economic 121 exam 2

As the quantity produced by a monopolist​ increases, the gap between the marginal revenue curve and demand curve

increase

The aspirin sold in airports is more expensive than aspirin sold in grocery stores because the demand for aspirin in airports is relatively

less elastic

As the market demand shifts to the left, how will the firm's level of output change?

the firm will decrease its output and suffer losses.

A firm will continue to operate an unprofitable business if ▼

total revenue, variable cost

According to the graph, which level of output represents the minimum efficient scale in bookselling?

20,000 books

According to the graph, what is the value of total fixed cost for this perfectly competitive firm?

$2,400

Based on the relationship between average total cost and marginal cost, which of the curves appears to be average total cost?

Curve 2

__________ is the additional cost to the firm of producing one more unit of a good or service.

Marginal cost

What is the name for the additional output that a firm produces as a result of hiring one more worker?

Marginal product of labor

According to the table of data, when do diminishing returns in the production of pizzas begin?

When the third worker is hired

In​ general, a policy that limits entry into a market

increases​ price, decreases​ quantity, and causes inefficiency in the market.

The​ firm's short-run supply curve is the​ firm's

​marginal-cost curve, above the minimum of the average variable cost.

If a monopolist wants to increase the quantity sold from 2 units to 3 ​units, it cuts the price from $ 16 to $ 13. The marginal revenue​

7

A potential new​ drug, NoSmak, cures​ lip-smacking with one​ dose, but research and development would cost ​$90 million. The monopoly profit​ (earned while a single firm produces the​ product) will be ​$10 million per year. After a patent​ expires, the original developer of the drug will have sufficient brand loyalty to earn ​$2 million per year for another 10 years. a. What is the shortest patent length required to induce a firm to develop the​ drug?

7, 9

At a price of ​$20 per​ CD, a firm sells 60 CDs. If the slope of the demand curve is minus​$0.20​, marginal revenue for the 61st CD is

7.80, 7.80

Which of the following statements is correct?

Accounting profit is larger than economic profit.

Which graph is representative of a typical average total cost curve?

Graph B

In the short run, the firm should:

Operate if price > average variable cost.

Which of the following is known as the highest-valued alternative that must be given up in order to engage in an activity?

Opportunity cost

A cost that has already been paid and cannot be recovered

Sunk costs

Which of the following is a characteristic of a perfectly competitive market?

There are large numbers of buyers and sellers.

A minimum price​ (price floor) set at ​$19 prevents mutually beneficial transactions​ between:

Thurl and Cecil comma and Forest and Dee.

The town of Mulletville has a single hairstylist. The marginal cost of a haircut is the same for men and women​ ($10). The quantity of haircuts is 100 for men and 100 for women. The​ profit-maximizing price for women is​ $35, compared to​ $15 for men. In this​ chapter, we learned that differences in price elasticity of demand can explain the differences in the​ profit-maximizing price for different groups. Illustrate the example above with a graph.

Which group must have a relatively more elastic​ demand? men This is shown by demand line A

A monopoly that cuts its price gains revenue from its

new, previous

In the figure shown to the​ right, the sixth lawn is not cut because the willingness to accept of a sixth producer is greater than the willingness to pay of the sixth consumer.

accept, pay

To prolong their monopoly​ power, the producers of branded drugs pay millions of dollars to

all

When the marginal product of labor is greater than the average product of labor, then the average product of labor must be:

increasing

The deadweight loss from monopoly is shown graphically by the area

below the market demand curve and above the marginal cost curve between the equilibrium quantities supplied in monopoly and perfect competition.

In​ Pakistan, many poor villagers cannot afford their own​ phones, and phone service is provided by thousands of​ "wireless women," entrepreneurs who invest​ $310 in wireless phone equipment​ (transceiver, battery,​ charger), a​ signboard, a​ calculator, and a stopwatch. Then they sell phone service to their​ neighbors, charging by the minute and second. The market has easy​ entry, a standardized​ good, and a large enough number of suppliers that each takes the market price as given. In​ Pakistan, the market for phone service is perfectly

competitive

A maximum price set below the equilibrium price generates benefits for some consumers

consumers, producers and consumers

The deadweight loss from monopoly is shown graphically by the area between the

demand and supply curves from the equilibrium quantity to the quantity supplied.

