Econ Chapters 5,7,8
Suppose the inverse linear demand function is, (P=20-4Q) The maximum price a monopolist can charge to sell 3 units is $_____. The marginal revenue when Q=3 is $_____.
$8, -$4
Ten firms compete in a market to sell product X. The total sales of all firms selling the product are $2,500,000. Ranking the firms' sales from highest to lowest, we find the top four firms' sales to be $240,000, $220,000, $200,000, and $178,000, respectively. Calculate the four-firm concentration ratio in the market for product X.
(240,000+220,000+200,000+178,000)/2,500,000 = 0.34 or 34%
Ten firms compete in a market to sell product X. The total sales of all firms selling the product are $2 million. Ranking the firms' sales from highest to lowest, we find the top four firms' sales to be $260,000, $220,000, $150,000, and $130,000, respectively. Calculate the four-firm concentration ratio in the market for product X.
(260,000+220,000+150,000+130,000)/2,000,000 = 0.38
Suppose the production function is given by Q = 3K + 4L. What is the average product of capital when 5 units of capital and 10 units of labor are employed? a) 3 b) 4 c) 45 d) 11
d) 11 (3(5) + 4(10))/5 = 11
What exists when an increase in the output of one product reduces the marginal cost of a second product? a) Economies of scope b) Economies of scale c) Cost substitutability d) Cost complementarity
d) Cost complementarity
Suppose it is cheaper for an auto maker to produce hybrid vehicles and diesel SUVs in the same factory than it is to have two separate facilities for each vehicle. What condition exists? a) Diseconomies of scale b) Economies of scale c) Constant returns to scale d) Economies of scope
d) Economies of scope
Graphically, what is the distance between total cost (TC) and variable cost (VC)? a) Short-run cost b) Average cost c) Marginal cost d) Fixed cost
d) Fixed cost
When each additional unit of an input increases total output by more than did the previous unit, the firm is experiencing: a) Constant returns to scale b) Decreasing marginal returns c) Decreasing marginal cost d) Increasing marginal returns
d) Increasing marginal returns
Consider a firm that operates in a market that competes aggressively in prices. Due to the high fixed cost of obtaining the technology associated with entering this market, only a limited number of other firms exist. Furthermore, over 70 percent of the products sold in this market are protected by patents for the next eight years. Does this industry conform to an economist's definition of a perfectly competitive market? a) Yes, because there are multiple sellers and not everyone has a patent. b) No, because there are not many buyers and there is perfect information. c) Yes, because there is aggressive price competition. d) No, because there are not many sellers and there is not free entry.
d) No, because there are not many sellers and there is not free entry.
Determine a fundamental difference between monopolistic competition and perfect competition. a) Many buyers and sellers in perfect competition b) Products in perfect competition are differentiated c) Free entry and exit in monopolistic competition d) Products in monopolistic competition are differentiated
d) Products in monopolistic competition are differentiated
The Rothschild index (R) is given by: a) |(ET*EF)| b) R = ET*EF c) R = EF/ET d) R = ET/EF
d) R = ET/EF
According to the structure-conduct-performance paradigm, which of the following explain the relationship of structure, conduct, and performance in industry? (select all that apply) a) The Lerner index b) The four-firm concentration ratio c) The input-output paradigm d) The five-forces framework e) The causal view f) The feedback critique
d) The five-forces framework e) The causal view f) The feedback critique
Which of the following conditions is true when a producer minimizes the cost of producing a given level of output? a) The MRTS is equal to the ratio of the quantity of inputs b) The marginal products of all inputs are equal c) The marginal product per dollar spent on all inputs is equal and the MRTS is equal to the ratio of the quantity of inputs d) The marginal product per dollar spent on all inputs is equal
d) The marginal product per dollar spent on all inputs is equal
Given the rearranged Lerner index, P = (1/1-L)*MC, the term, (1/1-L), is considered which of the following? a) Price elasticity of demand b) The Rothschild index c) The discount factor d) The mark up factor
d) The mark up factor
C(Q)/Q, defines a) short-run cost function b) marginal cost c) average short-run cost d) average total cost
d) average total cost
Which curve(s) does the marginal cost curve intersect at the (their) minimum point? a) averaged fixed cost curve b) average total cost curve and average variable cost curve c) average variable cost curve d) average total cost curve
d) average total cost curve
When increasing the output of one product reduces the marginal cost of another product, it is called a) diseconomies of scale b) economies of scale c) diseconomies of scope d) cost complementarity e) economies of scope
d) cost complementarity
The sum of all variable and fixed costs is the firm's _____ a) budget constraint b) profit profile c) isocost function d) cost function
d) cost function
Suppose the cost function is C(Q) = 50 + Q − 10Q^2 + 2Q^3. At 3 units of output, the marginal cost curve is: a) at the minimum level b) in the declining stage c) at the maximum level d) in the increasing stage
d) in the increasing stage
When a monopolist increases output by one unit, total revenue a) does not change b) increases by the amount of the price c) increase by more than price d) increases by less than price
d) increases by less than price
According to the law of diminishing marginal rate of technical substitution, as a producer uses _____ of an input, _____ of the other input must be used to achieve the same level of output. a) more; the same amount b) less; less c) less; the same amount d) less; more
d) less; more
Suppose the marginal product of labor is 8 and the marginal product of capital is 2. If the wage rate is $4 and the price of capital is $2, then in order to minimize costs the firm should use: a) three times more capital than labor b) more capital and less labor c) none of the answers are correct d) more labor and less capital
d) more labor and less capital
When there are economies of scope between products, selling off an unprofitable subsidiary could lead to: a) only a minor reduction in costs b) a major reduction in costs c) a major reduction in sales d) only a minor reduction in sales
d) only a minor reduction in sales
In order to maximize profits in the short run, a manager must determine how much output to produce given a) Both variable and fixed inputs b) the cost of fixed inputs c) only fixed inputs within his control d) only variable inputs within his control
d) only variable inputs within his control
Firms gain technological advantages when they use research and development to acquire a) inputs b) other firms c) copyrights d) patents
d) patents
To minimize the cost of producing a given level of output, the marginal product per dollar spent should be _____ for all inputs.
