Econ 102 Exam 2

If a monopoly is not producing at the profit-maximizing quantity, then it must be the case that which of the following is true? A Marginal cost is greater than marginal revenue B Marginal revenue is greater than marginal cost C Marginal revenue is negative D All of the above are possible

All of the above

What is a reason that monopolies exist? A A firm owns a resource that no one else has B A firm is given legal protection that prevents another firm from entering C A firm naturally drives out competitors through lower prices. D All of the above are reasons

All of the above

Economic Profits

Accounting profits minus normal profits

In the long-run, firms can vary _________. A All inputs B Only capital; changes in labor occur in the short-run C Only labor; changes in capital occur in the short-run D Neither capital or labor. In the long-run, the market determines use of inputs

All inputs

If marginal cost is equal to average cost, average cost at this point must be ______________. A Increasing B Decreasing C At its minimum point D At its maximum point

At its minimum point

Monopolies will price discriminate if which of the following is true? A They dislike one group more than another and want to increase the price B At the current price, one group of consumers is elastic while another group is not as responsive (inelastic) C They can increase quantity without changing revenue

At the current price, one group of consumers is elastic while another group is not as responsive (inelastic)

If a firm faces increasing returns to scale, average costs will do which of the following? A Be below marginal cost B Increase as output increases C Not change as output increases; average product increases D Be above marginal costs

Be above marginal costs

A monopoly facing a demand curve lower than the average cost curve over wide ranges of output will likely do what? A Make large economic profits B Go out of business C Produce where average costs are higher than marginal costs D Not maximize profits

Go out of business

A monopoly will always charge a price that is ______________ (greater than / less than / equal to) marginal cost.

Greater than

Copyrights on movies, books, and music act as a barrier to entry in order to give people what? A Guaranteed profits B Starter money for to pay for research and development C Incentives to create D Unfair advantages

Incentives to create

An oligopolistic industry with the same costs as a monopoly will have prices: A Equal to a monopoly price. B Greater than a monopoly price. C Less than or equal to a monopoly price. D Less than a monopoly price. E Greater than or equal to a monopoly price.

Less than or equal to a monopoly price.

A single firm in a perfectly competitive market is a _________. A Price-taker B Price-maker C Quantity-taker D Quality-maker

Price-taker

In the long-run, what will diminishing marginal returns be? A Relevant if all inputs are changed B Relevant if one input is changed while the other input is held constant or reduced C Not be relevant, because all inputs can be changed D Apply if all resources are increased in portion to one another

Relevant if one input is changed while the other input is held constant or reduced

A profit-maximizing monopoly will produce where which of the following is true? Multiple answers: You can select more than one option A Marginal revenue is less than the price B Marginal revenue is equal to the marginal cost C Marginal revenue is positive

A Marginal revenue is less than the price B Marginal revenue is equal to the marginal cost C Marginal revenue is positive

Total revenue

The number of goods sold multiplied by the price at which they are sold

Price-taker

A firm "takes" the price that is given it by the market supply and demand conditions.

Natural Monopoly

A firm that can produce at a lower average cost per unit of output than a number of smaller firms profucing a similar amount of total output.

Entry Barriers

Any impediment that makes entry into a market difficult or impossible for new firms

A monopoly will not necessarily be technically efficient because which of the following is true? A Barriers to entry will keep firms from entering B Firms will enter until the price is lowered to where price equals average cost C Monopolies have no close substitutes D Monopolies charge the highest price on the demand curve

Barriers to entry will keep firms from entering

Markets of perfectly competitive firms and monopolies both _________. A Have barriers to entry B Have downward sloping demand curves C Are easy to enter and exit

Have downward sloping demand curves

n the long run, a monopolist facing the same cost curves as a perfectly competitive firm will charge a ______________ price than the competitive market and produce a ______________ output.

Higher; lower

In the short run, how will an increase in fixed costs affect the output of a typical firm in a competitive market? A An increase in output B A decrease in output C No change in output D Cannot tell

No change in output

Suppose that the cost of all inputs (both labor and capital) decreases. What will happen to the long-run cost curve? The curve will _____, illustrating that _______. A Shift right; there are no diseconomies of scale B Shift downward; economies of scale now occur at more output levels C Shift downward; any level of output can now be produced at a lower average cost D Shift upward; the firm will increase costs by spending money elsewhere

Shift downward; any level of output can now be produced at a lower average cost

Economic profits are ______________ than accounting profits. A Always less B Always more C Sometimes more D Sometimes less

Always less

When a firm gets so large that coordination and management of workers and other inputs becomes costly and difficult, it is experiencing which of the following? A Diseconomies of scale B Diminishing marginal product C Economies of scale D Economies of scope

Diseconomies of scale

The market demand in a monopoly market differs (or not) from the demand the monopoly itself faces by _________. A The amount of marginal revenue B The fixed revenue C The monopoly is the only firm in the market, so it does not differ. D The monopoly is the only firm in the market, so the demand curve is steeper.

The monopoly is the only firm in the market, so it does not differ.

Long-run

A time period long enough for a business to change all of its inputs

Can monopolistic competition have economic profits in the short run?