The deadweight loss from rent control is shown by the area between the

demand and supply curves from the equilibrium quantity to the quantity supplied.

The​ short-run supply curve is steeper than the​ long-run supply curve because of the principle of

diminishing marginal returns

In the long​ run, for some firms the​ long-run average-cost curve will be positively sloped for high output levels because of

diseconomies of scale.

Finding the quantity at which marginal revenue ▼ exceeds is less than equals marginal cost. 2. Using the ▼ demand supply curve to find the price associated with the​ monopolist's chosen quantity. 3. Computing the profit per unit total profit sold as the price minus marginal cost price minus average total cost ​, and the ▼ total profit profit per unit as the ▼ total profit profit per unit times the number of units sold.

equal, demand, profit per unit, price minus average total cost, total profit, profit per unit

A monopoly is inefficient solely because the monopolist gets a profit at the expense of consumers.

f

The government only grants a patent for a product that would otherwise not be developed.

false

A more elastic demand generates a

flatter

If the average total cost curve is above the demand curve, then this firm is:

having economic losses

For a​ monopolist, marginal revenue is

less

The monopolist can use the marginal principle to decide the​ profit-maximizing quantity by determining where

marginal revenue equals marginal cost.

A key feature of a monopoly is that

marginal revenue is less than price.

To maximize​ profit, a monopolist picks the quantity at which

marginal revenue, marginal cost

Consider an airline that initially has a single price of ​$400 for all consumers. At this​ price, it has 100 business travelers and 80 tourists. The​ airline's marginal cost is ​$250. The slope of the business demand curve is minus​$4 per​ traveler, and the slope of the tourist demand curve is minus​$2 per traveler. Does the​ single-price policy maximize the​ airline's profit?

no, increase, decrease

A buyer or seller that is unable to affect the market price is called a __________.

price taker

The​ firm-specific demand curve shows the relationship between the

price, quantity sold

The perfectly competitive firm represented in the graph on the right is experiencing a __________.

profit in the short run.

For a given market​ price, a consumer who is on the lower end of the demand curve has

smaller

Publishers charge more for hardback books because

the more casual readers are willing to wait for the​ lower-priced paperback.

One can tell that the figure to the right shows short run costs​ because:

total cost is positive when output is zero implying fixed cost.

According to the data in the table, what is the marginal cost of producing the 640th pizza?

$43.33

Elise buys only 2 soft drinks at the higher price. Her demand curve is linear. What is the appropriate​ compensation? ​

1.50

According to the table, what is the average total cost of producing 550 pizzas?

5

Consider the​ Slappers, a hockey team that plays in an arena with​ 8,000 seats. The only cost associated with staging a hockey game is a fixed cost of​ $6,000: The team incurs this cost regardless of how many people attend a game. The demand curve for hockey tickets has a slope of minus​$0.001 per ticket​ ($1 divided by​ 1,000 tickets): Each​ $1 increase in price decreases the number of tickets sold by​ 1,000. For​ example, here are some combinations of price and​ quantity:

6, 2000, c. increase if a higher price is charged to fans with an inelastic demand and a lower price is charged to fans with an elastic demand.

According to the graph, which level of output maximizes profit?

8 shirts per minute

Operate if price > average variable cost.

In the short run, the firm should:

In the board game​ Monopoly, when a player gets the third deed for a group of properties​ (for example, the third orange​ property), the player doubles the rent charged on each property in the group.​ Similarly, a player who has a single railroad charges a rent of​ $25, while a player who has all four railroads charges a rent of​ $200 for each railroad.