equal (=)
A perfectly competitive firm maximizes profits at the level of output such that market price ____ marginal cost (MC)
equals
Insert one word OR mathematical operator into the following expression to demonstrate the cost-minimizing input rule. MPL/MPK ___?___ w/r
equals (=)
A cost that does not change with output is called a _____ cost
fixed
Costs that do not change when output changes are called _______ costs
fixed
The difference between average total cost (ATC) and average variable cost (AVC) is average _____ cost
fixed
The market structure where a firm has a large degree of market power is called _____
monopoly
If MPL/w < MPK/r the firm should use _____ (less/more) capital and _____ (less/more) labor to minimize costs.
more, less
In perfect competition, marginal revenue is equal to market _____
price
In a monopoly, the Rothschild index is _____
unity
If the price elasticity of demand for running shoes is -1.8 and the price elasticity or particular brand of running shoes is -3.75, the Rothschild index for this industry is _____. (Round to two decimal places)
0.48
A firm in monopolistic competition faces a demand function equal to: P=200-2Q, and a cost function equal to: C(Q)=10+4Q. The profit-maximizing price equals $_____.
102
Suppose that increasing output from 1000 units to 1100 units increases costs from $5,500 to $7,000. The marginal cost of producing each of the additional units is $_____.
15
Suppose the linear product function for a firm is given by: Q = F(K,L) = 3K+2L. If the firm employs 3 machines and 5 workers, output is equal to __________
19
Assume that each unit of labor costs $500. If a worker's marginal product of labor (MPL) equals 115 and the firm sell its product for $6.00, the value of the additional output exceeds the cost of hiring the worker by $_____
190
A firm in monopolistic competition faces a demand curve with own-price elasticity equal to -5 and an advertising elasticity equal to 0.15. The firm should devote _____% of its revenues to advertising.
3%
A firm in monopolistic competition faces a demand function equal to: P=200-2Q, and a cost function equal to C(Q)=10+4Q. The profit-maximizing level of output equals _____ units.
49
The A-1 Corporation supplies airplane manufacturers with preformed sheet metal panels that are used on the exterior of aircraft. Manufacturing these panels requires only five sheet metal-forming machines, which cost $500 each, and workers. These workers can be hired on an as-needed basis in the labor market at $9,000 each. Given the simplicity of the manufacturing process, the preformed sheet metal panel market is highly competitive. Therefore, the market price for one of A-1's panels is $80. Based on the production data in the accompanying table, how many workers should A-1 hire to maximize its profits? Machines | Workers | Output 5 | 0 | 0 5 | 1 | 600 5 | 2 | 1000 5 | 3 | 1290 5 | 4 | 1480 5 | 5 | 1600 5 | 6 | 1680 Number of workers: ???
5
Suppose a firm produces 1000 units of a good. If fixed costs (FC) equal $2500 and variable costs (VC) equal $3700 at that output level, average total cost (ATC) of each unit is equal to $________.
6.2
If a worker's marginal product of labor (MPL) equals 115 and the firm sells its product for $6.00, what is the value marginal product of labor (VMPL)?
690
In the aftermath of a hurricane, an entrepreneur took a one-month leave of absence (without pay) from her $5,000 per month job in order to operate a kiosk that sold fresh drinking water. During the month she operated this venture the entrepreneur paid the government $2,500 in kiosk rent and purchased water from a local wholesaler at a price of $1.34 per gallon. If consumers were willing to pay $2.25 to purchase each gallon of fresh drinking water, how many units did she have to sell in order to turn an economic profit? Instruction: Enter your responses rounded up to the nearest gallon.
8242 gallons
Suppose a cost function is given by C(Q) = 3Q+4Q^2. If output equals 12, the value of marginal cost equals $_____.