Yes

Marginal Cost

The change in total costs that results from increasing total product by one unit

Can oligopoly have economic profits in the short run?

Yes

Monopoly

A single firm in an industry with barriers to entry and no close substitute goods

Which of the following is an example of long-run decision for a firm? A A grocery hires a new deli manager B A university hires a new president C A car manufacturer builds a new factory D A tech company hires ten new interns

A car manufacturer builds a new factory

Firm Supply

A firm's quantity supplied at each price level

For any firm, what is the long-run average cost curve? A A downward sloping line B A function which shows the lowest average cost of producing any output level C The same as the long-run marginal cost curve D Upward sloping at all levels of output

A function which shows the lowest average cost of producing any output level

Cartel

A group of producers agreeing to act in concert with one another.

Perfectly Competitive Markets

A market with many buyers and sellers, with each seller offering the same good or service.

Short-run

A period in which at least one input or factor of production is fixed

For a firm, the short-run is defined as being __________. A A period of time less than one year B A period of time less than one month C A period of time in which at least one of the firm's inputs is unchangeable D A period of time in which all the firm's inputs are variable

A period of time in which at least one of the firm's inputs is unchangeable

What is true about the long-run for a firm? A At least one input cannot be changed B The firm only uses one of either capital or labor, whichever is cheapest C All inputs can be changed D No inputs can be changed

All inputs can be changed

Oligopoly

An industry with few producers, high entry barriers, and each one has market power. They compete on either price or quantity and may charge the same or different prices.

If a monopoly is currently selling 20 goods at a price of $10 each and it wants to sell 30 units, it needs to ______________ (increase / decrease / hold constant) the price for all goods it sells.

Decrease

The law of diminishing marginal returns is the cause of ______________ marginal product and ______________ marginal cost. A Increasing; increasing B Increasing; decreasing C Decreasing; decreasing D Decreasing; increasing

Decreasing; increasing

The amount of time a firm operates with the ability to make long-run decisions is how long? A Between five and ten years B Greater than five years C Greater than two years D Differs by industry

Differs by industry

A natural monopolist will face which of the following? A The same costs a competitive industry faces B Ownership of all of the sources of a natural resource C Economies of scale D Prices that are higher than average costs, while other monopolists will have average costs that are higher than prices

Economies of scale

The long-run result of that advertising will be a(n) _______ in the price of the good. A Increase B Decrease C Increase or decrease D Not change

Increase

What is the main source of diseconomies of scale? A Physical capital breaking more often with large output levels B Specialization of capital and labor C Limited ability to manage and coordinate larger amounts of inputs D Workers getting fatigued

Limited ability to manage and coordinate larger amounts of inputs

When can diseconomies of scale occur? A In the short-run B In the long-run C When total costs are falling D When average costs are falling

Long-run

Economies of Scale

Long-run average total cost decreases as the quantity of output increases

Which of the following is true for a profit-maximizing monopolistic competitor? A Marginal cost = price B Marginal cost> marginal revenue C Marginal cost = marginal revenue D Marginal cost < marginal revenue

Marginal cost = marginal revenue

Monopolistically competitive firms __________ earn economic profits in the _________. A May; short and long runs B May; long run only C May; short run only D Will not; either the short or long run

May; short run only

Will a change in fixed costs change marginal cost? A Yes B No

No

The Coca-Cola Company is the only producer of Coca-Cola. Is it considered a monopoly? A Yes, it is the only firm with the recipe for a real Coca-Cola. B Yes, because Coca-Cola has no close substitutes. C No, because Coca-Cola has many close substitutes.

No, because Coca-Cola has many close substitutes.

Why do barriers to entry allow a monopolist to make positive economic profits? A It causes the monopoly to have lower costs. B Otherwise, firms would enter the market, resulting in a decrease in price and profits. C It allows the monopoly to be price-takers. D It does not need a barrier to entry because of the market demand.

Otherwise, firms would enter the market, resulting in a decrease in price and profits.

Which of the following is NOT one of the reasons a firm might be expected to experience economies of scale? A Specialization of all inputs B Reducing issues with diminishing marginal product of labor C Firms using larger volume equipment D Improved equipment

Reducing issues with diminishing marginal product of labor

Assume that a market is operating in equilibrium. What would happen if the monopoly increased quantity produced but the price did not change? A A surplus B A shortage C People would stop buying from the monopoly all together D None of the above

Surplus

Regarding input choices, how would a firm respond to an increase in the wage rate? A The firm would use less capital. B The firm would use less labor. C The firm would use less labor and more capital. D The firm would use more labor and less capital.

The firm would use less labor and more capital.

A monopolist will engage in price discrimination, if it can, in order to increase profits by doing which of the following? A By selling more of its goods B By reducing costs for some of its products C While continuing to produce the same amount D While increasing prices for all consumers and producing less

While continuing to produce the same amount

Will a change in fixed costs change average cost? A Yes B No

Yes

Which situation would be labeled a "natural monopoly"? A A firm owns exclusive rights to a natural resource. B A firm applies for a patent to exclude others from entering. C A firm has large economies of scale, and is thus able to sell the good for a lower price than would if there were many firms.