Are these pricing rules consistent with the analysis of monopoly in this​ chapter? Yes b. In the​ game, is there a deadweight loss from​ monopoly? No

If the number of people in a publishing company does not go up or down with the quantity of books it publishes, then how should we categorize the salaries and benefits paid to these employees?

As a part of fixed cost

According to the graph, over what range of output do we find constant returns to scale in bookselling?

Between 20,000 and 40,000 books

According to the graph, what size bookstore is more likely to experience diseconomies of scale?

Bookstores that sell more than 80,000 books per month

According to the graph, which demand curve is associated with the shutdown point for this perfectly competitive firm?

Demand curve 2

According to the graph, which of the following is more likely to occur when moving from point A to point B?

Diminishing returns

​"Several of the merchants in our city offer discounts to our senior citizens. These discounts obviously decrease the​ merchants' profits, so we should decrease the​ merchants' taxes to offset their losses on​ senior-citizen discounts."

Disagree

__________ equals the firm's revenues minus all implicit and explicit costs.

Economic profit

In the short-run, the cost that is independent of the amount of output produced is called __________.

Fixed cost

According to the table, which of the following are implicit costs?

Foregone salary and foregone interest

According to the data in the table, when the price is $4, the firm would produce:

Four units of output, although it would suffer a loss from doing so

Consider a state that initially has a single casino for gambling. Suppose the state allows a second casino to enter the market. How would you expect the entry of the second casino to affect​ (a) the variety of games offered in the casinos and​ (b) the payout​ (winnings) per dollar​ spent

Greater variety of​ games; increased payout per dollar spent.

The marginal cost of an additional baseball fan is​ zero, so the​ profit-maximizing condition simplifies to

MR = 0

What does the shaded area in the graph represent for a perfectly competitive firm that produces at output level Q?

Negative economic profit

According to the graphs, which of the following is likely to happen in this market in the long run?

No other firms will enter this market

What is occurring from the origin up until point A in this graph?

Output increases at an increasing rate.

In this graph, the market is initially in long-run equilibrium at point A. If this is a constant-cost industry, after the decrease in demand, which point is likely to be a short-run equilibrium and which point is likely to be the next long-run equilibrium?

Point D is a short-run equilibrium and point C is the new long-run equilibrium.

According to the graph, if a perfectly competitive firm is producing at point A, which of the following is true?

The firm earns zero economic profit.

Which graph best depicts an industry in which the firm's average costs decrease as the industry expands production?

The graph on the left

When a competitive market is in equilibrium, what is the economically efficient level of output?

The output where marginal cost is exactly equal to marginal benefit.

In​ 1993, seven Native American Tribes in Michigan cut a deal with the state. In exchange for being granted a monopoly in​ Vegas-style casino​ gambling, the tribes agreed to pay the state and local governments a share of its profits. By​ 1998, the profit sharing totaled more than​ $183 million. Why did the tribes propose this​ deal?

The tribes want to acquire monopoly power. B. The tribes would earn above normal profits if the deal is approved. C. The tribes are rent seeking. D. All of the above

When is output lower than the efficient level?

When marginal benefit is greater than marginal cost

To show the deadweight loss from​ monopoly, we compare the monopoly outcome to what would happen under

a perfectly competitive market

The short run is a period of time where __________ while the long run is a period of time where __________.

at least one input is fixed, all inputs are variable

According to the graph, which change in output represents economies of scale in bookselling?

from 1,000 to 20,000 books sold per month

If a restaurant has two groups of​ customers, seniors and​ nonseniors, the seniors will be offered a

lower price because they have a more elastic demand.

For a​ monopolist, the​ firm-specific demand curve is the same as the

market

In reference to the graph, at what level of output does this perfectly competitive firm maximize profit?

q3

A​ firm's short-run supply curve shows the relationship between

quantity supplied, price

The​ long-run supply curve shows the relationship between

quantity supplied, price

According to the graph economic efficiency is achieved at what level of output?

