Econ Test 2

Which two auctions are strategically equivalent?

1st price sealed-bid and descending

_____ is a group of firms that have made a collusive agreement.

A cartel

In the short run, a perfectly competitive firm will earn an economic profit as long as

P > ATC

Which of the following is true about a perfect price discriminating monopolist

There is no consumer surplus

Which of the following is NOT a decision firms must make in the short run?

Whether to enter or exit an industry

In a perfectly competitive firm finds itself producing where its marginal cost exceeds its price, it should

decrease its output to increase its profit

When new firms enter a monopolistically competitive industry, each existing firm's

demand curve shifts leftward

In perfect competition, an individual firm

determines the quantity it sells in the marketplace but has no influence over its price

Price discrimination is the practice of charging different prices to

different customers even though the cost of selling to each is the same

Collosions or cartel agreements are bound to fail because

each firm will earn higher profit by breaking from the cartel agreement.

Total revenue minus the sum of implicit and explicit costs is equal to ____ profit.

economic

The maximum economic profit that can be made by a duopoly that colludes is equal to the

economic profit made by a monopoly

high fixed costs are associated with

economies of scale

A firm incurs implicit costs when

the company uses capital equipment which it owns

In the long-run equilibrium in the perfectly competitive market

the economic profit for each firm equals zero

What happens in the long-run if competitive firms earn excess profits

the entrance of new firms and the loss of short-run profits

What happens in the long-run if competitive firms suffer economic losses

the exit of some firms and the elimination of the short-run losses

What marginal cost

the extra cost of producing 1 more unit of output

If a monopoly is operating along the portion of its demand curve where marginal revenue is positive, its

total revenue increase when price decreases

Economic profit is equal to

total revenue minus opportunity cost

An economic profit for a self-employed entrepreneur is

total revenue that exceeds the opportunity cost.

In the long-run perfectly competitive firms earn zero economic profit. This result is due mainly to which of the following assumptions?

unrestricted entry and exit

Total costs is the sum of fixed costs and

variable costs

When should a profit-maximizing firm increase production

when marginal revenue exceeds marginal cost

In the short-run, a competitive firm decides

whether to produce of shut down

In the long run, the economic profit of a firm in a perfectly competitive industry

will equal zero

A key difference between a monopoly and a perfectly competitive firm is that the monopolist

has a marginal revenue curve that lies below its demand curve

In perfect competition, the demand curve facing a single firm is

horizontal

The marginal product of labor is equal to the

increase in the total product that results from hiring one more worker

A monopolist

is a price setter

If firms in a monopolistically competitive industry are earning a positive economic profit, then

new firms will enter the industry

A firm in monopolistic competition can determine what price to charge for its product because of

product differentiation

Brand name drugs are chemically identical to their generic counterparts. Yet consumers often prefer the brand name product to the generic product. Making consumers think that a brand name drug differs from its generic counterpart is an example of

product differentiation

Which characteristic is associated with monopolistic competition

product differentiation

One benefit of monopolistic competition over perfect competition is

product variety

A firm's basic goal is to maximize its

profit

The profit maximizing condition for a perfectly competitive firm is

P = MC

Price wars can be the result of

new firms entering the industry and all firms then finding themselves in a prisoners' dilemma situation.

A company could produce 100 units of a good for $320 or produce 101 units of the same good for $324. The $4 difference in costs is

The marginal cost of producing the 101st unit.

Economies of scale refer to the range of output over which

the average cost falls as output increases

Which of the following statements true?

A perfectly competitive industry produces more output and charges a lower price than a single-price monopoly.

Pippi owns a pizza parlor . If Pippi owns a pizzaoven, for its use she incurs_____. If she instead rents a pizza oven from someone else, she incurs____.

An implicit cost; an explicit cost

Joe and Martha get to split $100. Suppose that Joe gets x dollars and Martha gets y dollars, and that 100-x-y dollars is thrown away. For which values of x and y is the allocation Pareto-efficient?

Any split will be Pareto efficient as long as the entire $100 is used up.

The distinguishing features of oligopoly are ______ and a_______ in the industry.

Barriers to entry; few firms

In the long-run, a competitive firm decides

Both A & B (what plant size, inputs, and technology to choose; whether to enter or exit an industry)

Which of the following is part of the market structure of monopolistic competition?

Both B & C (Profits are maximized by producing at the level of output where marginal revenue is equal to marginal cost.

Revenue Equivalence Theorem suggests that different auction designs will

Both B and C (Raise about the same expected revenue for the seller; produce an outcome similar to the law of one price)

In a perfectly competitive industry

Both b & c (there are no barriers to entry; there are many firms in it, each selling an identical product)

When will a perfectly competitive firm shut down?