A firm has large economies of scale, and is thus able to sell the good for a lower price than would if there were many firms.

The supply curve in a perfectly competitive market is the sum of all of the individual firm's marginal cost curves. What is the supply curve for a monopoly? A The marginal revenue curve B The marginal cost curve C The demand curve D A monopoly does not have a supply curve

A monopoly does not have a supply curve

Which of the following is not true regarding a firm in perfectly competition? A The firm's marginal revenue function is equal to the market price. B The market demand and supply curves determine the market price. C The demand curve for a single firm's product is horizontal. D A single firm can influence the demand for its product by advertising.

A single firm can influence the demand for its product by advertising.

Assume a constant-cost industry in a competitive market. What are the long-term effects of the following change? An increase in fixed costs will ______________ the equilibrium price and ______________ equilibrium quantity in the market. A Not change; not change B Increase; decrease C Decrease; increase D Not change; increase

Increase; decrease

Assume a constant-cost industry in a competitive market. What are the short-term effects of the following change? An increase in the demand for the good will ______________ the equilibrium price and ______________ equilibrium quantity in the goods' market. A Increase; increase B Increase; decrease C Decrease; not change D Increase; not change

Increase; increase

Assume that competitive firms and a competitive market are in long-run equilibrium. What will happen in the long run in that same constant cost industry? Prices will ______________ and the market output will ______________ when compared to the levels prior to the increase in demand. A Have increased; have increased B Remain the same; remain the same C Have increased; remain the same D Remain the same; have increased

Remain the same; have increased

If a monopoly increased the price above the profit maximizing level __________. A Marginal revenue would decrease B Revenue would decrease C Profits would increase D Profits would be unchanged

Revenue would decrease

Suppose that a local Italian restaurant is operating in a monopolistically competitive environment and is maximizing its profit. The price of spaghetti with meat sauce is $10 and the average total cost is $7. Based on this information, the firm is operating in the ______ and we can expect ______. A Short-run; firms to exit the the market B Short-run; firms to enter the market C Long-run; firms to exit the market D Long-run; firms to enter the market

Short-run; firms to enter the market

Consider a perfectly competitive firm. When the market price is greater than both the firm's marginal cost and average variable cost, the firm ________. A Is maximizing profits B Should shut down C Should increase its level of output D Should reduce its level of output

Should increase its level of output

Match each type of market with whether or not their average costs are at a minimum at the profit-maximizing quantity in the long run. Perfect competition Monopolistic competition Oligopoly Monopoly

PC: Yes MC: No Oligopoly: No Monopoly: No

At the Fisherman's Wharf in San Francisco, there are a lot of seafood vendors. Suppose that there are twenty vendors selling steamed crab. If Tommy's crab shack sells 100 steamed crabs per day for $20 each, how much economic profit will Tommy earn in the long run? (Assume that the seafood vendors are operating in a monopolistically competitive market.) A 2000 B 1000 C 0 D There is not enough information

0

Calculate marginal revenue in the following case: price is $100 and 20 units are sold, then price drops to $99 and 21 units are sold.

79

At a bakery, which of the following operating characteristics might result in economies of scale? A Each oven requires one worker attending to it. B Two ovens can produce twice as many cakes as one oven. C A giant mixing container costs twice as much to operate as a small one but can mix 6 times as much dough daily. D Each cake produced uses the same amount of ingredients.

A giant mixing container costs twice as much to operate as a small one but can mix 6 times as much dough daily.

Price Discrimination

A producer charges different prices for different units of output of the same product for reasons other than differences in costs

All firms that are profit-maximizing, regardless of whether the demand curve is horizontal or downward-sloping, will produce where which of the following is true? A Marginal revenue is greater than price B Demand is elastic along the whole curve C Marginal cost is equal to price D Marginal cost is equal to marginal revenue

All firms that are profit-maximizing, regardless of whether the demand curve is horizontal or downward-sloping, will produce where which of the following is true? A Marginal revenue is greater than price B Demand is elastic along the whole curve C Marginal cost is equal to price D Marginal cost is equal to marginal revenue

Monopolistic Competition

An industry with many competitors, all producing slightly different products.

If average product is increasing as the variable input increases, which of the following is true? A Average cost must be increasing B Marginal cost must be increasing C Marginal cost must be decreasing D Average cost must be decreasing

Average cost must be decreasing

In a perfectly competitive industry, the industry demand curve is __________. A Upward sloping B Downward sloping C Horizontal D Vertical

Downward sloping

When a firm is experiencing economies of scale, the long-run average cost curve is _________. A Upward sloping B Horizontal C Downward sloping D At its minimum

Downward sloping

In the long-run, marginal cost will be ___________ average cost if the firm is experiencing economies of scale. A Below B Above C Equal to D None of the above. Marginal cost is a short-run concept.

Below

Marginal Analysis

Comparing the additional benefits resulting from a decision with marginal costs.

If the long-run average cost curve is horizontal, it implies that the firm is experiencing _________. A Constant returns to scale B Technical efficiency of inputs C Constant total costs D Unchanging levels of production

Constant returns to scale

A monopolist deciding to engage in price discrimination wants to keep the quantity produced the same (or close to the same) because which of the following is true? A Revenue will automatically go down with price discrimination. B Marginal revenue will be greater than price at that point. C Costs will decrease with an increase in quantity. D Costs will increase with an increase in quantity.

