Econ 102 Midterm #3

produce at a profit.

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

be at the level of zero economic profit for each firm.

If there is free entry and exit in a perfectly competitive industry, the long-run equilibrium will:

-$5,000.

Wendy has a monopoly in the retailing of motor homes. She can sell five per week at $21,000 each. If she wants to sell six, she can only charge $20,000 each. The price effect of selling the sixth motor home is:

a proportionate saving in costs gained by an increased level of production

What are economies of scale?

a game in which players act in rational, self-interested ways that leave everyone worse off

What is a prisoner's dilemma?

optimal output level.

When a firm produces at an output level at which MR = MC, it is operating at the:

allocate all of their resources efficiently.

When a perfectly competitive industry is in long-run equilibrium, its firms:

They are all price-takers.

When perfect competition prevails, which of the following characteristics of firms are we likely to observe?

A. Firms produce a standardized product.

Which of the following is a necessary condition for perfect competition? A. Firms produce a standardized product. B. Movement into and out of the market is limited. C. A small number of firms control a large share of the total market. D. Extensive advertising is used to promote the firm's product.

price to rise, output to fall, consumer surplus to fall, producer surplus to rise, and deadweight loss to rise.

Suppose a perfectly competitive market is suddenly transformed into one that operates as a monopoly market. We would expect: A. price to rise, output to fall, consumer surplus to fall, producer surplus to fall, and deadweight loss to rise. B. price to rise, output to fall, consumer surplus to rise, producer surplus to rise, and deadweight loss to fall. C. price to rise, output to fall, consumer surplus to fall, producer surplus to rise, and deadweight loss to rise. D. price to fall, output to rise, consumer surplus to rise, producer surplus to fall, and deadweight loss to fall.

firms leaving the industry.

Suppose that the market for candy canes operates under conditions of perfect competition, that it is initially in long-run equilibrium, and that the price of each candy cane is $0.10. Now suppose that the price of sugar rises, increasing the marginal and average total cost of producing candy canes by $0.05; there are no other changes in production costs. Based on the information given, we can conclude that in the long run we will observe:

total revenue minus total cost.

A firm's profit is equal to

decreasing; decreasing

A monopolist responds to a decrease in demand by ________ price and ________ output.

A. raise; decrease

A monopolist's marginal cost curve shifts up, but the firm's demand curve remains the same and the firm does not shut down. Compared to the condition before the increase in marginal costs, the monopolist will ________ its price and ________ its level of production. A. raise; decrease B. not change; decrease C. raise; increase D. lower; increase

technological change.

A monopoly can be temporary because of:

decrease production.

A competitive firm facing a price of $15 decides to produce 100 units. If the marginal cost of producing the last unit is $20, the firm should:

industry supply curve.

A curve that shows the quantity of a good or service supplied at various prices after all long-run adjustments to a price change have been completed is a long-run:

C. over the entire range of output demanded is called a natural monopoly.

A firm that has economies of scale: A. at lower levels of output and then encounters diseconomies of scale at higher levels of output is a natural monopoly. B. at any particular level of output is called a natural monopoly. C. over the entire range of output demanded is called a natural monopoly. D. has a continually rising long-run average cost curve.

D. not produce in the inelastic portion of its demand curve.

A monopolist with a linear demand curve will: A. produce regardless of elasticity, since it is a monopolist. B. produce only at the unit price-elastic portion of its demand curve. C. not produce in the elastic portion of its demand curve. D. not produce in the inelastic portion of its demand curve.

price-taker.

A perfectly competitive firm is a:

P > ATC.

A perfectly competitive firm is definitely earning an economic profit when:

$100.

A perfectly competitive firm is producing 100 units (profit maximizing). If the price is $12 marginal cost is $12, and average total cost is $11, this firm's profits are:

MR = MC.

A perfectly competitive firm maximizes profit by producing the quantity at which

greater than average variable cost and less than average total cost.

