Econ Test 2

First degree price discriminating monopolist

-Sells each unit of output at the buyers maximum willingness to pay price -Produces the quantity where MC=D -Generates more profit -There is no consumer surplus

Perfect Competition Characteristics

-large number of sellers -standardized product -price takers (accept market price) -easy entry and exit

Profit maximization

A pure monopolist produces the quantity of output where MR=MC

Utils

A subjective measure of the utility associates with consuming a good or service

What is the formula for elasticity

E=%ChangeQd/%ChangeP

Which set of characteristics below describes the basic features of monopolistic competition

Easy entry, many firms, and differentiated products

Discounted tickets for children into events is what type of price dicrimination

Third-degree price discrimination

Total fixed cost formula

Total cost - Total variable cost

How do you calculate economic profit

Total revenue - (implicit+explicit costs)

What do economics of scale, the ownership of essential raw materials, and patents have in common?

They are all barriers to entry

How do you calculate accounting profits

Total revenue - Explicit costs

Increasing marginal retuens

a characteristic of production where the marginal profit of the next unit of a variable resource utilized is greater than that of the previous variable resource

Marginal benefit formula

change in total benefit/change in quantity

Marginal product formula

change in total product/change total labor

Marginal revenue formula

change in total revenue / change in quantity

Marginal utility formula

change in total utility/change in quantity

Pure Monopoly Characteristics

single seller -no close substitutes -price maker -barrier to entry

The marginal utility of the last unit of apples consumed is 24, and the marginal utility of the last unit of bananas consumed is 16. What set of prices for apples and bananas, respectively, would be consistent with consumer equilibrium

$6 and $4

Suppose a monopolistically competitive firm's output where marginal revenue equals marginal cost is 66 units and the price corresponding to this quantity is $18. If the average total cost at this output is $16.55, then its total profit is

$95.70

Total cost formula

(AFC+AVC) * Q

Suppose that, when producing 10 units of output, a firm's AVC is $22, its AFC is $5, and its MC is $30. This firm's

(AVC+AFC) *Q (22+ 5) = 27 27 *10= Total cost is $270

The price elasticity of demand for widgets is -0.80. Assuming no change in the demand curve for widgets, a 9.6 percent increase in sales implies a

-0.8= (9.6/x) Then multiply by X on both sides -0.8X = 9.6 Divide both sides on -0.8 X=-12 12 percent reduction in price

Marginal revenue characteristics

-A monopolists must lower the selling price to sell more good and services -Marginal revenue is lower than the selling price -The marginal curve is always below the demand curve

Second degree price discrimination

-Bulk/ block pricing -The practice of charging different prices per unit for different quantities or blocks, of a good or service

Characteristics of a Oligopoly

-Few larger producers (firms) -Standardized or differentiated product -Entry barriers (need capitol) ---> (money/supplies) -Price makers -Mutually interdependent

Second degree price discriminating monopolist

-Sells bundles in ever increasing quantities at decreasing per unit prices -Seeks to encourage buyers to purchase more goods or services than they normally would

Monopolistic Competition Characteristics

-relatively large number of firms (sellers) -differentiated products (close substitutes) -some control over price -relatively easy entry and exit -consumer decides if substitutes are interchangeable -differentiated product (allows firms to have some monopoly power) -Availability of close substitutes (allows consumers to be more responsive to price changes)

Firm decision making process

1) MR=MC (Q*) 2)Determine selling price at Q* 3)Determine ATC at Q* 4)Determine unit profit lost 5)If P-ATC < 0, determine AVC at Q* 6)If P>ATC at Q*, then produce

If you know that when a firm produces 10 units of output, total cost is $1,030 and average fixed cost is $10, the total variable cost is

10*10=100 1,030-100= $930

Suppose we find that the price elasticity of demand for a product is -2.4 when its price is increased by 3 percent. We can conclude that the quantity demanded

2.4= (x/3) Decreased by 7.2 percent

If the price elasticity of demand for a product is equal to -0.5, then a 10% decrease in price will increase quantity demanded by

5%

The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from the three Pepsis is 38 units of utility. The marginal utility of the third Pepsi is