Costs will increase with an increase in quantity.

An increase in product differentiation created by advertising in a market with many firms will _______ the elasticity of demand facing the firm: A Increase B Decrease C Increase or decrease D Not change

Decrease

In the case of an increase in fixed costs, what will happen to the economic profits of the typical competitive firm? Economic profits will ________. A Not change B Increase C Decrease D Cannot tell

Decrease

Tony's Gas Station and Robert's Gas Station are the only two gas stations in a small town of Westville. If Tony and Robert collude to earn more profits, which of the following would be true? A Each limit the amount of gasoline available and raise prices B Each limit the amount of gasoline available and lower prices C Each increase the amount of gasoline available and raise prices D Each increase the amount of gasoline available and lower prices

Each limit the amount of gasoline available and raise prices

Which of the following is a characteristic of perfect competition? A Differentiated products B A small number of firms competing C Easy entry for firms D None of the above

Easy entry for firms

An electric power plant most likely experiences which of the following? A Constant returns to scale B Economies of scale C Diseconomies of scale

Economies of scale

Assume that competitive firms and a competitive market are in long-run equilibrium. What will happen in the long run if fixed costs increase? Firms will ______________ because economic profits have ______________. A Enter; decreased B Enter; increased C Exit; decreased D Exit; increased

Exit; decreased

A monopoly produces a level of output where demand is (elastic, inelastic, or unit elastic) ______________.

Elastic

A movie theater price discriminates by charging children and seniors lower prices than adults because their demand is ______________(elastic / inelastic).

Elastic

Given your answers to the previous questions, a monopolist will produce on the portion of the demand curve that is _______. A Elastic B Inelastic C Perfectly elastic D Either elastic or inelastic

Elastic

Marginal revenue is only positive when demand is _______. A Elastic B Inelastic C Neither elastic nor inelastic

Elastic

The marginal product of labor is 100 boxes of software and wages are $10 per hour. A machine that does the same work rents for $200 per hour and packages 1000 boxes per hour. If the firm is currently producing the amount it wishes, what should it do? A Expand labor and reduce capital, the marginal product of capital is greater than the marginal product of labor B Expand labor and reduce capital, as capital costs significantly more C Expand capital and reduce labor, as the additional output for each dollar spent is greater for capital than labor D Expand labor and reduce capital, as the additional output for each dollar spent is greater for labor than for capital

Expand labor and reduce capital, as the additional output for each dollar spent is greater for labor than for capital

As a firm increases output, long-run average costs typically _________. A Rise, peak, then fall B Fall, hit a minimum, then rise C Increase gradually D Remain constant

Fall, hit a minimum, then rise

When a firm earns zero economic profits, it does which of the following? A Has a positive accounting profit B Has a negative accounting profit C Cannot continue to produce and should shut down D Has opportunity costs that are larger than accounting profits

Has a positive accounting profit

The monopolist's economic profits will be ______________ than the total of the competitive firms' profits. A Higher B Lower C The same

Higher

The marginal product of an automobile assembly line worker is currently one automobile per month. The wage and benefits of that typical worker is currently $4,000 per month. A new robot will cost $20,000 per month and its marginal product is four automobiles per month. If the automobile company wants to continue producing its current level of output, which of the following should it do? A Hire more labor and buy fewer robots B Hire less labor and buy more robots C Hire more labor and more robots D Change neither the current levels of labor or robots

Hire more labor and buy fewer robots

Which of the following is a cause of diminishing marginal productivity? A In the long run, labor gets tired as more labor gets added to the production process. B In the short run, labor runs out of available capital as more labor gets added to the production process. C In the long run, capital depreciates as more capital gets added to the production process. D In the short run, capital gets more expensive as you add more capital to the production process.

In the short run, labor runs out of available capital as more labor gets added to the production process.

An increase in the prices of an input will cause long-run average costs to _________. A Increase B Decrease C Not change. The input is fixed. D Either increase or decrease, depending upon whether variable inputs are substituted.

Increase

In the case of an increase in demand, what will happen to the economic profits of the typical competitive firm? Economic profits will ________. A Not change B Increase C Decrease D Cannot tell

Increase

Which of the following is NOT true regarding perfectly competive markets? A. It is difficult or impossible for a firm to enter and compete in the market. B. All firms in the market are price takers. C. Homogenous goods are sold by the firms. D. The market contains many buyers and sellers.

It is difficult or impossible for a firm to enter and compete in the market.

