Econ test 3

Lauren owns a bakery. Her total costs are $150,000 per year, and her variable costs are $85,000. This means that her fixed costs are:

$65,000.

Intrinsic motivation is the:

desire to do something for the enjoyment of the activity itself.

One way to improve the social welfare of a society is to __________ competition and __________ monopoly practices through policy legislation.

encourage; limit

In a finitely repeated game, each player:

faces the same strategic interaction a fixed number of times.

A repeated game is a game where a player:

faces the same strategic interaction with the same rivals and the same payoffs in successive periods.

A monopoly:

is characterized by a single seller who produces a well-defined product for which there are no good substitutes.

Marginal utility:

is the additional satisfaction derived from consuming one more unit of a good or service.

Skills only useful in a job with one employer are classified as _____ skills.

job-specific

The three primary factors of production are:

land, labor, and capital.

Two government-created barriers to entry are:

licensing and patent system/copyright law.

Firms engage in price discrimination primarily to:

make additional profits.

Firms in a monopolistically competitive market structure maximize their profit by producing an output where:

marginal revenue equals marginal cost.

One source of economic inefficiency from monopolistic competition is:

markup.

In economics, we assume that firms make decisions in order to:

maximize profit.

The fast-food, bottled water, and cereal markets are all examples of:

monopolistically competitive markets.

When modeling economic situations using game theory, the economic participants are generally referred to as:

players.

People who are risk averse:

prefer a sure thing over a gamble with a higher expected value.

Pancho owns a small grocery store. Even though Pancho's costs do not vary much from month to month, he puts most of his merchandise on sale a few times a year. He rotates the items which are on sale each month. He is using the strategy of _____ to create _____ for customers who _____.

price fluctuation; hurdles; are price sensitive

A firm can be identified as practicing price discrimination when:

producers set different prices for distinct groups of consumers, despite selling identical products to each group.

Apple and Google apply for hundreds of patents every year. These patents:

provide incentives for Apple and Google to spend large amounts of money up front on research and development of new products.

A Grim Trigger strategy is to

punish rivals who do not cooperate.

Bayside Shoe Shop offers a BOGO (buy one, get one) special where customers can buy one pair at full price and get another pair at half-price. This form of price discrimination is referred to as

quantity discount.

Product differentiation

refers to firms' attempts to make real or apparent differences in essentially substitutable products look different in the minds of consumers.

A list of instructions that describe exactly how to respond in any possible situation is a:

strategic plan.

Overconfidence is the:

tendency to overrate the accuracy of your forecasts.

When workers of the same ability are not paid the same amount because of a group characteristic such as ethnic origin or age, we call this:

wage discrimination.

Which criteria for market segmentation would be easiest to use for an online retailer?

Account address

Which of the following is NOT something companies try to achieve through price discrimination?

Create barriers to entry.

Which of the following is an example of a company practicing price discrimination?

Most passengers traveling on an airplane pay different prices for their tickets.

Which of the following statements is true about utility?

Some products produce more utility than others.

Why would a seller choose the hurdle method instead of group pricing to price discriminate?

The seller cannot find a verifiable, hard-to-change characteristic on which to base the group segmentation.

Insurance is:

a promise of compensation if a specified bad thing happens.

To hedge is to:

acquire an offsetting risk.

Monopolists:

enjoy market power for their specific product.

The consumer optimum:

is the combination of goods and services that maximizes utility for a given income.

Derived demand is:

the demand for factors of production dependent on consumer demand for output.

A reservation price is

the highest price that a customer is willing to pay for a product.

Implicit costs are:

the opportunity cost of the means of production.

Risk spreading is:

transforming big risks into small risks to be spread over many people.

Chuck Diesel Burger is a food truck in Houston, Texas. Imagine that Chuck Diesel Burger's minimum average total cost (ATC) is $3.75 and that its minimum average variable cost (AVC) is $2.50. Assume there are no barriers to entry into or exit from the food-truck market. Chuck Diesel Burger will make a positive economic profit if the price is equal to:

$4.00.