In the short-run, when price falls below the average variable cost.

In the short run, a firm in monopolistic competition produces where

MR = MC

Which of the following is true regarding the long run for a firm in monopolistic competition?

P = ATC

Which of the following is true for BOTH monopoly and perfect competition?

Profits are maximized by producing at the level of output where marginal revenue is equal to marginal cost.

When producers agree to restrict output, raise the price, and increase profits, the agreement is called

a collusive agreement

How do monopoly outcomes differ from competitive outcomes

a monopoly limits its output and charges a higher price for its product

A barrier to entry is

a natural or legal impediment that makes it difficult for new firms to enter a market

If economic profits are equal to zero then

accounting profits are being earned and they are equal to implicit costs

The long run is a period of time in which

all factors of production are variable

In perfect competition

all firms in the market sell their product at the same price

An example of a variable resource in the short run is

an employee

If a duopoly has a collusive agreement that maximizes joint profit, then each duopolist has

an incentive to cheat by lowering its price

A natural monopoly is defined as

an industry in which one firm can supply the entire market at a lower price than two or more firms

The key feature of an oligopoly is that there

are only a few sellers

In the long-run, a monopolist will

be able to continue to earn economic profits as long as the market remains a monopoly

Why do economists say that monopoly is "inefficient"

because P > MC

Perfect price discrimination

converts all consumer surplus into economic profit

Economies of scale exist when the

cost of producing a unit of a good falls as its output increases

What are variable costs

costs that change as output changes

Total variable cost is the sum of all

costs that rise as output increases.

Explicit costs differ from implicit costs in that

explicit costs are paid in money, but implicit costs are often non-paid opportunity cost

Opportunity cost equals

explicits costs plus implicit costs

One difference between oligopoly and monopolistic competition is that

fewer firms compete in oligopoly than in monopolistic competition

In the long-run equilibrium in the perfectly competitive market

firms produce at the lowest average cost per unit

In a perfectly competitive industry...

firms take the price as given

For a single-price monopolist, price is ______ marginal revenue

greater than

A single-price monopolist is inefficient because

it creates a deadweight loss

Which of the following best describes average fixed cost

it decreases continually as output is increased

Which of the following best descrives the typical average total cost

it decreases initially when output inceases, but the increases

A perfectly competitive firm maximizes profit when

its marginal revenue equals its marginal cost

Which of the following groups lists the four factors (inputs) of production?

labor, capital, land, entrepreneurship

The more perfectly a monopoly can price discriminate, the

larger its output and the higher its profits

A single-price monopolist produces a ______ quantity than a perfectly competitive industry and charges a _______ price than the perfectly competitive industry

lesser; higher

A single-price monopolist produces a _______ quantity than a perfectly competitive industry and charges a _______ price than the perfectly competitive industry.

lesser; higher

Perfect competition is an industry with

many firms producing identical goods

A single-price monopolist maximizes profits by producing the output at which

marginal revenue equals marginal cost

If a monopolist can perfectly price discriminate, then

marginal revenue equals marginal cost

Total revenue equals

market price multiplied by quantity sold

The fundamental objective of a firm is

maximizing profits

An industry in which one firm can supply the entire market at a lower price than can two or more firms is called a

natural monopoly

A duopoly is a form of

oligopoly

Which market type has characteristics as follows: small number of firms, competition between the firms?

oligopoly

Explicit costs are____ and implicit costs are ______

paid in money; incurred when a firm gives up an alternate action

If a monopolist can perfectly price discriminate, then

price equals marginal cost for the last unit it sells

As perfectly competitive firms leave an industry because they are incurring an economic loss, the price of the good______, and the economic loss of each remaining firm______.

rises; decreases

A period of time in which the quantity of at least one factor of production used by a firm is fixed is called the

short run

In the short run a perfectly competitive firm will

shut down if P < AVC

In the long run, monopolistically competitive firms are _____ to perfectly competitive firms because _______.

similar; both firms earn zero economic profit

game theory is a tool of studying

strategic behavior

Marginal Cost is calculated as

the increase in total cost divided by the increase in output

The equilibrium price charged by firms in a perfectly competitive industry is determined by

the market

Which of the following is an example of a fixed cost in a bicycle factory

the mortgage payment on the property

Cost, as measured by an accountant, generally does not include

the opportunity cost of the firm

The long run is distinguished from the short run because only in the long run

the quantities of all resources can be varied

The short run is a period of time in which

the quantity used of at least one resource is fixed

What is total cost

the sum of total variable cost and total fixed cost

An industry is perfectly competitive if

there are many firms in it, each selling an identical product

A firm that shuts down and produces no output incurs a loss equal to its

total fixed costs

Average total costs are total costs divided by

total output