Why can't a single firm in a perfectly competitive industry influence the market price? A Its costs are too high B It is not allowed to advertise C Its production level is too small to affect the market D It is a price maker

Its production level is too small to affect the market

A monopolistically competitive firm in the long run will produce an amount that is ______________ the quantity where average cost is at a minimum and charge a price that is ______________ marginal cost. A Equal to; greater than B Equal to; equal to C Less than; greater than D Less than; equal to

Less than; greater than

Diseconomies of Scale

Long-run average total cost increases as the quantity of output increases

Constant Returns to Scale

Long-run average total cost remains constant as the quantity of output increases

Accountants tell a franchise owner that she earned $30,000 in profits last year. The owner knows that most of her business acquaintances earned at least $70,000 in profits is similar franchises. Which of the following is true? Her firm earned an economic __________. A Profit of $30,000 B Profit of $100,000 C Loss of $100,000 D Loss of $40,000

Loss of 40,000

When comparing a monopoly and a perfectly competitive market where the costs are the same, the monopoly will produce a ______________ (greater / lower / same) quantity.

Lower

Economies of scale happen when increases in output result in _________. A Increasing average costs B Constant average costs C Lower average costs D Lower total costs

Lower average costs

A single oligopolistic firm charging a price where industry marginal revenue is equal to marginal cost will be tempted to _______ prices, because it faces a more ______ demand if it alone changes its price.

Lower; elastic

A monopoly would never produce where marginal revenue is negative because which of the following is true? A Marginal cost is always positive B Profits would automatically be negative C A firm is always trying to maximize revenue

Marginal cost is always positive

A large number of firms in Biergarten sell flavored beer. However, each firm faces a downward-sloping demand curve. The market for flavored beer is _________. A Perfectly competitive B A monopoly C A cartel D Monopolistically competitive

Monopolistically competitive

Rank each type of market on their prices from highest to lowest. Assume that there is a bit of competition among the oligopolies.

Monopoly Oligopoly Monopolistic competition Perfect competition

If a monopoly faces a demand curve that is downward-sloping, then marginal revenue will be which of the following? A Must be less than price B Must be equal to price C Must be greater than price D Is not related to the price

Must be less than price

Will a change in fixed costs change total variable cost? A Yes B No

No

ssume that competitive firms and a competitive market are in long-run equilibrium. In the short run, what will be the effects of an increase in fixed costs on the output of a typical firm in a competitive market? A An increase in output B A decrease in output C No change in output D Cannot tell

No change in output

In the long-run, the law of diminishing marginal product is the cause of _________. A Higher wage rates B Decreased firm output C Diseconomies of scale D None of the above

None of the Above

In a perfectly competitive market, a single firm that sets its price a small amount above the market price will do which of the following? A Make lower profits than other firms, but the exact amount less depends on the elasticity of demand for the product B Have lower revenues but receive zero economic profits C Not sell any units at all D Earn profits higher than other firms as long as the other firms continued to charge the market price

Not sell any units at all

Assume that average costs are the same for all firm sizes and types of market structure. Assume that oligopolies compete a bit with one another. Which of the following represents the likely ranking of prices, from low to high, in the long run? A Perfect competition, monopolistic competition, monopoly, oligopoly. B Perfect competition, oligopoly, monopolistic competition, monopoly. C Monopolistic competition, perfect competition, oligopoly, monopoly. D Perfect competition, monopolistic competition, oligopoly, monopoly.

Perfect competition, monopolistic competition, oligopoly, monopoly.

In perfect competition, the demand curve for an individual's firm product is _________. A Downward sloping B Relatively elastic C Perfectly inelastic D Perfectly elastic

Perfectly elastic

Which of the following is an example of a short-run decision for a firm? A Moving into a larger production facility B Moving to a smaller production facility C Getting more trucks to transport goods across the count D Reducing the number of workers at the firm

Reducing the number of workers at the firm

The addition of a single firm in a competitive market will cause the market ______________ to ______________. A Demand; increase B Demand; decrease C Supply; increase D Supply; decrease E Supply and demand; not change

Supply; increase

The marginal product of labor (MPL) can be defined as which of the following? A The change in output costs when another worker is hired B The change in output level as the result of hiring another worker C The change in the wage rate as the result of hiring another worker D The change in capital productivity when another worker is hired

The change in output level as the result of hiring another worker

Assume a firm is operating in the long-run. At the current level of output, MPL = 60 and MPK = 600. Also assume that in this industry, W = 20 and R = 200. Keeping output the same, how can this firm lower production costs? A Use more K and less L B Use more L and less K C The firm is already using the optimal cost-minimizing combination of inputs for this level of output.

The firm is already using the optimal cost-minimizing combination of inputs for this level of output.

Suppose an additional worker can handle an additional 10 orders per hour. That will cost $15 per hour. An additional telephone answering machine will handle an additional 20 calls per hour at a cost of $10 per hour. Which of the following is correct? A The firm should increase labor and decrease capital, because labor costs more per hour. B The firm should increase capital and decrease labor, because labor produces less per hour. C The firm should increase capital and decrease labor, because labor produces less per dollar spent. D The firm should increase labor and decrease capital, because labor produces less per dollar spent.

The firm should increase capital and decrease labor, because labor produces less per dollar spent.

Regarding perfect competition, what does it mean when the goods sold by the firms in a market are homogeneous? A Firms can produce the same good with different inputs and different costs. B The good sold by one firm is a perfect substitute of the good sold by another firm in the same market. C The firms in the market are the same size. D The goods sold by one firm are complements of the goods sold by another firm in another market.