Ralph owns a small pizza restaurant, where he works full-time in the kitchen. His total revenue last year was $100,000, and his rent was $3,000 per month. He pays his one employee $2,000 per month, and the cost of ingredients and overhead averages $500 per month. Ralph could earn $35,000 per year as the manager of a competing pizza restaurant nearby. His total explicit costs for the year were:

$66,000.

Which of the following is true in long-run equilibrium for both a competitive market and monopolistic competition?

Economic profit is zero.

Why do people make decisions with incomplete information?

Information is costly to obtain.

Anchoring bias is the tendency to

begin with an anchor, or starting point, and insufficiently adjust from there.

Refer to the accompanying figure. A firm would be suffering a loss but still be producing if the price is: (picture 2)

below $5 but above $4.

Monopolistic competition is like monopoly in that:

both industries represent price-making firms.

Whenever consumers make decisions without perfect information, the decision reflects:

bounded rationality.

When two or more firms set prices or quantities in unison, economists refer to them as a:

cartel.

Price discrimination occurs when a company

charges different prices to different customers who are all buying the same product.

A __________ agreement among rival firms will most likely specify the price each firm will charge and the quantity each firm will produce/sell.

collusive

What theory would lead you to be suspicious of a job advertisement that reads: "Help Wanted! Fun and exciting job with excellent pay"?

compensating differentials

How can a company's hiring manager attract workers who are motivated to advance in their field?

Provide training.

Which of the following personnel policies would help your company's hiring manager attract the best workers?

Reward productivity.

What three conditions must be present before a company can price discriminate?

The company can identify how much each customer is willing to pay; the product cannot be resold; the company has market power.

Which of the following is necessary for price discrimination to occur?

The firm is able to distinguish among groups of buyers easily.

What advantage does a game tree have over a payoff table in presenting data for players in a game that plays out over time?

The game tree allows a player to look forward and reason backward.

Kroger offers a discounted price on bottles of soda if customers buy four or more bottles. What kind of price discrimination strategy is this?

The hurdle method

Which of the following conditions is a requirement for price discrimination?

There is no reselling allowed in the market.

Using a compensating differential wage theory, why do some individuals earn more than others?

Workers need to earn more to be willing to accept dangerous working conditions.

Profit maximization occurs when:

a firm expands output until marginal revenue is equal to marginal cost.

Some employers are willing to provide job training for workers. However, an employer might require the worker to pay for the training when the training is:

a general skill that could be used in any job for any employer.

A coordination game exists when:

all players have a common interest in coordinating their choices.

Charging more for fast shipping than for slower shipping is an example of a retailer using _____ to create _____.

alternate versions; hurdles

Explicit costs are:

always paid out of pocket.

Representativeness bias is the tendency to:

assess the likelihood that something belongs in a category by judging how similar it is to that category.

Where would we find a firm's minimum efficient scale of production?

at the lowest point on its long-run average total cost curve

Refer to the following graph to answer the questions that follow. (picture) The gap between the average total cost (ATC) and average variable cost (AVC) curves represents:

average fixed cost.

Lauren owns a bakery that produces, among other things, wedding cakes. She currently has 5 employees; with 5 employees, her bakery can produce 7 wedding cakes per day. If she hired a sixth employee, she'd be able to produce 9 wedding cakes per day. Therefore, the marginal product of the sixth employee is __________ wedding cake(s).

2

Pay-for-performance:

links the incomes your workers earn to their performance.

In behavioral economics, the status quo bias is often accompanied by ___________, which exists when a person places more value on avoiding losses than attempting to realize gains.

loss aversion

Which of the following lists the three main characteristics of a competitive market?

many buyers and sellers, similar products, easy entry into the market

All firms, no matter what type of firm structure they are producing in, make their production decisions based on the point where their:

marginal revenue equals marginal costs.

Focusing illusion is the tendency to:

mispredict your utility by focusing on a few factors at the expense of others.

Inefficient output and price, few choices, and rent seeking are all problems associated with:

monopolies.

When a company price discriminates, it ends up selling

more than it would sell otherwise.

The _____ information that you have that is relevant to a decision, the _____ risk that is associated with the decision.

more; less

The substitution effect:

occurs when a consumer buys more of a good as a result of a relative price change.

Diminishing marginal utility:

occurs when the additional utility for each good declines as consumption increases.