99
An economist estimated that the cost function of a single-product firm is: C(Q) = 100 + 20Q + 15Q2 + 10Q3. Based on this information, determine the following: a. The fixed cost of producing 10 units of output. $ b. The variable cost of producing 10 units of output. $ c. The total cost of producing 10 units of output. $ d. The average fixed cost of producing 10 units of output. $ e. The average variable cost of producing 10 units of output. $ f. The average total cost of producing 10 units of output. $ g. The marginal cost when Q = 10. $
C(Q) = 100 + 20Q + 15Q^2 + 10Q^3 (a) Fixed cost (FC) = $100 (which is fixed irrespective of output level) (b) Variable cost (VC) = 20Q + 15Q^2 + 10Q^3 When Q = 10, VC = (20 x 10) + (15 x 10^2) + (10 x 10^3) = 200 + 1,500 + 10,000 = $11,700 (c) Total cost (TC) = FC + VC = $(100 + 11,700) = $11,800 (d) Average fixed cost (AFC) = FC/Q = $100 / 10 = $10 (e) Average variable cost (AVC) = VC/Q = $11,700 / 10 = $1,170 (f) Average total cost (ATC) = TC/Q = $11,800 / 10 = $1,180 (g) Marginal cost (MC) = dC(Q)/dQ = 20 + 30Q + 30Q^2 When Q = 10, MC = 20 + (30 x 10) + (30 x 10^2) = 20 + 300 + 3,000 = $3,320
In an oligopoly, concentration ratios are close to _____
One (1)
In general, agriculture is considered a ____ ____ market. (2 words)
Perfectly Competitive
A manager hires labor and rents capital equipment in a very competitive market. Currently the wage rate is $12 per hour and capital is rented at $8 per hour. If the marginal product of labor is 50 units of output per hour and the marginal product of capital is 70 units of output per hour, should the firm increase, decrease, or leave unchanged the amount of capital used in its production process?
The firm should increase capital
A manager hires labor and rents capital equipment in a very competitive market. Currently the wage rate is $12 per hour and capital is rented at $8 per hour. If the marginal product of labor is 60 units of output per hour and the marginal product of capital is 45 units of output per hour, should the firm increase, decrease, or leave unchanged the amount of capital used in its production process?
The firm should increase capital
A firm produces output according to the production function: Q = F(K, L) = 4K + 8L. a. How much output is produced when K = 2 and L = 3? b. If the wage rate is $60 per hour and the rental rate on capital is $20 per hour, what is the cost-minimizing input mix for producing 32 units of output? Capital: Labor: c. If the wage rate decreases to $20 per hour but the rental rate on capital remains at $20 per hour, what is the cost-minimizing input mix for producing 32 units of output? Capital: Labor:
a) 4(2)+8(3) = 32 units b) Since these are substitute goods, the firm can either use 23/4 = 8K or 32/8 = 4L Cost of 8K=8(20) = $160 Cost of 4L = 4(60) = $240 Since cost of using 8K is lower, the firm will use (8K, 0L) to produce 32 units of output c) The firm can either use 23/4 = 8K or 32/8 = 4L Cost of 8K = 8(20) = $160 Cost of 4L = 4(20) = $80 Since cost of using 4L is lower, the firm will use (0K, 4L) to produce 32 units of output
A firm should shut down when P ____ AVC a) < b) greatly exceeds c) > d) =
a) < ; less than
A firm has $2,100,000 in sales, a Lerner index of 0.57, and a marginal cost of $40, and competes against 1000 other firms in its relevant market. Instruction: Enter your responses rounded to two decimal places. a. What price does this firm charge its customers? b. By what factor does this firm mark up its price over marginal cost?
a) $93.02 b) 2.33 See the above flashcard for how to calculate these numbers
What is the effect of a horizontal merger on the four-firm concentration ratio (C4)? a) (C4) increases b) (C4) decreases c) (C4) does not change
a) (C4) increases
When firms in monopolistic competition earn positive economic profits, how will additional firms react? a) Additional firms enter and produce variations of the product b) Additional firms enter and increase the remaining firms' market share c) Additional firms enter and produce the exact same product d) Additional firms exit and increase the remaining firms' market share
a) Additional firms enter and produce variations of the product
Which of the following production functions imply isoquants that have a diminishing marginal rate of technical substitution? a) Cobb-Douglas b) Leontief-Douglas c) Linear d) Leontief
a) Cobb-Douglas
A production function that assumes that inputs are relatively substitutable is called a _____. a) Cobb-Douglas production function b) Linear production function c) Leontief production function d) Fixed input production function
a) Cobb-Douglas production function
Indicate three types of mergers. (Select all that apply) a) Conglomerate b) Horizontal c) Inverted d) Vertical e) Corporate f) Diagonal
a) Conglomerate b) Horizontal d) Vertical
As output increases, what happens to the difference between ATC and AVC? a) Decreases b) Increases c) Does not change
a) Decreases
In the production process, the manager must do which of the following? (Check all that apply) a) Establish the correct level of inputs b) Clarify the indifference curve and budget constraints c) Derive the market demand curve d) Ensure the firm operates on the production function
a) Establish the correct level of inputs d) Ensure the firm operates on the production function
What is another name for the Leontief production function? a) Fixed proportions production function b) Non-linear production function c) Linear production function d) Cobb-Douglas production function
a) Fixed proportions production function
An industry consists of three firms with sales of $250,000, $825,000, and $315,000. a. Calculate the Herfindahl-Hirschman index (HHI). b. Calculate the four-firm concentration ratio (C4). c. Based on the FTC and DOJ Horizontal Merger Guidelines described in the text, is the Department of Justice likely to attempt to block a horizontal merger between two firms with sales of $250,000 and $315,000? 1) yes 2) no
a) HHI = 10,000[(250,000/1,390,000)^2 + (825,000/1,390,000)^2 + (315,000/1,390,000)^2] 10,000*(0.032+0.352+0.051) = 4360 b) There are only 3 firms, so the four-firm concentration ratio = 1.0 or 100% c) Yes, because HHI increases to 5175 from 4360 in an already concentrated market.