A perfectly competitive firm will incur an economic loss but will continue to produce the profit-maximizing quantity of output in the short run if the price is:

marginal cost curve above the average variable cost curve.

A perfectly competitive firm's short-run supply curve is its:

output will increase.

A perfectly competitive industry with constant costs initially operates in long-run equilibrium. When demand increases, one will observe that in the long and short runs:

cannot affect the market price of the product.

A price-taking consumer is one who:

lower; worse

Amtrak is a publicly owned company that provides rail service. This means that Amtrak's prices tend to be ________ than if it were a private company, and the quality of service tends to be ________ than if it were a private company.

will likely end up behaving like a perfectly competitive industry.

Engaging in price competition or Bertrand behavior will most likely mean oligopolists:

total cost more than total revenue.

For a firm producing at any level of output greater than the most profitable one, a reduction in output decreases:

that the number of producers will adjust to changing market conditions.

Free entry and exit in an industry guarantees:

oligopolists.

Given the large amount of interdependence among them, cooperation with one's competitors is the most profitable strategy for:

small; standardized; little, if any

If a Florida strawberry wholesaler operates in a perfectly competitive market, that wholesaler will have a ________ share of the market, and consumers will consider her strawberries to be ________. Therefore, ________ advertising will take place in this market.

can be increased by increasing price.

If a monopolist is producing a quantity that generates MC > MR, then profit:

B. can be increased by decreasing production.

If a monopolist is producing a quantity that generates MC > MR, then profit: A. is maximized only if MC = P. B. can be increased by decreasing production. C. can be increased by increasing production. D. is maximized.

fall; increase

If a monopoly market structure was transformed into a perfectly competitive one, one would find that price would ________ and output would ________.

cut output to zero.

If a perfectly competitive firm can sell a bushel of soybeans for $25 and it has an average variable cost of $26 per bushel and the marginal cost is $26 per bushel, the firm should:

cut output to zero.

If a perfectly competitive firm can sell a bushel of soybeans for $40 and it has an average variable cost of $50 per bushel and the marginal cost is $52 per bushel, the firm should:

$4

If a perfectly competitive firm has total revenue equal to $400 when it produces 100 units, and if its total revenue rises to $404 when it produces 101 units, then the price it is charging is

is maximized.

If a perfectly competitive firm is producing a quantity where MC = MR, then profit

is maximized.

If a perfectly competitive firm is producing a quantity where P = MC, then profit:

can be increased by increasing production.

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

supply; output; increase

If economic profits exist in perfect competition, then firms will enter in the long run because of easy entry, the ________ curve will shift to the right, and ________ in the market will ________.

fall; fall

If firms are experiencing economic losses in the short run, firms will leave the industry, industry output will ________, and economic losses will ________ in the long run.

firms will enter the industry.

If firms are making positive economic profits in the short run, then in the long run:

the long-run industry supply curve will slope up.

If many firms enter the computer software industry and bid up the price of programmers, then

increase production.

If the marginal revenue for the next unit being produced is $50, but the marginal cost is $45, the firm should:

There is not enough information given to answer this question.

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

B. the firm will require subsidization or it will go out of business.

If the regulation of a monopoly results in a price equal to marginal cost but the price is below average total cost: A. the firm will earn only a zero economic profit. B. the firm will require subsidization or it will go out of business. C. efficiency in allocation will be less. D. the firm can still make an economic profit.

it is illegal and because there is an incentive for each firm to cheat on a collusive agreement.

In an oligopolistic market structure, collusion between firms usually leads to higher profits than noncooperative behavior. However, formal, overt collusion doesn't usually occur in the United States because:

may have economic profits in the long run.

In contrast with perfect competition, a monopolist:

$10

Quantity of cherries (in pounds) Price per pound of cherries Total cost 1 $6 $6 2 $6 $11 3 $6 $13 4 $6 $16 5 $6 $20 6 $6 $28 7 $6 $38 The table above gives the total cost information for Hank and Helen's cherry farm. They sell their cherries in a perfectly competitive market, where the price is $6.00 per pound. If Hank and Helen produce and sell 5 pounds of cherries, what is their profit?

marginal revenue exceeds its marginal cost.

