. average revenue equals average total cost.

C. marginal revenue equals marginal cost

A profit-maximizing monopolist will produce the level of output at which a. average revenue is equal to average total cost. b. average revenue is equal to marginal cost. c. marginal revenue is equal to marginal cost. d. total revenue is equal to opportunity cost.

C. marginal revenue is equal to marginal cost

Scenario 15-7 Black Box Cable TV is able to purchase an exclusive right to sell a premium movie channel (PMC) in its market area. Let's assume that Black Box Cable pays $150,000 a year for the exclusive marketing rights to PMC. Since Black Box has already installed cable to all of the homes in its market area, the marginal cost of delivering PMC to subscribers is zero. The manager of Black Box needs to know what price to charge for the PMC service to maximize her profit. Before setting price, she hires an economist to estimate demand for the PMC service. The economist discovers that there are two types of subscribers who value premium movie channels. First are the 4,000 die-hard TV viewers who will pay as much as $150 a year for the new PMC premium channel. Second, the PMC channel will appeal to 20,000 occasional TV viewers who will pay as much as $20 a year for a subscription to PMC. Refer to Scenario 15-7. If Black Box Cable TV is unable to price discriminate, what price will it choose to maximize its profit, and what is the amount of the profit? a. price = $20; profit = $400,000 b. price = $20; profit = $330,000 c. price = $150; profit = $450,000 d. price = $150; profit = $600,000

C. price = $150; profit = $450,000 150 x 4,000 = 600,000 600,000-150,000 = $450,000

Why do elephants face the threat of extinction while cows do not? a. Cattle are a valuable source of income for many people, while elephants have no market value. b. There is a high demand for products that come from cows, whereas there is no demand for products that come from elephants. c. There are still lots of cattle that roam free, while all elephants live in zoos. d. Cattle are owned by ranchers, while elephants are owned by no one.

D ; cattle are owned by ranchers, while elephants are owned by no one

Monopolistic competition is characterized by which of the following attributes? (i) free entry (ii) product differentiation (iii) many sellers a. (i) and (iii) only b. (i) and (ii) only c. (ii) and (iii) only d. (i), (ii), and (iii)

D. (i), (ii), and (iii)

Which of the following is an example of a barrier to entry? (i) A key resource is owned by a single firm. (ii) The costs of production make a single producer more efficient than a large number of producers. (iii) The government has given the existing monopolist the exclusive right to produce the good. a. (i) and (ii) only b. (ii) and (iii) only c. (i) only d. (i), (ii), and (iii)

D. (i), (ii), and (iii)

The higher the concentration ratio, the a. more control an individual firm has to set prices. b. more competitive the industry. c. less competitive the industry. d. Both a and c are correct.

D. Both a and c are correct

A firm that is the sole seller of a product without close substitutes is a. perfectly competitive. b. monopolistically competitive. c. an oligopolist. d. a monopolist.

D. a monopolist

Advertising a. provides information about products, including prices and seller locations. b. has been proven to increase competition and reduce prices compared to markets without advertising. c. signals quality to consumers, because advertising is expensive. d. All of the above are correct.

D. all of the above are correct

Critics of advertising argue that advertising a. creates desires that otherwise might not exist. b. hinders competition. c. often fails to convey substantive information. d. All of the above are correct.

D. all of the above are correct

Refer to Figure 16-10. In response to the situation represented by the figure, we would expect a. some of the firms that are currently in the market to exit. b. the demand for this firm's product to increase, assuming this firm does not exit. c. this firm's profit to move from its current value toward zero. d. All of the above are correct.

D. all of the above are correct

Refer to Figure 16-9. Efficient scale is reached a. at 100 units. b. between 100 and 133.33 units. c. at 133.33 units. d. beyond 133.33 units

D. beyond 133.33 units ATC

Refer to Table 14-11. In order to maximize profits, the firm should stop producing after it makes the a. first unit. b. second unit. c. fourth unit. d. fifth unit.

D. fifth unit

Which of the following statements is correct? a. If marginal cost is rising, then average total cost is rising. b. If marginal cost is rising, then average variable cost is rising. c. If average variable cost is rising, then marginal cost is minimized. d. If average total cost is rising, then marginal cost is greater than average total cost.

D. if average total cost is rising, then marginal cost is greater than average total cost

Refer to Table 16-1. Which industry is the most competitive? a. Industry A b. Industry B c. Industry C d. Industry D

D. industry D 23 + 16 + 10 + 9 = 58 *do that for all four and whatever is the lowest is the most competitive.

For a monopolist, marginal revenue is a. equal to price, as it is for a perfectly competitive firm. b. less than price, as it is for a perfectly competitive firm. c. equal to price, whereas marginal revenue is less than price for a perfectly competitive firm. d. less than price, whereas marginal revenue is equal to price for a perfectly competitive firm.

D. less than price, whereas marginal revenue is equal to price for a perfectly competitive firm

When buyers in a competitive market take the selling price as given, they are said to be a. market entrants. b. monopolists. c. free riders. d. price takers.

D. price takers

The proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own, is called a. the Pigovian theorem. b. a corrective tax. c. the externality theorem. d. the Coase theorem.

D. the Coase theorem

The short-run supply curve for a firm in a perfectly competitive market is a. horizontal. b. likely to slope downward. c. determined by forces external to the firm. d. the portion of its marginal cost curve that lies above its average variable cost.

D. the portion of its marginal cost curve that lies above its average variable cost

If a firm produces nothing, which of the following costs will be zero? a. total cost b. fixed cost c. opportunity cost d. variable cost

D. variable cost

Scenario 13-7 Julia prepares tax returns and does bookkeeping. Last year her revenues from the tax and bookkeeping business were $150,000, and her expenses for the business were $15,000. When she started her tax and bookkeeping business, Julia gave up her supplemental job doing in-home pet sitting. She used to earn $10,000 per year from pet sitting. Assume that she incurred no costs for her pet sitting business Refer to Scenario 13-7. Julia's economic profits are a. $160,000. b. $150,000. c. $135,000. d. $125,000.

D; $125,000 $150,000-$15,000-$10,000 = $125,000