The good sold by one firm is a perfect substitute of the good sold by another firm in the same market.

For a firm in a perfectly competitive market, average revenue equals ________. A The market price B Average total cost C Fixed cost D Price divided by quantity

The market price

Imagine two firms with identical cost structures that do not exhibit economies of scale at high levels of production. One is competing in a perfectly competitive market and one is a monopoly. In the long run which of the following is true? A The monopoly and the perfectly competitive firm will produce the same quantity B The monopoly and the perfectly competitive firm will charge the same price C The monopoly will charge a higher price than the perfectly competitive firm D The monopoly will sell a higher quantity than the perfectly competitive firm

The monopoly will charge a higher price than the perfectly competitive firm

For a firm in a perfectly competitive industry, the demand curve for its own product is _________. A Vertical B Downward sloping C The same as the marginal cost curve D The same as the price

The same as the price

Consider the market structure of perfect competition. What does the lack of entry barriers indicate? A All firms will end up producing a unique and different product B There are no significant obstacles preventing firms from entering and leaving the industry C No new firms can enter an already-established industry D Firms can enter the industry easily but cannot exit the industry easily

There are no significant obstacles preventing firms from entering and leaving the industry

Suppose a firm doubles its inputs in the long-run, and as a result, output doubles. Which of the following is true? A This firm is experiencing economies of scale. B This firm is experiencing constant returns to scale. C This firm is not using the lowest cost combination of capital and labor. D This firm is growing too fast and reducing profits.

This firm is experiencing constant returns to scale.

Marginal cost is the slope of _______. A The average cost curve B The average product curve C The total cost curve D The marginal product curve

Total cost curve

Average Revenue

Total revenue divided by the quantity sold

Accounting Profit

Total revenue minus explicit costs. Accounting profit that could be earned elsewhere is not counted as a cost.

Once firms have adjusted their hiring, a college-educated worker, whose marginal product is twice that of the typical worker with only a high-school education, should expect that her wages will be which of the following? A More than twice the amount of the high-school graduate B Twice the amount of the high-school graduate C Less than twice that of the high-school graduate D One cannot tell. The college worker may have better alternatives.

Twice the amount of the high-school graduate

Playoff Matrix

Two-by-two table with two actors or players. Each player has a set of actions that will result in different payoffs.

A firm's long-run total cost curve is ________. A Upward sloping B Downward sloping C Horizontal D Any of the above, depending on the industry

Upward sloping

For the next three questions, the following abbreviations are used. MPL = marginal product of labor. MPK = marginal product of capital. W = wage rate (the cost of a unit of labor). R = rental rate (the cost of a unit of capital). Assume a firm is operating in the long-run. At the current level of output, MPL = 30 and MPK = 50. Also assume that in this industry, W = 5 and R = 10. Keeping output the same, how can this firm lower production costs? A Use more K and less L B Use more L and less K C The firm is already using the optimal cost-minimizing combination of inputs for this level of output.

Use more L and less K

Select all explicit costs from the list below. Multiple answers: You can select more than one option A Wages B Raw materials C Revenues D Rent E Profit earned in similar businesses

Wages Raw Materials Rent

Can perfect competition have economic profits in the short run?

Yes

Will a change in fixed costs change total fixed cost? A Yes B No

Yes

What are economic profits at a firm's break-even point? A Positive and equal to fixed costs B Positive and equal to opportunity costs C Negative D Zero

Zero

If all firms in a perfectly competitive industry are required to adopt antipollution devices, the long-run results would be that the firms would be earning ______________ and the industry will be producing ______________ amounts of output. A Economic losses; greater B Zero economic profits; greater C Economic losses; smaller D Zero economic profits; smaller E Economic profits; greater

Zero economic profits; smaller

A perfectly competitive firm is experiencing the following short-run price and costs: P = $0.80, ATC = $2.20, AVC = $1.30, MC = $0.80. What short-run decision should this firm make? A Keep output the same B Increase the price it is selling at C Increase the output it is producing D Shut down production

Shut down production

Why are perfectly competitive markets are considered economically efficient? A There is only a small amount of deadweight loss B The opportunity cost of society for making the good is equal to society's value of the good. C Consumers enjoy the goods produced in these markets most D Firms always have low and identical costs

The opportunity cost of society for making the good is equal to society's value of the good.

In the theory of firm behavior, we assume that firms attempt to maximize _________. A Total revenue B Marginal revenue C The number of customers D Total economic profits

Total economic profits

If accounting profits equal $10 million for a firm and the owners could likely earn $7 million in a similar business, the firm's economic profit is ________. A $3 million B $7 million C $10 million D $13 million

3 million

In the short run, how will a decrease in variable costs affect the output of a typical firm in a competitive market? A An increase in output B A decrease in output C No change in output D Cannot tell

An increase in output

In the short run, how will an increase in demand affect the output of a typical firm in a competitive market? A An increase in output B A decrease in output C No change in output D Cannot tell

An increase in output

Assume that competitive firms and a competitive market are in long-run equilibrium. In the short run, what will be the effects of an increase in variable costs on the output of a typical firm in a competitive market? A An increase in output B A decrease in output C No change in output D Cannot tell