8 units of utility

A monopolistic competitive market is described as one in which there are

A large number of firms selling similar, but not identical, products

Which case below best represents a case of third-degree price discrimination

A major airline sells tickets to senior citizens at lower prices than to other passengers

Elasticity

A measure of how responsive one variable is to a change in another variable

Price elasticity of demand

A measure of how responsive quantity demanded is to a change in price (will always be negative)

Average total cost

Average variable cost plus average fixed cost

In a perfectly competitive industry, each firm

Can easily enter or exit the industry

Marginal cost is the

Change in total cost that results from producing one more unit of output

Which of the following is TRUE of a typical firm in a monopolistically competitive industry

Each firm acts independently

Pure monopoly pricing

If a monopoly want to increase it quantity, it must lower the price for every unit it wants to sell

Pure monopoly pricing

If a monopoly wants to increase its quantity, it must lower the price for every unit it sells

Implicit cost example

If you quit your job and start your own company the implicit cost would be the salary from your old job

A monopolistically competitive firm's marginal revenue curve

Is downward-sloping and lies below the demand curve

For a monopolistically competitive firm , marginal revenue

Is less than the price

The demand curve faced by a monopolistically competitive firm

Is more elastic than the monopolist's demand curve

The demand curve faced by .a perfectly competitive firm

Is the same as its marginal revenue curve

A perfectly competitive firms does not try to sell more of its product by lowering its price below the market price because

It can sell all it wants at the market price

A perfectly competitive firm does NOT try to sell more of its product by lowering its prices below the market price because

It can sell all it wants to at the market price

Characteristics of perfect competition

Larger #of sellers Standardized products Price takers Easy entry and exit

A perfectly competitive firm's output is currently such that its marginal revenue is $5 and marginal cost is $4. Assuming profit maximization, the firm should

Leave price unchanged and increase output

Which of the following is NOT associated with the monopoly market structure?

Many sellers

The key characteristics of a monopolistically competitive market structure include (Sellers)

Many small (relative to the total market) sellers acting independently

After eating four slices of pizza, you are offered a fifth slice for free. You turn down the fifth slice. You refusal indicates that the

Marginal utility is positive for the fourth slice and negative for the fifth slice

To maximize utility, a consumer should allocate money income so that the

Marginal utility obtained from the last dollar spent on each product is the same

Economists assume the central goal of any business is to

Maximize profit

Explicit costs

Monetary payments made by individuals, firms, and governments for the use of resources owner by others

What market structure is most common in the United States

Monopolistic competition

In the United States, the average person mostly patronizes firms that operate in

Monopolistically competitive markets

Ben is exhausting his money income consuming products A and B in such quantities that MUa/ Pa=4 and MUb/Pb=7. Ben should purchase

More of B and less of A

Mrs. Arnold is spending all her money income by buying bottles of soda and bags of pretzels in such amounts that the marginal utility of the last bottle is 60 utils and the marginal utility of the last bag is 30 utils. The prices of soda and pretzels are $0.60 per bottle and $0.40 per bag, respectively. It can be concluded that

Mrs. Arnold should spend more on soda and less on pretzels

How can you find the total revenue

Multiply the average revenue by the quantity

A unique feature of an oligopolistic industry is

Mutual interdependence

Which of the following is true under conditions of perfect competition

No single firm can influence the market place

A pure monopoly may generate economic profit because

Of barriers to entry

In general, accounting cost represent

Only explicit costs

The basic formula for the price elasticity of demand coefficient is

Percent change in quantity demanded / percent change in price

Clara produces and sells tomatoes in a perfectly competitive market. This implies that Clara's marginal revenue generated from an additional unit of tomatoes is always equal to

Price

At the profit-maximizing level of output for a pure monopoly

Price is greater than marginal cost

The goal of product differentiation and advertising in monopolistic competition is to make

Price less of a factor and product differences more of a factor in consumer purchases

Demand and marginal revenue curves are downward-sloping for monopolistically competitive firms because

Product differentiation allows each firm some degree of monopoly power

The reason that the "fast-casual" restaurant market is monopolistically competitive rather than perfectly competitive is because

Products are differentiated

Assume that Alex would like to purchase a combination of product A and product B such that, after he is done spending his limited income, the MUa/Pa=8 and Mub/Pb=4. To maximize utility without spending more money, Alex should