An insurance policy is actuarially fair if:

on average, it is expected to pay out as much in compensation as it receives in premiums.

A strategic interaction that occurs only once is called a _____ game.

one-shot

An example of price discrimination is when:

out-of-state students pay more for the same education as in-state students.

Availability bias is the tendency to:

overestimate the frequency of events that are easily recalled and to underestimate the frequency of less memorable events.

Economists generally assume that people make:

predictable, repeatable decisions that can be modeled.

People who are risk takers:

prefer gambles with lower expected values, but potentially higher winnings, over a sure thing.

Which of the following is a characteristic of a monopoly but not of a competitive market?

price > marginal cost

A buyer's reservation price for a product is equal to the _____ and the _____.

product's marginal benefit to the buyer; maximum price the buyer would pay for the product

Total revenue minus total cost equals:

profit.

Choose the term that is used for analyzing by this process: "Start by analyzing the last period of the game. Use this to figure what will happen in the second-to-last period, and keep reasoning backward until you can see all the consequences that follow from today's decision."

reasoning backward

Diversification is:

reducing risk by combining a large number of small risks whose outcomes are not closely related.

Three ways to solve coordination problems include:

regulations, focal points, and communication.

Maximizing utility:

requires that consumers get the most satisfaction out of every dollar they spend.

Barriers to entry:

restrict the entry of new firms into the market.

A second-mover advantage is the:

strategic advantage that can follow from taking an action that adapts to your rival's choice.

A first-mover advantage is the:

strategic gain from an anticipatory action that can force a rival to respond less aggressively.

When a market is characterized by mutual interdependence:

the actions of one firm have an impact on the price and output of its competitors.

When you are a seller who offers lower prices only to people who are willing to overcome some obstacle to get the lower price, you are using _____ to get consumers to reveal their reservation price.

the hurdle method

Beth is deciding whether to pick up more hours at work or to take a vacation. This decision best describes:

the labor-leisure trade-off.

The fundamental decision faced by workers is called:

the labor-leisure trade-off.

Christopher's Campground is the only campground located in Abilene, Texas. Christopher's Campground's demand curve is:

the market demand curve.

Airlines require every passenger with a ticket to have a matching government-issued photo identification. Price discrimination is made easier because:

this practice prevents a passenger who purchased a discounted fare from reselling that ticket to another customer who is willing to pay more.

The early bird specials at many restaurants are an example of using _____ to create _____.

timing; a hurdle

Accounting profit is equal to:

total revenue minus explicit costs.

Economic profit is equal to:

total revenue minus implicit costs and explicit costs.

A measure of the relative levels of satisfaction that consumers enjoy from the consumption of goods and services is called:

utility.

Market failure occurs

when the output level of the firm is inefficient.

What is the name of the model that best explains why an actor in a nationally broadcast television program earns so much more than an actor who is equally talented and productive but who performs in a local play?

winner-take-all

The production function for bookshelves includes:

wood, nails, carpenters, saws, and hammers.

Which of the following situations is considered price discrimination?

Barnes and Noble offers books at a lower-than-market price to members, who must pay an annual fee.

__________ is the field of economics that studies how human psychology influences the decision-making process.

Behavioral economics

How does coupon clipping allow for price discrimination?

One price is charged to people who put forth the effort to use the coupon, while another price is charged to consumers for whom the marginal cost of finding and using the coupon is greater than the marginal benefit of a lowered price.

Which of the following conditions will result in the firm making an economic profit?

P > ATC

_____ is a problem in markets where companies exercise market power and it is resolved when companies practice price discrimination.

Underproduction

A monopolistically competitive market consists of many sellers, an oligopoly consists of __________ seller(s), and a monopoly consists of __________ seller(s).

a few; one

In games that play out over time, the phrase "look forward" means to:

anticipate the likely consequences of choices.

Patents and copyrights can:

create strong incentives to develop new drugs.

Extrinsic motivation is the:

desire to do something for its external rewards.

If Tommy's Tank Tops is a perfectly competitive firm and is currently making positive economic profits of $1,000:

firms will enter the market.

A fair bet is a:

gamble that, on average, will leave a person with the same amount of money.

A __________ consists of a set of players, a set of strategies available to those players, and a specification of the payoffs to each player for each possible combination of strategies.

game

The branch of economics that studies strategic decision making is called:

game theory.

