Econ 302 lesson 8 concepts

suppose that a firm can produce its output at either of two plants. if profits are maximized, which of the following statements is true?

--the marginal cost at the first plant must be equal to marginal revenue -the marginal cost at the second plant must be equal to marginal revenue -the marginal cost at the two plants must be equal -ALL OF THE ABOVE

a country's government would like to raise the price of one of its most important agricultural crops, coffee beans. which of the following government programs will result in higher prices for coffee beans?

-an import on coffee beans -an acreage limitation program which provides coffee bean farmers financial incentives to leave some of their acreage idle -an import quota on coffee beans -ALL OF THE ABOVE

Facts regarding a monopoly

-monopoly is the sole producer in the market -monopoly price is determined from the demand curve -monopoly demand curve is downward sloping

which of the following policies could lead to a deadweight loss?

-price ceilings -price floors -policies prohibiting human cloning

what is not true about price floors?

-producers will often respond to a price floor by cutting production to the point at which price equals marginal cost

what are some examples of buyer interaction that may improve the effectiveness of monopsony power?

-professional sports leagues that coordinate salary structures for players across the teams -a buying cooperative in which members pool their purchases into one large order -(NOT)-labor unions that negotiate wage contracts for many workers who are employed by one firm

suppose that the marginal cost of an additional ton of steel produced by a Japanese firm is the same whether the steel is set aside for domestic use or exported abroad. If the price elasticity of demand for steel is greater than it is in Japan, which of the following will be correct?

-the Japanese firm will sell steel at a lower price abroad than they will charge domestic users

one way to remove the excess labor supply problem from a minimum wage policy is to have the government hire all unemployed workers at the minimum wage. What is the key drawback of this version of a minimum wage policy?

-the deadweight loss may increase substantially -the cost to the government may be very large

The clinton administration has recommended an increase in the tax on yachts to help pay for governments programs. Which of the following is true?

-the sales of yachts will decrease

what is the value of the Lerner index under perfect competition?

0

suppose a competitive market is in equilibrium at price P' and quantity Q'. If the demand curve becomes less elastic, but the same price-quantity equilibrium is maintained, what happens to consumer and producer surplus?

CS increases and PS remains the same

a situation in which unregulated competitive market outcome is inefficient because prices fail to provide proper signals to buyers and sellers is known as:

a market failure

unlike a competitive buyer,

a monopsonist pays a price that depends on the number of units purchased

what is unlikely to occur as a result of a price support program?

a reduction in producer surplus

When the federal government installs a price support program that requires the government to purchase all of a good not bought in the private economy at the support price, changes in producer surplus

are positive, but more than offset by the cost to consumers and the government

producer surplus is measured as the

area above the supply curve up to the market price

deadweight loss from monopoly power is expressed on a graph as the area between the

average revenue curve and the marginal cost curve bounded by the quantities produced by competitive and monopoly markets

a manufacturer of digital music players uses a proprietary file format that is not used by the other firms in the market. this action by the firm may be an example of using a _______ to reduce the number of firms in the market and to maintain a relatively inelastic demand for its products

barrier to entry

predatory pricing is defined to be

behavior designed to drive out current competition

A local restaurant sells pie for $3.00 per slice. However, if you order the prime rib dinner, you can get a slice of pie for only a dollar. This is an example of

bundling

In an unregulated, competitive market consumer surplus exists because some

consumers are willing to pay more than the equilibrium price

bundling products makes sense for the seller when

consumers have heterogeneous demand; firms cannot price discriminate

The antitrust laws in the US are...

deigned to promote a competitive company

second-degree price discrimination is the practice of charging

different prices for different quantity blocks of the same good or service

bundling is effective when the demands for the bundled products are ______and _______ correlated

different; negatively

for a competitive buyer, the marginal expenditure per unit of an input

equals the average expenditure per unit

under perfect price discrimination, consumer surplus

equals zero

for a monopsony buyer, the marginal expenditure per unit of an input...