With respect to the short run average cost curves, what is true of the long run average cost curve? Select all that apply a) It lies above no point on the short run average cost curves b) It equals short run average cost when short run curves use fixed inputs optimally c) It lies above every point on the short run average cost curves d) It equals short run average cost when short run curves use variable inputs optimally
a) It lies above no point on the short run average cost curves b) It equals short run average cost when short run curves use fixed inputs optimally
A firm has $1.5 million in sales, a Lerner index of 0.57, and a marginal cost of $50, and competes against 800 other firms in its relevant market. Instructions: Enter your responses rounded to the nearest two decimal places. a. What price does this firm charge its customers? b. By what factor does this firm mark up its price over marginal cost?
a) LI = P-MC / P 0.57 = P-50/p 0.57P-P=-50 0.43P=50 P=116.28 b) Markup = 1/1-L 1/1-0.57 1/0.43 =2.3255
The downward-sloping portion of the VMPL defines the demand for _____ by a profit maximizing firm. It slopes downward due to _____. a) Labor; diminishing marginal returns b) Labor; increasing marginal returns c) capital; increasing marginal returns d) capital; diminishing marginal returns
a) Labor; diminishing marginal returns
What is the marginal revenue (MR) of the inverse demand function, P(Q) = a+bQ? a) MR = a+2bQ b) MR = a(2bQ) c) MR = a/2bQ
a) MR = a+2bQ
Which of the following are characteristics of monopolistic competition? (select all that apply) a) Many buyers and sellers b) Firms do not have any market power c) Firms wield some market power d) Products are slightly differentiated e) Firms are interdependent
a) Many buyers and sellers c) Firms wield some market power d) Products are slightly differentiated
Suppose the marginal product of labor is 10 and the marginal product of capital is 8. If the wage rate is $5 and the price of capital is $2, then in order to minimize costs the firm should use: a) More capital and less labor b) None of the statements are correct c) More labor and less capital d) Equal amounts of labor and capital
a) More capital and less labor
What is the price elasticity of demand facing an individual firm in perfect competition? a) Perfectly elastic b) Perfectly inelastic c) Relatively inelastic d) Between 0 and 1 in absolute value
a) Perfectly elastic
Which of the following are characteristics of perfectly competitive markets? (select all that apply) a) Products are similar b) Many firm, each one small relative to the entire market c) There is a sole producer d) Products are differentiated e) No firm has market power
a) Products are similar b) Many firm, each one small relative to the entire market e) No firm has market power
"Performance" refers to which of the following? a) Profits and social welfare b) Labor and capital c) Vertical and horizontal integration d) Technological productivity
a) Profits and social welfare
What happens in a perfectly competitive industry when firms earn profits? (select all that apply) a) Profits of remaining firms fall b) Profits of remaining firms rise c) Supply decreases d) Price rises e) Supply increases f) Price falls
a) Profits of remaining firms fall e) Supply increases f) Price falls
Why do firms horizontally integrate? (select all that apply) a) The cost savings of economies of scope b) In order to eliminate monopoly power c) The cost savings of economies of scale d) To increase their market power
a) The cost savings of economies of scope c) The cost savings of economies of scale d) To increase their market power
Inferences drawn from the four-firm concentration ratio differ from those drawn from the Herfindahl-Hirschman index (HHI). This is due in part to which of the following? a) The four-firm concentration ratio ignores the 5th-largest firm b) The HHI ignores the 5th-largest firm c) The HHI places smaller weight on firms with large market shares d) The four-firm concentration ratio is based on squared values
a) The four-firm concentration ratio ignores the 5th-largest firm
Using calculus, what is the marginal product of an input in the following production function? Q = F(K,L) = K^alpha*L^beta a) The partial derivative with respect to the input b) The integral of the function c) The limit as alpha and beta go to infinity d) The total derivative of the production function
a) The partial derivative with respect to the input
When inputs are somewhat substitutable: (select all that apply) a) The rate at which the manager can substitute among inputs changes along an isoquant b) Managers face a fixed-proportion production function c) Isoquants are somewhere in between Leontief and linear d) The rate at which the manager can substitute among inputs is fixed along an isoquant
a) The rate at which the manager can substitute among inputs changes along an isoquant c) Isoquants are somewhere in between Leontief and linear
At the point where the cost curve C(Q) and the revenue line R(Q) are the farthest vertical distance apart, what is true of the slopes of these lines? a) The slopes are equal b) The slopes are undefined c) The slope of C(Q) < the slope of R(Q) d) The slope of C(Q) > the slope of R(Q)
a) The slopes are equal
What must be true about combinations of labor and capital along a given isoquant? a) They all must produce the same amount of output b) Capital inputs must exceed labor inputs c) Labor inputs and capital inputs must be equal d) Labor inputs must exceed capital inputs
a) They all must produce the same amount of output