An increase in output AND A decrease in output

Given all the characteristics of perfect competition, which of the following is the main factor that affects consumers' decisions on which firm to purchase a good from? A Opinions of friends B Quality of the good C Price D Reputation of the firm

C Price

Select all implicit costs from the list below. A Wages B Raw materials C Revenues D Rent E Profit earned in similar businesses

Profit earned in similar businesses

OPEC is an example of ______. A Perfect competition B A monopoly C A cartel D Monopolistic competition

Cartel

If a monopoly faces a demand curve that is entirely above the average cost function, in the long run they will likely do what? A Continue to operate B Increase quantity C Decrease quantity D Exit the market

Continue to operate

An increase in fixed costs for a monopoly will do which of the following? A Increase the price B Decrease the economic profits C Lower the level of output D Lower marginal revenue

Decrease the economic profits

A decrease in variable costs will cause the monopoly to do what? A Decrease the price B Decrease the economic profits C Lower the level of output D Increase the marginal revenue

Decrease the price

Assume a constant-cost industry in a competitive market. What are the short-term effects of the following change? A decrease in variable costs in the short run will ______________ the equilibrium price and ______________ equilibrium quantity in the goods' market. A Not change; not change B Increase; decrease C Decrease; increase D Not change; increase

Decrease; increase

Assume a decreasing-cost industry in a competitive market. What are the long term effects of the following change? An increase in the demand for the good will ______________ the equilibrium price and ______________ equilibrium quantity in the goods' market. A Increase; increase B Increase; decrease C Decrease; not change D Decrease; increase

Decrease; increase

Assume a constant-cost industry in a competitive market. What are the long-term effects of the following change? A decrease in variable costs in the long run will cause the equilibrium price to ______________ and the equilibrium quantity in the market to ______________. A Not change; not change B Increase; decrease C Decrease; increase by more than in the short run D Decrease; increase less than in the short run

Decrease; increase by more than in the short run

A long-run average cost curve that rises through all levels of possible outputs represents which effect? A The law of diminishing marginal returns B Economies of scale C Diseconomies of scale D None of the above

Diseconomies of scale

In the long run, a monopolistically competitive firm will produce where price _________. A Equals marginal cost and is greater than average cost B Equals marginal and average cost C Equals average cost and is greater than the marginal cost D Is greater than marginal and average cost

Equals average cost and is greater than the marginal cost

Assume that competitive firms and a competitive market are in long-run equilibrium. What will happen in the long run as a result of that increase in variable costs in the previous question? Firms will ______________ because profits have ______________. A Enter; decreased B Enter; increased C Exit; decreased D Exit; increased

Exit; decreased

Consider the effect on costs of an increase in wages in an economy. What is the increase likely to do? A Increase short-run average costs, but not increase long-run average costs. B Increase short-run average costs and long-run average costs. C Increase long-run average costs, but not increase short-run average costs. D Increase neither short-run or long-run average costs, businesses will use less labor and more capital.

Increase short-run average costs and long-run average costs.

Suppose that the cost of capital decreases and the firm must now adjust its inputs accordingly. As the firm adjusts, which of the following best describes the effect on inputs? The marginal product of labor will ________; the marginal product of machines will _________.

Increase; decrease

Assume an increasing-cost industry in a competitive market. What are the long term effects of the following change? An increase in the demand for the good will ______________ the equilibrium price and ______________ equilibrium quantity in the goods' market. A Increase; increase B Increase; decrease C Decrease; not change D Not change; increase

Increase; increase

Assume that competitive firms and a competitive market are in long-run equilibrium. Assume a constant cost industry. In the short-run, an increase in demand will cause firm output to ______________ and the market price to ______________. A Increase; increase B Remain the same; increase C Remain the same; remain the same D Increase; remain the same

Increase; increase

Assume the price of coffee increases. If the market for tea is perfectly competitive and a constant cost industry, what will happen to the tea market in the long run? Output will ______________; prices will ______________; and economic profits will ______________ Indicate whether increase, decrease, cannot tell, or no change as before the price shift is correct for each blank space. A Increase; not change; not change B Decrease; increase; increase C Increase; not change; decrease D Decrease; decrease; not change

Increase; not change; not change

The clothing and attire retail market has seen an increased number of firms entering the industry. Thus, there is a lot of competition in markets for many types of clothing. What is the result of this high amount of competition? A Individual buyers and sellers cannot affect the market price. B Firms have a lot of flexibility in pricing their products. C One individual firm can determine the market price. D Some firms must necessarily leave since the prices will be too low.

Individual buyers and sellers cannot affect the market price.