15,000 cups per month

Suppose your firm produces a branded drug at an average cost of ​$4 per dose and a price of ​$7 per dose. You sell 1 comma 000 doses per day. If a generic version of the drug were​ introduced, your daily sales would decrease to 800 doses. How much are you willing to pay each day to prevent the entry of the generic​ version?

600

According to the data in the table, what level of output maximizes profit?

8 units of output

As the market price increases​, consumer surplus

decreases, increase

Minimum efficient scale is the level of output at which:

all economies of scale have been exhausted

The process of using public policy to gain economic profit is

rent seeking.

Senior citizens pay less than everyone else for admission to a​ movie, but pay the same as everyone else for popcorn because popcorn is

resalable

some​ cases, a patent is socially inefficient because it

prolongs a monopoly

Suppose a firm starts with a single price and then switches to a​ price-discrimination scheme. The firm wil

raise, lower

During World War​ II, candy producers responded to maximum prices by

reducing the size of candy​ bars, leading to an increase in prices per ounce.

One way to engage in price discrimination for cola drinks is to sell cola in

refillable bottles, sensitive

Which of the following is not a policy the government uses to intervene in markets dominated by a single​ firm?

rent prohibition

The​ profit-sharing agreement between Michigan and the Native American tribes for casinos is an example of

rent seeking

Consider a baseball team that has a ticket price of ​$40 and sells 25 comma 000 tickets at this price. The slope of the demand curve is minus​$0.002. The typical fan purchases ​$20 worth of merchandise that costs the owner ​$6 to provide. a. The marginal revenue from ticket sales is ​$ Including both ticket sales and​ merchandise, the marginal fan contributes an additional

-10, 4

Consider the problem of setting a price for a book. The marginal cost of production is constant at​ $20 per book. The publisher knows from experience that the slope of the demand curve is minus​$0.20 per​ textbook: Starting with a price of​ $44, a price cut of​ $0.20 will increase the quantity demanded by one​ textbook, or for every dollar the price​ falls, five more textbooks are purchased. For​ example, here are some combinations of price and​ quantity: The author and the publisher would choose the same price if

.40, 30 c. he publisher wants to maximize profit and the author wants to maximize revenue . the royalty payment was based on​ profit, not revenue.

Consider the arthritis drug example in your text. If the research and development costs are ​$20 ​million, Flexjoint will develop the drug if it gets a patent that lasts at least

10 yrs

The average cost for providing​ off-street parking is ​$30 per space per​ day, and as a monopolist you could charge ​$40 per space per day for 175 spaces. The maximum amount that you are willing to pay for a monopoly is

1750

According to the graph, what is the marginal cost of producing the 50th cup of tea?

2

Refer to the figure on the right. Suppose the output of a large aluminum firm drops from 1 million pounds to 0.5 million pounds per year. The​ long-run average cost of producing aluminum will go from ​

2.10 to 2.80

Suppose your college grants​ Coca-Cola a monopoly in selling soft drinks on campus. Your job is to compute how much each student should be paid to compensate for his or her consumer cost of the monopoly. Suppose​ Coca-Cola increased the price of soft drinks by ​$0.30 per can and each student consumed 8 soft drinks before the monopoly was granted. Kate continues to buy 8 soft drinks at the higher price. What is the appropriate​ compensation? ​$

2.40

Which of the following are sometimes called accounting costs?

Explicit

You want to determine the​ profit-maximizing quantity for a monopolist. You can ask the​ firm's accountant to draw the​ firm's revenue and costs​ curves, but each curve will cost you​ $1,000. From the following​ list, indicate which curves you will​ request: average total​ cost, average fixed​ cost, average variable​ cost, marginal​ cost, demand, marginal revenue.

Marginal revenue and marginal cost.

n​ 1993, seven Native American Tribes in Michigan cut a deal with the state. In exchange for being granted a monopoly in​ Vegas-style casino​ gambling, the tribes agreed to pay the state and local governments a share of its profits. By​ 1998, the profit sharing totaled more than​ $183 million. Why did the tribes propose this​ deal?