Which of the following defines the maximum amount of output that can be produced with a given set of inputs? a) Total Product b) Marginal Product c) Average variable product d) Average total product
a) Total product
Suppose that production for good X is characterized by the following production function, Q = K^0.5L^0.5, where K is the fixed input in the short run. If the per-unit rental rate of capital, r, is $15 and the per-unit wage, w, is $5, then the average fixed cost of using 16 units of capital and 25 units of labor is: a) $56 b) $12 c) There is insufficient information to determine the average fixed costs d) $9
b) $12 AFC = TFC/Q 16^.5*25^.5 = 20 $15*16/20 = $12
Suppose that production for good X is characterized by the following production function, Q = K^0.5L^0.5, where K is the fixed input in the short run. If the per-unit rental rate of capital, r, is $25 and the per-unit wage, w, is $15, then the average total cost of using 81 units of capital and 9 units of labor is: a) there is insufficient information to determine the average total costs b) $5 c) $80 d) $75
b) $5
What is the average product of labor, given that the level of labor equals 10, total output equals 1200, and the marginal product of labor equals 200? a) 20 b) 120 c) 6 d) 2000
b) 120
Barriers to entry include which of the following (select all that apply) a) Economies of scope b) Capital requirements c) Patents d) Economies of scale e) Vertical integration
b) Capital requirements c) Patents d) Economies of scale
What does the free entry and exit assumption imply for a perfectly competitive market? (select all that apply) a) In the long run, only one firm will exist b) Firms will leave if they sustain losses c) In the long run, economic profits are positive d) In the long run, economic profits are zero e) Firms will enter when profits exist
b) Firms will leave if they sustain losses d) In the long run, economic profits are zero e) Firms will enter when profits exist
What would happen to research and development of new products and technologies if the U.S. eliminated the current patent system? a) Firms would have more incentive to develop new products b) Firms would have less incentive to develop new products c) The market would move from perfect competition to monopoly d) Barriers to entry into the market would increase categorically
b) Firms would have less incentive to develop new products
If a cost function is given by, C(Q) = f+aQ + bQ^2 + cQ^3, then the marginal cost is given by which of the following? a) MC(Q) = aQ + bQ + cQ^2 b) MC(Q) = dC/dQ c) MC(Q) = dQ/dC d) MC(Q) = aQ + bQ^2 + cQ^3
b) MC(Q) = dC/dQ
Given two inputs, labor and capital, costs are minimized when (select all that apply): a) MPL/MPK < w/r b) MPL/MPK = w/r c) MPL/w = MPK/r d) MPL/w > MPK/r e) MRTSKL = w/r
b) MPL/MPK = w/r c) MPL/w = MPK/r e) MRTSKL = w/r
Profit maximization for the two-plant monopolist occurs when the monopolist uses resources such that (select all that apply) a) MR(Q) > MC1(Q1) b) MR(Q) = MC1(Q1) c) MC1(Q1) < MC2(Q2) d) MR(Q) = MC2(Q2) e) MC1(Q1) = MC2(Q2)
b) MR(Q) = MC1(Q1) d) MR(Q) = MC2(Q2) e) MC1(Q1) = MC2(Q2)
According to the feedback critique, (select all that apply) a) Market structure established market power b) Market performance can affect market structure c) Market performance can affect conduct d) Market structure causes conduct e) Conduct of firms can affect market structure
b) Market performance can affect market structure c) Market performance can affect conduct e) Conduct of firms can affect market structure
Which function defines the cost of producing at least 2 types of output? a) Cost complementarity cost function b) Multiproduct cost function c) Economies of scope cost function d) Variable product cost function
b) Multiproduct cost function
Indicate methods firms in monopolistic competition use to differentiate their products (select all that apply) a) Brand myopic b) Niche marketing c) Green marketing d) Niche myopic e) Input-output inversion
b) Niche marketing c) Green marketing
Assuming P > AVC, a profit-maximizing firm, in a perfectly competitive market, produces a level at which, (select all that apply) a) P < MR b) P = MR c) P > MR d) MR = MC e) P = MC f) MR > MC
b) P = MR d) MR = MC e) P = MC
Long-run properties of perfect competition include: (select all that apply) a) P > MC b) P = min AC c) P = MC d) P > min AVC e) P < min AVC
b) P = min AC c) P = MC
In the long run, firms in monopolistic competition produce a level of output where (select all that apply) a) P > ATC b) P > MC c) P = MC d) ATC > minimum average costs e) P = ATC f) P < ATC
b) P > MC d) ATC > minimum average costs e) P = ATC
Which of the following is a Cobb-Douglas production function? (select all that apply) a) Q = F(K,L) = K+L^0.5 b) Q = F(K,L) = K^0.25*L^0.75 c) Q = F(K,L) = K^0.5+L^0.5 d) Q = F(K,L) = K^alpha*L^beta
b) Q = F(K,L) = K^0.25*L^0.75 d) Q = F(K,L) = K^alpha*L^beta
Suppose two companies attempt to merge, and they operate in an industry where the postmerger Herfindahl-Hirschman index is 2,900 and the increase in the Herfindahl-Hirschman index from the merger is 225. Which of the following is NOT a condition that would improve the likelihood of the Justice Department approving the merger? a) The HHIs are based on too narrow a definition of the product market. b) There are significant diseconomies of scope. c) There are significant economies of scale. d) One of the firms is in financial trouble. e) There is notable foreign competition.
b) There are significant diseconomies of scope.