A monopoly producing where marginal revenue equals marginal cost will do which of the following? Multiple answers: You can select more than one option A It will make positive profits B It cannot increase quantity and make a greater profit C It is producing at the highest profit possible in their market D It is producing where the additional revenue is just equal to the additional cost for each output

It cannot increase quantity and make a greater profit It is producing at the highest profit possible in their market It is producing where the additional revenue is just equal to the additional cost for each output

A profit-maximizing monopolist produces where marginal cost is equal to ________. A Price B Marginal revenue C 0 D The minimum

Marginal Revenue

A perfectly competitive firm will maximize profits at the output level where which of the following is true? A Average cost is equal to marginal revenue B Marginal cost is total revenue C Marginal cost is equal to marginal revenue D Average total cost is equal to average revenue

Marginal cost is equal to marginal revenue

An effective price ceiling in a competitive industry will mean that which of the following is true? A Marginal cost is greater than marginal revenue. B Marginal revenue is greater than marginal cost. C Marginal cost is equal to marginal revenue. D One cannot tell because the price ceiling prohibits the competitive firms from producing at a profit-maximizing rate of output.

Marginal cost is equal to marginal revenue.

If a monopoly increases the quantity above the profit-maximizing level which of the following will be true? Multiple answers: You can select more than one option A Marginal revenue will be lower than before B Marginal cost will be greater than marginal revenue C Price would decrease

Marginal revenue will be lower than before Marginal cost will be greater than marginal revenue Price would decrease

In which of the following markets do sellers have the highest profit level?

Monopoly

Suppose that the Peached Tortilla is one of ten food trucks in the town of Happyville, and every food truck is earning substantial economic profits. What is likely to happen in the long run? A Some food trucks will exit the markets. B Some food trucks will lay off their employees because their profits are not high enough. C New food trucks will enter the market and continue to earn economic profits D New food trucks will enter the market and gradually all food trucks will earn zero economic profits. E There is not enough information

New food trucks will enter the market and gradually all food trucks will earn zero economic profits.

Assume the following data. The marginal product of labor is 150 washed cars per day. The daily wage is $60. If the marginal product of machines that would wash cars is 200 per day and the rent for the machines is $80, what will the firm do?

Not change the number of machines or workers

Assume a constant-cost industry in a competitive market. What are the long-term effects of the following change? An increase in the demand for the good will ______________ the equilibrium price and ______________ equilibrium quantity in the goods' market. A Increase; increase B Increase; decrease C Decrease; not change D Not change; increase

Not change; increase

Assume a constant-cost industry in a competitive market. What are the short-term effects of the following change? An increase in fixed costs will ______________ the equilibrium price and ______________ equilibrium quantity in the market. A Not change; not change B Increase; increase C Decrease; increase D Not change; increase

Not change; not change

Suppose a firm doubles its inputs (therefore doubling its total costs as well). If this firm is experiencing diseconomies of scale, then __________. A Output will double B Output will increase, but less than double C Output will remain the same D Output will decrease

Output will increase, but less than double

Which of the following is true for a single firm in a perfectly competitive industry? A P = ATC B MR = AVC C P = MR D P > MR

P = MR

Match each type of market with whether or not their average costs at all outputs are as low as possible. Perfect competition Monopolistic competition Oligopoly Monopoly

PC: Yes MC: No Oligopoly: No Monopoly: No

Match each type of market with whether or not they achieve economic efficiency. Perfect competition Monopolistic competition Oligopoly Monopoly

PC: Yes MC: No Oligopoly: No Monopoly: No

Which market has its price equal to their marginal cost?

Perfect Competition

In which of the following markets do sellers act as price takers? A Perfect competition B Monopoly C Cartel D Monopolistic competition

Perfect competition

Rank each type of market on their industry quantities from highest to lowest. Assume that there is a bit of competition among the oligopolies.

Perfect competition Monopolistic competition Oligopoly Monopoly

Accounting profits at a firm's economic profit break-even point are ________. A Positive B Negative C Zero D Equal to the firm's total revenue

Positive

Marginal cost is always positive; therefore, marginal revenue at the profit-maximizing output will have to be ________. A Negative B Positive C Equal to 0

Positive

In the short run, perfectly competitive firms will produce where which of the following is true? A Marginal revenue is less than price B Price equals marginal cost C Price equals average cost D Average cost is a minimum

Price equals marginal cost

If a perfectly competitive industry is in long-run equilibrium, then which of the following is true? A Price equals minimum average cost. B Price equals minimum marginal cost C Accounting profits for all firms are zero D Economic profits for all firms are positive

Price equals minimum average cost.

A monopolistic competitive firm will incur loss if which of the following is true? A Price is higher than average total cost B Price is equal to marginal cost C Price is lower than marginal cost D Price is lower than average total cost

Price is lower than average total cost

In the long run, the monopolist ______________ (will/will not) produce a quantity where average cost is at a minimum, whereas the perfectly competitive firm ______________ (will/will not) produce that quantity. A Will; will B Will; will not C Will not; will D Will not; will not

Will not; will

Compare the levels of economic profits in a long-run equilibrium for a perfectly competitive firm, a monopoly, a monopolistically competitive firm, and an oligopoly. Economic profits will most likely be: A Zero in perfect competition and positive in monopoly, monopolistic competition and oligopoly B Zero in perfect competition and monopolistic competition, perhaps positive in a monopoly and perhaps positive in oligopoly C Zero in perfect competition, monopolistic competition, and oligopoly and perhaps positive in monopoly D Zero in all four market models E Positive in all four market models

Zero in perfect competition and monopolistic competition, perhaps positive in a monopoly and perhaps positive in oligopoly