Investing in the _____ skills of your workers makes them more marketable, and investing in their _____ skills enables your firm to become more productive.

general; job-specific

A furniture store owner allows its salespersons to lower a price by up to ten percent to gain a sale if the buyer appears price sensitive. The owner also instructs salespersons to confer with management about the possibility of higher discounts if needed to make a sale. This example of individually negotiated prices is a form of price discrimination known as

haggling.

A price-maker:

has some control over the price it charges.

When comparing a union job to a non-union job, we would expect to see:

higher wages being paid for the employee holding a union job.

Behavioral economics is economic analysis that:

includes psychological factors in assessing how people make economic decisions.

Rent-seeking:

is a type of competition that leads to an undesirable outcome.

A systematic risk is a risk that:

is common across the whole economy.

A monopolistically competitive market is characterized by:

many small sellers selling a differentiated product.

When the average total cost curve is at its minimum, we know that the:

marginal cost curve intersects the average total cost curve.

The change in total cost given a change in output is also known as:

marginal cost.

If monopolistically competitive firms are making zero economic profit, then these firms would:

remain in the industry.

Marginal revenue is the change in total:

revenue when the firm produces additional units.

When the hurdle method is used to price discriminate, buyers

sort themselves into reservation price groups based on their willingness to overcome the hurdle.

A firm has a certain amount of capital and land. As it hires more labor, each worker is able to:

specialize.

Perfect competition and monopolistic competition are similar because, under both market structures:

there are zero economic profits in the long run.

Multiple equilibria exist when:

there is more than one equilibrium.

Which of the following is the best example of a variable cost in the short run?

wages for employees

If a firm's long-run average total costs increase as it increases its scale of production, the firm is experiencing:

diseconomies of scale.

A simultaneous game is one in which:

each player must choose without knowing the other player's choice.

A firm's economic profit is always less than its accounting profit because:

economic profit considers implicit costs, which accounting profit does not.

Three natural barriers to entry are:

economies of scale, problems raising capital, and control of resources.

If a firm's average total costs decrease as it increases its scale of production, the firm is experiencing:

economies of scale.

When comparing the standard models in the respective fields of economics and psychology, it is clear that:

economists generally assume that people behave in a rational way, whereas psychologists generally do not.

What theory would suggest that an employee should receive a wage higher than the equilibrium wage rate?

efficiency wage theory

Price discrimination allows businesses to make additional profits and allows markets to work more:

efficiently.

Workers consider a company's _____ and not just the _____.

entire compensation package; annual salary

A firm's inputs are also known as its:

factors of production.

It's easy to determine if a firm is making long-run production decisions by looking at its cost structure because, in the long run, a firm does not have any:

fixed costs.

Company owners want their company to be known as a family-friendly place to work to attract employees who are stable and require a steady income. Which of the following personnel policies would be most conducive to achieving this goal?

flexibility to work from home

Which of the following formats shows how a game plays out over time, with the first move forming the trunk, each subsequent choice creating a new branch, and the final leaves showing all possible outcomes?

game tree

Skills that are useful to many employers are classified as _____ skills.

general

Firms will always stay in the market if the price they charge is:

greater than their minimum average variable cost (AVC).

Price discrimination by charging different prices to different groups of people is called

group pricing.

A firm characterized as a price-taker:

has no control over the price it pays, or receives, in the market.

The typical result of monopoly is __________ prices and __________ output than we find in a competitive market.

higher; lower

The substitution effect describes the:

incentive to work more when the wage rises.

Refer to the accompanying graphs to answer the questions that follow. (4 graphs) Which graph shows the income effect dominating the substitution effect of higher wages?

Graph E

Which of the following describes the marginal product of labor?

It is the additional amount of output that can be produced from hiring one more worker.

Individuals who haven't studied economics may not understand how all-you-can-eat buffets manage to make money. This can be explained by the concept of __________, which makes each trip to the buffet line less satisfactory than the previous one.

diminishing marginal utility

Refer to the accompanying table. If Jane confesses, John will spend __________ years in jail if he also confesses and __________ years in jail if he keeps quiet. (picture)

10; 25