What is the key difference in determining the profit-maximizing price and output under monopoly versus monopolistic competition? a) The market determines price in monopoly b) There is no difference c) In monopolistic competition, output occurs where MR > MC d) Monopolists accept the market price as given, but not monopolistic competitors
b) There is no difference
The integration of at least two firms that make parts for a single product is called a) input-output inversion b) a vertical merger c) a horizontal merger
b) a vertical merger
What is the marginal product of capital (MPK) for the following Cobb-Douglas production function? Q = F(K,L) = K^alpha*L^beta a) (alpha-1)K b) alphaK^alpha-1*L^beta c) (beta-1)L d) betaK^alpha*L^beta-1
b) alphaK^alpha-1*L^beta
What is the marginal product of labor (MPL) for the following linear production function? Q=F(K,L)=alphaK+BetaL a) alpha b) beta c) alpha+beta d) alpha/beta
b) beta
According to the causal view of industry, concentrated markets a) cause low prices and excellent performance b) cause high prices and poor performance c) cause low prices and poor performance d) cause high prices and excellent performance
b) cause high prices and poor performance
The following quadratic multiproduct cost function: C(Q1,Q2) = f + aQ1Q2 + (Q1)^2 + (Q2)^2 exhibits Economies of scope when: a) f-aQ1Q2<0 b) f-aQ1Q2>0 c) a>0
b) f-aQ1Q2>0
A monopolist charges a _____ price and produces _____ output than a perfectly competitive industry. a) lower; more b) higher; less c) higher; more d) lower; less
b) higher; less
The long run is defined as: a) the horizon in which there are both fixed and variable factors of production b) the horizon in which the manager can adjust all factors of production c) the horizon in which there are only fixed factors of production d) greater than one year
b) the horizon in which the manager can adjust all factors of production
Which of the following cost functions exhibits cost complementarity? a) -4Q2+Q1 b) 6Q1Q2-Q1 c) -4Q1Q2+8Q1 d) 4Q2Q1+8Q1
c) -4Q1Q2+8Q1
Which of the following statements is correct? a) Average fixed cost is unrelated to output b) Average fixed costs do not change as output expands c) Average fixed costs decline continuously as output expands d) Average fixed costs increase continuously as output expands
c) Average fixed costs decline continuously as output expands
A production function can include many inputs. Which of the following are the most commonly used inputs? (Select all that apply) a) Technology b) Land c) Capital d) Labor e) Entrepreneurship
c) Capital d) Labor
Which of the following is NOT a source of monopoly power? a) Economies of scale b) Economies of scope c) Free entry and exit d) Patents
c) Free entry and exit
The Herfindahl-Hirschman index (HHI) is given by: a) HHI = 10Ew^2 b) HHI = 1000Ew^2 c) HHI = 10,000Ew^2 d) HHI = 100 Ew^2
c) HHI = 10,000Ew^2
The short-run production function is generally expressed as a function of which of the following inputs? a) Both labor and capital b) Neither labor nor capital c) Labor only d) Capital only
c) Labor only
Marginal Product of Labor (MPL) is given by: a) MPk = Q/K b) MPL = Q/L c) MPL = Change in Q/Change in L d) MPK = Change in Q/Change in K
c) MPL = Change in Q/Change in L
Given a revenue function: R(Q) = P(Q)Q the monopolist's marginal revenue (MR) is given by (select all that apply) a) MR = P(1-E/E) b) MR = dQ/dR c) MR = dR/dQ d) MR = (dP/dQ)Q+P e) MR = P(1+E/E)
c) MR = dR/dQ d) MR = (dP/dQ)Q+P e) MR = P(1+E/E)
What is the term given to the ratio of the marginal products of labor and capital? a) Marginal rate of substitution b) Increasing marginal productivity c) Marginal rate of technical substitution d) Marginal propensity to produce
c) Marginal rate of technical substitution
If the marginal cost of producing in Plant 1 exceeds the marginal cost of producing in Plant 2, the monopolist should a) produce more in Plant 1 and less in Plant 2 b) Produce equal amounts in each plant such that MC < MR c) Produce more in Plant 2 and less in Plant 1 d) Produce equal amounts in each plant such that MC = MR
c) Produce more in Plant 2 and less in Plant 1
Which of the following describes the maximum output that can be produced with a fixed set of inputs? a) Q = F(S,D), where S is supply and D is demand b) Q = F(Px, Py), where P is the price of two goods: X and Y c) Q = F(K,L), where K is capital and L is labor d) Q = F(U,IC), where U is utility and IC is an indifference curve
c) Q = F(K,L), where K is capital and L is labor
If, in the short run, capital is fixed equal to K&*, what is the short-run production function? a) Q = f(K*) = F(K*,L) b) K* = f(K) = F(K*,Q*) c) Q = F(L) = F(K*,L) d) K* = f(Q) = F(Q,L)
c) Q = F(L) = F(K*,L)
The structure-conduct-paradigm and the feedback critique are closely related to a) The four-firm concentration ratio b) The Herfindahl-Hirschman index c) The five forces framework d_ The input-output inversion
c) The five forces framework
The profit-maximizing, advertising-to-sales ratio is given by:
A/R = Eq,a/-Eq,p
Suppose the own price elasticity of market demand for retail gasoline is - 0.8, the Rothschild index is 0.5, and a typical gasoline retailer enjoys sales of $1.5 million annually. What is the price elasticity of demand for a representative gasoline retailer's product? Instruction: Enter your response rounded to one decimal place. If entering a negative number, be sure to use the negative (-) sign.