Suppose a perfectly competitive firm can increase its profits by increasing its output. Then it must be true that the firm's:

competitive.

Suppose there are 10 identical firms in an industry and each produces 10% of the total market sales. The HHI for this industry would indicate that the industry is:

both to select low prices.

Suppose two firms are in a game situation, and they each must decide on a strategy regarding whether to select a high price or a low price. Profits for a firm are highest when it selects a low price, while the other selects a high price; profits are lowest if one selects a high price, while the other selects a low price; profits are in between when both select low prices; and profits are slightly higher when both select high prices. In the absence of collusion we expect

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

You own a lemonade stand in a competitive lemonade market, and as such, you are a price-taking firm. Which of the following events would most likely increase your market power? A. The average total cost curve for firms in the industry is horizontal. B. The government abolishes the system of patents and copyrights. C. A booming economy increases the demand for lemonade and attracts entry into the market. D. You own exclusive rights to harvest lemons from all domestic citrus orchards.

continue to operate even though she is taking an economic loss.

Zoe's Bakery determines that P < ATC and P > AVC. Zoe should:

$5; $150

Zoe's Bakery operates in a perfectly competitive industry. When the market price of iced cupcakes is $5, the profit-maximizing output level is 150 cupcakes. Her average total cost is $4, and her average variable cost is $3. Zoe's marginal cost is ________, and her short-run profits are:

if the firm produces the quantity at which P > ATC, then the firm is profitable.

For a perfectly competitive firm in the short run:

Nash equilibrium

A ________ occurs if all players in a game play their best strategies given what their competitors do

players may or may not have dominant strategies.

In a Nash equilibrium,

economic profit is positive.

If a firm produces a quantity at which total revenue exceeds total cost, then:

to signal to each other that they intend to charge the high price

Suppose Wal-Mart and Target both advertise that they will match the lowest price offered by any competitor. What is the purpose of such a strategy?

tit-for-tat strategy

Which of the following is a form of strategic behavior defined as behavior intended to influence the future actions of other players?

Each firm sets its price equal to its average total cost.

Which of the following is not an assumption that economists make when using the model of perfect competition?

an individual firm cannot alter the market price even if it doubles its output.

If all firms in an industry are price-takers, then:

higher; inelastic

In order to maximize profits, an airline will offer ________ prices to customers with ________ demand.

5

Quantity Price Total Cost 1 $6.50 $6 2 $6.50 $11 3 $6.50 $13 4 $6.50 $16 5 $6.50 $20 6 $6.50 $28 7 $6.50 $38 The table above gives the total cost information for a perfectly competitive firm. What is the profit-maximizing quantity of output?

There are few buyers in the market.

Which of the following would make it difficult for oligopolists to collude?

an increase of $45 and a decrease of $50.

Mr. Porter sells 10 bottles of champagne per week at a price of $50 per bottle. He can sell 11 bottles per week if he lowers the price to $45 per bottle. The quantity and the price effects on total revenue would be, respectively:

barriers to entry.

Control of a scarce resource or input, economies of scale, technological superiority, and government-created barriers are forms of:

A. all firms produce at the minimum point of their average total cost curves.

In perfectly competitive long-run equilibrium:

there are two equilibria: either can expand in the West, and the other expands in the South.

In the game in Scenario 13.5,

produce at an output level at which average total cost equals marginal cost.

In the long run, all of the firms in a perfectly competitive industry will:

does not produce output and incurs an economic loss.

In the short run, if P < AVC, a perfectly competitive firm:

monopoly

In which type of market structure does the firm have no close substitutes for its product?

equals the market price in perfect competition.

Marginal revenue:

d. described by all of these answer choices.