Purchase more of product A and less of product B

If a monopolists marginal revenue is $3.00 and its marginal cost is $4.50, it will increase its profits by

Reducing output and raising prices

If the line is flat is it relatively elastic of relatively inelastic

Relatively elastic

Suppose Winston's annual salary as an accountant is $60,000, and his financial assets generate $4,000 per year in interest. One day, after deciding to be his own boss, her quits his job and uses his financial assets to establish a consulting business, which he runs out of his own home. To run the business, he outlays $8,000 in cash to cover all the costs involved with running the business, and earns revenues of $150,000. What are Winston's accounting profits?

Revenue-Costs $150,000-$8,000=$142,000

Matt quits his job, at which he was earning $50,000 per year, and opens a small buisness. In the first year, the business has sales of $75,000 and explicit costs of $45,000. What is Matt's economic profit?

Sales - (Explicit Costs +Profit) 75,000 - (45,000 + 50,000) = $-20,000

Third degree price discrimination

Segment market into different groups and charge different prices

The key characteristics of a monopolistically competitive market structure include (Products)

Sellers selling similar but differentiated products

A firm sells a product in a perfectly competitive market. The marginal cost of the product at the current output level of 200 units is $4. The minimum possible average variable cost is $3.50. The market price of the product is $3. to maximize profits or minimize losses, the firm should

Shut down

Which of the following is a market structure of monopoly?

Single firm that is a price maker

Herfindahl index

Square percentages and add

The law of diminishing marginal utility

States that the marginal utility associated with consumption of a good or service becomes smaller with each extra unit that is consumed in a given time period

Average total cost formula

TC/Q

Wilbur's Widgets, a widget company, produces 100 widgets. It average fixed cost is $5 and its total variable cost is $300. What is the total cost of producing 100 widgets

TC= (AFC+AVC) *Q $800

In the short run the Sure-Screen T-Shirt Company is producing 500 units of output. Its average variable costs are $2.00 and its average fixed costs are $.50. The firm's total costs:

TC=TFC+TVC 2.00 + 0.5 = 2.50 * 500= $1,250

Total cost formula

TFC + TVC

AFC formula

TFC/Q

Economic profit formula

TR - Economic costs

Accounting profit formula

TR - Explicit costs

Profit formula

TR-TC

Total profit formula

TR-TC

Average revenue

TR/Q

Average variable cost formula

TVC/Q

Which of the following best approximates a pure monoply

The NFL

Monopoly power

The ability of a monopoly to influence prices by controlling the quantities that it produces in the market (price maker)

Marginal cost

The additional cost associated with 1 more unit of an activity

Marginal Utility

The additional satisfaction or happiness received from the consumption of an additional unit of a good or service

A monopolist faces a downward-sloping demand curve because

The entire market demand curve is the monopolist's demand curve

Suppose Bev's makes two kinds of hang-bags, larger and small. Bev rents an industrial space where she keeps the fabric, the industrial sewing machine, her measuring board and the cutting sheers, extra needles, thread and buttons, and labels. Which of the following would be considered a variable cost of this company?

The fabric (Changes with change in output)

Equal marginal principle

The idea that consumers maximize their utility when they allocate their limited incomes so that the marginal utility per dollar spend on their final choices in a bundle is equal

Suppose Sam's Shoe Co. makes one kind of shoe. An example of a variable cost for this company would be

The leather needed to make the shoe

Implicit costs

The opportunity cost of the owned resources

Second degree price discrimination

The practice of charging different prices per unit for different quantities, or blocks, of a good or service

First degree price discrimination

The practice of charging each and every consumer the price that she is willing and able to pay for a good or service

Third degree price dicrimination

The practice of dividing market participants into groups based on their elasticities of demand in order to charge each group a different price for the same good/service

Utility maximization

The process of obtaining the greatest level of overall satisfaction or happiness from consuming goods and services, subject to consumers preferences, income, and prices