Rothschild index is given as, R= ET / EF , where ET = price Elasticity of demand for the total market and EF = Elasticity of demand for the product of an individual firm. Here, R=0.5, ET = -0.8 Therefore, EF = ET / R = -0.8/0.5 = -1.6 Answer:( -1.6 )
A cost that is incurred and unrecoverable is called a _______ cost
Sunk
When the total cost of producing two goods within the same firm is less than the cost of producing them in separate firms, _____ _____ ____ exist. (3 words)
economies of scope
In order to maximize profits, firms should take production to the point where marginal profits are _____
Zero (0)
Suppose a firm sets its price equal to the marginal cost of production. In this case, the Lerner index will be equal to _____
Zero (0)
When an industry is composed of many firms, producing similar products, the Rothschild index (R) will be close to _____
Zero (0)
When an industry is less concentrated, the four-firm concentration ratio is close to_____
Zero (0)
When there are no gains to be obtained by inducing firms in an industry to alter their output in a socially efficient manner, the Dansby-Willig performance index is _____.
Zero (0)
A firm can manufacture a product according to the production function:Q = F(K,L) = K^3/4 L^1/4. a. Calculate the average product of labor, APL, when the level of capital is fixed at 81 units and the firm uses 16 units of labor. b. Find an expression for the marginal product of labor, MPL, when the amount of capital is fixed at 81 units. Then, illustrate that the marginal product of labor depends on the amount of labor hired by calculating the marginal product of labor for 16 and 81 units of labor. c. Suppose capital is fixed at 81 units. If the firm can sell its output at a price of $200 per unit and can hire labor at $50 per unit, how many units of labor should the firm hire in order to maximize profits?
a) When K = 81 & (1) L = 16. Q = (81)3/4 x (16)1/4 = 27 x 2 = 54 APL = Q / L = 54 / 16 = 3.375 (ii) L = 256 Q = (81)3/4 x (256)1/4 = 27 x 4 = 108 APL = Q / L = 108 / 256 = 0.422 (b) MPL = dQ / dL = K^3/4(1/4)L^1/4 -1 (i) When K = 81, MPL = (1/4) x (81/L)^3/4 = 6.75/L^-0.75 (ii) When L = 16, MPL = 6.75/16^0.75 = 0.844 When L = 81, MPL = 6.75/81^0.75 = 0.250 As L increases, MPL decreases. So MPL depends on L. (c) VMPL when K is 81 = (MPL when K is 81) x $200 6.75/L^0.75 x $200 = 1350/L^0.75 At optimum, VMPL when K is 81 = $50 1350/L^0.75 = $50 L^0.75 = 27 L=81
To maximize profits, at what level does a monopolistically competitive firm produce? a) Where MR(Q) = MC(Q) b) Where MR(Q) < MC(Q) c) Where MR(Q) = P(Q) d) Where MR(Q) > MC(Q)
a) Where MR(Q) = MC(Q)
In a perfectly competitive firm, in the short run, a firm will shut down to minimize losses when price is _____ average variable cost. a) less than b) greater than c) greater than or equal to d) equal to
a) less than
Firm managers should use inputs at levels where the: a) marginal benefit equals marginal cost and value marginal product of labor equals wage b) value marginal product of labor equals wage c) price equals marginal product d) marginal benefit equals marginal cost
a) marginal benefit equals marginal cost and value marginal product of labor equals wage
The marginal rate of technical substitution between labor and capital is (select all that apply) a) the absolute value of the slope of the isoquant b) MPL/MPK c) The slope of the isocost line d) The absolute value of the slope of the indifference curve e) The rate at which labor and capital can be substituted for each other
a) the absolute value of the slope of the isoquant b) MPL/MPK e) The rate at which labor and capital can be substituted for each other
Generally, within a particular industry, firms a) vary greatly in size b) tend to be similar in size c) account for an equal market share
a) vary greatly in size
A multiproduct firm's cost function was recently estimated as: C(Q1,Q2) = 90 - 0.5Q1Q2 +0.4Q1^2 + 0.3Q2^2 a. Are there economies of scope in producing 10 units of product 1 and 10 units of product 2? 1) You cannot determine if there are economies of scope. 2) Yes - there are economies of scope. 3) No - there are no economies of scope. b. Are there cost complementarities in producing products 1 and 2? 1) You cannot determine if there are cost complementarities. 2) Yes - there are cost complementarities. 3) No - there are no cost complementarities. c. Suppose the division selling product 2 is floundering and another company has made an offer to buy the exclusive rights to produce product 2. How would the sale of the rights to produce product 2 change the firm's marginal cost of producing product 1? 1) Marginal cost would not change. 2) Marginal cost would decrease. 3) Marginal cost would increase.
a. Yes - there are economies of scope. b. Yes - there are cost complementarities. c. Marginal cost would increase.
You were recently hired to replace the manager of the Roller Division at a major conveyor-manufacturing firm, despite the manager's strong external sales record. Roller manufacturing is relatively simple, requiring only labor and a machine that cuts and crimps rollers. As you begin reviewing the company's production information, you learn that labor is paid $14 per hour and the last worker hired produced 90 rollers per hour. The company rents roller cutters and crimping machines for $16 per hour, and the marginal product of capital is 130 rollers per hour. Should you change the mix of capital and labor, and if so, how should it change? a) You should increase labor and decrease capital. b) You should not change the mix of capital and labor. c) You should increase capital and decrease labor.
c) You should increase capital and decrease labor.