OPEC is: a. the Organization of Petroleum Exporting Countries. b. an international cartel made up of oil-producing countries. c. the cartel that was responsible for the large increases in crude oil prices in the 1970s. d. described by all of these answer choices.

small; interdependent; identical or differentiated

Oligopoly is a market structure that is characterized by a ________ number of ________ firms that produce ________ products.

the inability of any one firm to influence price.

Perfect competition is characterized by:

lower; more elastic

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

C. higher; less elastic

Price discrimination leads to a ________ price for consumers with a ________ demand. A. lower; less elastic B. higher; more elastic C. higher; less elastic D. higher; perfectly elastic

less elastic; higher; more elastic; lower

Price-discriminating firms will impose a price structure that offers customers with a ________ demand a ________ price and offers customers with a(n) ________ demand a ________ price.

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

Price-takers are individuals in a market who:

was aimed at preventing the creation of more monopolies and was the beginning of antitrust policy.

The Sherman Antitrust Act:

C. market power.

The ability of a monopolist to raise the price of a product above the competitive level by reducing the output is known as:

marginal revenue.

The addition to the total revenue from selling one more unit of the good is:

firms in the market accept the market price as given.

The assumptions of perfect competition imply that:

the minimum value of average total cost.

The break-even price for a perfectly competitive firm is equal to:

C. the industry demand curve.

The demand curve for a monopoly is: A. horizontal because no one can enter. B. the sum of the supply curves of all of the firms in the monopoly's industry. C. the industry demand curve. D. perfectly elastic.

doing so increases its profits.

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

$3.25 per pound.

The market for beef is in long-run equilibrium at a price of $3.25 per pound. The announcement that mad cow disease has been discovered in the United States reduces the demand for beef sharply, and the price falls to $2.00 per pound. If the long-run supply curve is horizontal, then when the long-run equilibrium is reestablished, the price will be:

marginal cost.

The slope of the total cost curve is:

is $4.67.

When perfectly competitive firm X sells three units of product Z, its marginal revenue is $4.67. When it sells 100 units, marginal revenue is $4.67. We can conclude that the price:

C. Street vendors increase the price of umbrellas when it is raining.

Which of the following is not an example of price discrimination? A. A country club requires members to pay annual dues, but members receive discounted prices to golf. B. Ladies receive free admission into a nightclub, while men must pay a cover charge. C. Street vendors increase the price of umbrellas when it is raining. D. College students receive a discount at the ice cream store when they show their college ID cards.

D. The long-run industry supply curve relates the price of a good or service to the quantity produced after all adjustments to a price change have been made.

Which of the following is true? A. In perfectly competitive industries, the long-run supply curve is always horizontal. B. In establishing the long-run industry supply curve, factor costs and the number of firms are held constant. C. Every point on a long-run industry supply curve shows a price and quantity supplied at which firms in the industry are earning positive economic profit. D. The long-run industry supply curve relates the price of a good or service to the quantity produced after all adjustments to a price change have been made.

C. The profit-maximizing solution occurs where MR = MC.

Which of the following is true? A. The profit-maximizing solution occurs where MR > MC. B. Additional units of a good should be produced as long as MR < MC. C. The profit-maximizing solution occurs where MR = MC. D. Profit-maximizing behavior occurs only in perfectly competitive markets.

B. If price falls below average variable cost, the firm will shut down in the short run.

Which of the following is true? A. Total revenue and marginal revenue are the same in perfect competition. B. If price falls below average variable cost, the firm will shut down in the short run. C. Economic profit is always positive in the long run. D. Economic profit per unit is found by subtracting MC from price.

c. Coca-Cola and Pepsi sell most of the soft drinks consumed around the world.

Which of the following scenarios best describes an oligopolistic industry? a. A single cable company serves customers in a small town. b. Thousands of soybean farmers sell their output in a global commodities market. c. Coca-Cola and Pepsi sell most of the soft drinks consumed around the world. A college has one bookstore selling textbooks to students.