exceeds the average expenditure per unit

a minimum wage policy includes an:

excess supply of labor

when government intervenes in a competitive market by imposing an effective price ceiling, we would expect the quantity supplied to _______ and the quantity demanded to _______.

fall; rise

assume that a profit maximizing monopolist is producing a quantity such that marginal revenue exceeds marginal cost. We can conclude that the

firm's output is smaller than the profit maximizing quantity s

compared to the equilibrium price and quantity sold in a competitive market, a monopolist will charge a ______ price and sell a ________ quantity

higher; smaller

governments may successfully intervene in competitive markets in order to achieve economic efficiency

in cases of both positive and negative externalities

the burden of a tax per unit of output will fall heavily on consumers when demand is relatively _______ and supply is _______

inelastic; elastic

when the demand curve is downward sloping, marginal revenue is

less than price

the _______elastic a firm's demand curve, the greater its_______

less; monopoly power

For national security reasons a government decides that all of its base metal industry should not be located in the same geographical region as it is presently. The government decides to allocate production quotas to firms in different parts of the country, but does not restrict in any way the transactions between consumers and base metal producers. This scheme is

likely to be inefficient as some of the industry's output is not produced by the firms with the lowest cost

You produce stereo components for sale in two markets, foreign and domestic, and the two groups of consumers cannot trade with one another. You will charge the higher price in the market with the

lower own price elasticity of demand (more inelastic demand)

price ceilings

may decrease consumer surplus if demand is sufficiently inelastic

Suppose Orange Inc sells MP3 players and initially has monopoly power because there are only a few close substitutes available to consumers. As more types of MP3 players are introduced into the market, the demand facing Orange becomes ____ elastic and the Lerner index achieve by the firm in this market ______.

more, declines

when the government imposes a specific tax per unit on a product, changes in consumer surplus are ________ and changes in producer surplus are _________.

negative; negative

deadweight loss refers to

net losses in total surplus

a form of implicit collusion in which one firm consistently follows the actions of another firm is:

parallel conduct

when a drug company develops a new drug it is granted a ______ making it illegal for other firms to enter the market until the ______ expires

patent; patent

In 1994, the Walt disney corporation ran a special promotion on tickets to disneyland. residents of so cal who lived near the amusement park were offered admission at the special price of $22. other visitors to disneyland were charged about $30. this practice is an example of:

price discrimination

an effective price ceiling causes a loss of

producer surplus for certain and possibly consumer surplus as well

suppose a firm has market power and faces a downward sloping demand curve for its product, and its marginal cost curve is upward sloping. If the firm reduces its price then:

producer surplus increases due to new buyers, but the producer surplus from existing customers declines due to the lower price

In an unregulated, competitive market consumer surplus exists because some

producers are willing to sell at less than the equilibrium price

the manager of a firm is attempting to practice third degree price discrimination. she has equated the marginal revenue in each of her markets. By doing this her

revenues are maximized given her level of output

an electric power company uses block pricing for electricity sales. block pricing is an example of

second-degree price discrimination

monopoly power results from the ability to

set price above marginal cost

a price support may be pictured by

shifting the demand curve to the right by the amount of the government purchase

The Lerner index measures..

the amount of monopoly power a firm chooses to exercise when maximizing profits

consumer surplus measures

the benefit that consumers receive from a good or service beyond what they pay

Under a binding price ceiling, what does the change in producer surplus represent?

the loss in surplus associated with those units that used to be produced at the higher price but are no longer produced at the lower price

the more elastic the demand facing a firm

the lower the value of the Lerner index

the consumer's gain from the imposition of a price ceiling is higher when

the own price elasticity of market demand is low and the price elasticity of market supply is low

a doctor charges two different prices for medical services, and the price level depends on the patients' income such that wealthy patients are charged more that poorer ones. this pricing scheme represents a form of

third-degree price discrimination

producer surplus for the whole market can be thought of as

total profit plus factor rents earned by lower cost firms