Since each producer in a perfectly competitive market has no influence on market price, the demand curve for the individual firm is a) a downward-sloping curve b) a vertical line equal to the market quantity c) a horizontal line equal to the market price d) an upward-sloping curve
c) a horizontal line equal to the market price
When average total cost (ATC) is at its minimum, marginal cost (MC) ______ average total cost (ATC) a) is less than b) is greater than c) equals d) is unrelated to
c) equals
Recently, the Boeing Commercial Airplane Group (BCAG) recorded orders for more than 15,000 jetliners and delivered more than 13,000 airplanes. To maintain its output volume, this Boeing division combines efforts of capital and more than 90,000 workers. Suppose the European company, Airbus, enjoys a similar production technology and produces a similar number of aircraft, but that labor costs (including fringe benefits) are higher in Europe than in the United States. Given this information, the marginal product of workers at Airbus is likely _____ the same as lower than higher than the marginal product of workers at Boeing. a) the same as b) lower than c) higher than
c) higher than
If P is less than AVC, the firm ____ (select all that apply) a) is making a profit b) should increase its output c) is sustaining a loss d) should remain open e) should shut down
c) is sustaining a loss e) should shut down
The average product of labor depends on how many units of: a) none of the statements are correct b) labor are used c) labor and capital are used d) capital are used
c) labor and capital are used
When the price of labor rises, firms have a tendency to use a) more labor and less capital b) equal amounts of labor and capital c) less labor and more capital
c) less labor and more capital
An isocost line: a) represents the combinations of r and w that cost the firm the same same amount of money b) has a convex shape c) represents the combinations of K and L that cost the firm the same amount of money d) represents the combinations of w and K that cost the firm the same amount of money
c) represents the combinations of K and L that cost the firm the same amount of money
The manager institutes an incentive structure to ensure: a) workers are in fact working at their utility-maximizing effort level b) the firm produces above the production function c) the firm produces on the production function d) workers are in fact working at the expected potential
c) the firm produces on the production function
Social welfare refers to a) the ratio of consumer surplus to producer surplus b) the product of consumer and producer surplus c) the sum of consumer and producer surplus d) the difference between consumer and producer surplus
c) the sum of consumer and producer surplus
Industries that rely on equipment and machines to produce goods and services are considered _____-intensive industries
capital
ΔMC1(Q1,Q2)/ΔQ2 < 0 describes cost ______
complementarity
The integration of two different product lines into one firm is called a _____ merger
conglomerate
You are an efficiency expert hired by a manufacturing firm that uses K and L as inputs. The firm produces and sells a given output. If w = $40, r = $100, MPL = 4, and MPK = 40 the firm: a) is profit maximizing bu not cost minimizing b) should use less L and more K to cost minimize c) is cost minimizing d) should use more K and less L to cost minimize
d) should use more K and less L to cost minimize The equilibrium condition implies that the MPL/w = MPK/r. That is the last dollar spent on capital brings in the same change in the output as the last dollar spent on labour. Thus plugging in the values, we get, => 4/40 = 40/100 => 0.10 < 0.40 Thus return from capital is more, so the firm should hire more capital and less labor, so that the marginal product of labor could increase and using more capital would imply fall in marginal product of capital and a state would be reached where the ratios of MPL/w and MPK/r be equal.
In a monopoly, where the firm chooses output based on marginal revenue (which is less than price), a) demand is perfectly elastic b) the demand curve does not exist c) the supply curve is upward-sloping d) supply curves do not exist
d) supply curves do not exist
The feasible means of converting raw inputs such as steel, labor, and machinery into an output are summarized by: a) capital b) land c) production d) technology
d) technology
The demand curve faced by a monopolist is a) below the market demand curve and twice as steep b) less elastic than the market demand curve c) more elastic than the market demand curve d) the same as the market demand curve
d) the same as the market demand curve
Fixed costs exist only in: a) labor-intensive markets b) the long run c) capital-intensive markets d) the short run
d) the short run
When a firm experiences economies of scale, increasing the size of the operation ______ the minimum average cost.
decreases
Given a profit-maximizing level of output, Q^M, the monopoly price is the price on the _____ curve that corresponds to the Q^M units of output.
demand
When long-run average costs rise as output increases, we say that the firm experiences ____ _____ _____. (3 words)
diseconomies of scale
When long-run average costs fall as output increases, we say that the firm experiences _____ _____ _____. (3 words)
economies of scale
When C(Q1,0) + C(Q2,0) > C(Q1,Q2), we say that _____ _____ _____ exist (3 words)
economies of scope
The demand curve for a perfectly competitive firm is a _____ line at the market _____.
horizontal; price
When various stages of the production of a single product are completed by one firm, it is called vertical _____
integration
Industries that rely on workers to produce goods and services are considered ______ - intensive industries
labor
If MPL/w > MPK/r the firm should use _____ (less/more) capital and _____ (less/more) labor to minimize costs.
less, more
The _____ run is a period of time during which a manager can change all factors of production.
long
Fast-food hamburgers are characterized by a large group of sellers producing slightly different goods. What type of market is this? _____ ______ (two words)
monopolistically competitive
On a graph, profits are given by the vertical distance between the cost function and the ____ line.
revenue
The _____ run is a period of time during which at least one factor of production is fixed.
short
Products that are close ____ are considered to be part of the same industry class
substitutes