Utility

The satisfaction or happiness received from the consumption of a good or service

The concept of price elasticity of demand measures

The sensitivity of consumer purchases to price changes

Total product

The total amount of output produced with a given amount of resources

The MR=MC rule

applies both to pure monopoly and pure competetion

Marginal cost formula

change in total cost / change in quantity

Total cost formula

variable cost + fixed cost

Marginal utility is the

Change in total utility obtained by consuming on more unit of a good

The larger the implicit costs of a buisness

The smaller economic profit will be

Total cost

The sum of fixed and variable costs of production

Short-run

The time period in which at least one input of production is fixed but other inputs can be changed

Opportunity cost

The value of the next-best forgone alternative

Suppose a monopolistically competitive firms sells 25 units at the price of $10. Calculate its marginal revenue per unit of output if it sells 5 more units of output when it reduced its price to $9

$4

elasticity formula

% change in quantity demanded / % change in price

What does marginal mean

Change in units / change in quantity

For a pure monopoly to sell a quantity of 10 units, the price mist be $8. Marginal revenue at this output level would be

<$8

Suppose that as the price of Y falls from $2.00 to $1.90, the quantity of Y demanded increases from 110 to 118. Then the value of the price elasticity of demand is?

=-1.45

Total variable cost formula

AVC * output

Actual total cost formula

AVC+AFC

Other things equal, if the wage rates paid to a firm's labor inputs were to rise, we would expect the

AVC, ATC, and MC curves all to rise

The sole proprietor of Milwaukee Machine Company generates an annual accounting profit of $78,000. She has a standing salary offer of $35,000 a year to work for a larger corporation. If she had invested her capital outside her own company she estimated it would have returned $22,000 this year. What is the sole proprietor's economic profit?

Accounting profits-salary offer- Profit from own company=economic profit 78,000-35,000-22,000= 21,000

Four-firm concentration ratio

Add up top 4 firms market share %

If a firm increases production, then its:

All of the above Variable costs rise Fixed costs stay the same Total cost increases

Pure monopoly marginal revenue curve

Always below demand curve

The marginal cost curve

Always intersects ATC and AVC at lowest point point

A perfectly competitive firm trying to maximize profits in the short run will expand output

As long as marginal revenue is greater than marginal cost

One reason why the "fast-casual" restaurant market is competitive is

Barriers to entry are low

Which of the following characterizes the market that Chipotle competes in

Barriers to entry are low

Firms that engage in first-degree price discrimination charge different prices to customers

Based on their willingness and ability to pay for the good or service

To practice third-degree price discrimination, a pure monopoly must

Be able to separate buyers into different groups with different price elasticities

The law of diminishing marginal utility states that

Beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer

Buying in bulk to save money is an example of

Block pricing

The theory of consumer behavior assumes that

Consumers behave rationally, attempting to maximize their satisfaction

A firm sells a product in a perfectly competitive market. The marginal cost of the product at the current output level of 500 units is $1.50. The market price of the product is $1.50 and the minimum possible average variable cost is $1. To maximize profits, the firm should

Continue producing 500 units

Variable costs

Cost that change with the amount of output produced, increasing as production increases and decreasing as production decreases

What are variable costs

Costs that change with quantity

Fixed costs

Costs that do not change with the amount of output produced, increasing as production decreases

Fixed costs are

Costs that don't depend on the quantity of output produced

A monopolistically competitive firm will

Have some control over its price because its product is differentiated

Average fixed cost

Declines continually as output increases

First degree price discrimination

Dif prices for every unit consumed (willing and able to pay); perfect price

In perfect competition, each additional unit of output that a firm sells will yield a marginal revenue that is

Equal to price

Cash expenditures a firm incurs to pay for resources are called

Explicit costs

Monetary payments a firm makes to pay for resources are called

Explicit costs

How does a consumer decide what product to buy

Find the product with the highest MU/$

Which of the following constitutes an implicit cost to the Asarta Manufacturing Company

Foregone interest income form using savings to pay for operating expenses

Total revenue formula

Price x Quantity

Assuming that all other variables are held constant, marginal product is the change in ___________ output resulting from a one-unit change in _____________

Total; a variable input

Which of the following would be an example of an explicit cost?

Utilities Interest on a loan

The ability of a good or service to satisfy wants it called

Utility

The lowest price at which the firm should produce (as opposed to shutting down) is

When marginal cost is equal to average variable cost (Before marginal cost is equal to actual total cost)