The tribes want to acquire monopoly power. B. The tribes would earn above normal profits if the deal is approved. C. The tribes are rent seeking. D. All of the above

The downward sloping part of the long run average total cost curve is where the firm is achieving:

economies of scale

A maximum price​ (price ceiling) set at ​$6 prevents mutually beneficial transactions​ between:

forest and dee

In the figure to the​ right, Fivola​'s consumer surplus is

greater, higher

Your movie theater charges a single price of ​$4. The marginal cost of each patron is​ $1. A recent marketing survey revealed the following information about senior citizens and nonseniors. f your objective is to maximize​ profit, the marginal principle tells you to

he marginal revenue for senior citizens is ​$ nothing 3 decrease, incrsease

Which of the following does not conribute to the inefficiency of rent​ control?

high rental prices

If a restaurant has two groups of​ customers, seniors and​ nonseniors, the nonseniors will be offered a

higher price because they have a less elastic demand and the​ firm's profits will increase from sales to this group.

Compared to the perfectly competitive​ outcome, the monopoly outcome has a

higher, smaller

For a perfectly competitive​ firm, the​ firm-specific demand curve is

horizontal, negatively sloped

A switch from perfect competition to monopoly ▼ decreases increases the price and ▼ decreases increases the quantity sold. Consumer surplus ▼ increases decreases ​, while profit ▼ increases decreases . The net loss to society is the ▼ deadweight profit loss from monopoly.

increase, decrease, increases, deadweight

he U.S. restricts imported sugar such that only domestic producers are allowed to supply sugar to the market. This is shown in the diagram to the right.

increase, decrease, increase

A patent increases the incentive to develop new products because it

increase, development

According to the principle of diminishing​ returns, as one input increases while the other inputs are held​ fixed, output

increases at a decreasing rate which causes the marginal product to fall as output increases.

At a price of ​$17 per​ CD, the marginal revenue of a CD seller is ​$11. If the marginal cost of CDs is ​$8​, the firm should

lower, increase

The market equilibrium

maximizes the total surplus of the market because it guarantees that all mutually beneficial transactions will happen

Consumer surplus equals the

maximum amount a consumer is willing to​ pay, shown by the demand​ curve, minus the price paid.

When the government sets a ______________ price it is known as a price floor. A price floor ______________ the total surplus of the market.

minimum, reduces

When the government sets a ____________ maximum minimum price that exceeds the equilibrium​ price, the result is permanent excess _________demand supply . Producers will produce __________ more less and consumers buy ___________ less more .

minimum, supply, more, less

The computation of economic cost is based on the principle of

opportunity cost

An example of a market which has a monopoly structure is

patented drugs

According to the graph the shut-down point corresponds to:

point d

In an​ increasing-cost industry, the​ long-run supply curve is

positively sloped because the greater demand for inputs and labor increases the average cost of producing the product.

In perfect competition, the marginal revenue is the same as:

price

Producer surplus equals the

price a producer receives for a product minus the marginal cost of production.

A firm in perfect competition earns profit if:

price is greater than average total cost

Consumer surplus equals

the amount a consumer is willing to pay minus the amount the consumer actually pays.

Producer surplus equals

the price a producer receives for a product minus the marginal cost of production.

The cost of serving as an Airbnb host includes the opportunity cost of

the time required to arrange a stay and clean up after a guest leaves

At which price in this graph is the perfectly competitive firm earning negative economic profit?

250

he price of the hardback edition of a​ best-selling book is typically three times the price of the paperback edition because the eager consumers who buy hardbacks have

less

The​ marginal-cost curve is

negatively sloped for small quantities of output because of the benefits of labor​ specialization, and positively sloped for large quantities because of diminishing returns. minimum

An information good has a ▼ ​first-copy cost, and a ▼ small large marginal cost

total revenue, variable cost

If the monopoly profits are large enough to offset the substantial research and development costs of a new​ product, a firm will develop the product and become a monopolist.

true