Economics exam 2
The profit-maximizing quantity is _____ and profit-maximizing price is _____
20; $100,000
Jack owns a pumpkin patch and has been selling pumpkins for $10. As Halloween approaches, he worries about having too many unsold pumpkins, so he lowers the price by 20%. If the price elasticity of demand for pumpkins is 1.5, how many more pumpkins will Jack sell?
30% more
A grocery store announced a 50% decrease in the price of local honey. Sales increased by 200%. Based on the information, the price elasticity of honey is
4
The top eight firms in an industry control 15%, 10%, 9%, 8%, 7%, 6%, 5%, and 4% of the industry. What is the four-firm concentration ratio?
42
According to the average cost-pricing rule, monopolists should produce at the quantity where the demand curve intersects the average total cost curve
True
On a graph of the long-run average total cost curve, constant returns to scale are shown as
constant average costs as production capacity expands
Which of these does NOT lead to economies of scale?
increased bureaucratization
A perfectly competitive firm charges a price that is _____ and produces _____ than a monopolist.
lower; more
A restaurant manager concludes that when he has too many servers on the floor, the servers get into each other's way and fewer people get served. This demonstrates the concept of
negative marginal returns
(Figure: Interpreting MC and Price Curves) Based on the graph, it can be determined that this firm is in a perfectly competitive market because the
firm's MR curve is perfectly elastic
Perfect price discrimination is also known as _____ price discrimination
first-degree
An elastic supply curve that is linear is relatively _____ and crosses the _____ axis
flat; price
Which of these is an example of a decreasing cost industry?
memory chips for tablets
A constantly declining long-run average cost curve is a characteristic of what type of industrial structure?
natural monopoly
If the economies of scale are so large that only one firm can survive in the industry, then that industry is called a(n)
natural monopoly
If the owner of a concert hall wishes to use third-degree price discrimination to price its tickets at $20, $15, and $10, it should price tickets lower for customers who
have more elastic demand for tickets
A firm in a perfectly competitive industry is a price
taker
(Table) According to the table, the monopolist's marginal revenue on the fifth unit of output is
-$5
(Figure: Understanding Cost Curves 2) Match the curves in the figure (lines A, B, and C) with the correct cost curve name.
A = marginal cost; B = average variable cost; C = average total cost
A sole proprietorship exists when several people unite to jointly own a business
False
If the price elasticity of demand is 1.5, then the demand curve is inelastic
False
Two goods are close substitutes for each other if their cross elasticity of demand equals 0.
False
For firms in perfect competition, profit maximization will always occur where
MC = P
Second-degree price discrimination is MOST likely to be used by which of these industries?
electric utilities
(Figure: Monopolies Versus Competitive Industries) Based on the graph, under a monopoly consumer surplus is _____ and producer surplus is _____.
f; e + h + g
For a given supply of a product, the _____ the price elasticity of demand, the _____ the tax incidence on consumers, and the _____ the incidence on sellers.
greater; smaller; greater
(Figure: Determining Short-Run Supply Curves) At a market price of $3 in the short run, the firm
incurs an economic loss but continues to produce
Because the market demand curve slopes down and to the right, the monopolist's marginal revenue will always be
less than the market price
Price per unit times the total quantity sold is
total revenue
If the price of a product with elastic demand increases
total revenue will fall.
If Ed = 4, then
a price increase of 1% will reduce quantity demanded by 4%
(Figure: Determining Production Strategies) Based on the graph, the price charged by the profit-maximizing firm is
$3
The current equilibrium price and quantity in the market for walnuts are $5 per pound with 10,000 pounds supplied. Supermarkets are expecting to see sales rise to 15,000 pounds due to an unusually large crop of walnuts. If the price elasticity of demand is 1.8, what is the new price per pound of walnuts?
$4
In the United States, patents are usually granted for what amount of time?
20 years
Travis's Basketball Training Camp currently has five trainers and a total product of 38 personal training sessions per day. When Travis hires its sixth trainer, total product rises to 42 sessions per day. What is the average product and marginal product when the sixth trainer is hired?
Average product is seven sessions and marginal product is four sessions
(Figure: Interpreting the LRATC) In which region(s) in the graph does this firm maximize profit?
B
Suppose the government places a large tax on the profits of companies that manufacture and sell cigarettes. Which statement is the MOST valid?
Much of the tax burden will be passed on to consumers in the form of higher prices because demand is inelastic.
Walmart is an example of a constant cost firm
True
An example of x-inefficiency is
an executive, at the corporation's expense, hiring a limousine to drive him one block whenever it is raining
(Figure: Determining Marginal Returns) Based on both the table and the figure, adding a fifth worker leads to _____ marginal returns.
diminishing
The exclusive right to produce or reproduce certain types of intellectual property (e.g., books, works of art) for an extended period of time is called a(n)
copyright
When goods A and B are substitutes, their
cross elasticity will be positive
If the price elasticity of demand for tofu is 1.7 and the price for a pound of tofu increases by 10%, then total spending on tofu will
decrease
A characteristic that distinguishes monopolistic competition from perfect competition is
differentiated products
Suppose the price elasticity of demand is 3.0 and the price elasticity of supply is 0.08. The incidence of an excise tax
falls primarily on producers
The five largest firms in a market have output shares of 18%, 16%, 15%, 14%, and 12%. If one of these firms changes its price or product features, the sales of the other firms are noticeably affected. This _____ is associated with the market structure of _____.
mutual interdependence; oligopolies
A firm in a perfectly competitive industry would exhibit which characteristic? I. An ability to produce as much output as the firm desires at the market price II. No economic profits in the short run but possible economic profits in the long run
only I
Perfectly competitive markets are productively efficient because goods and services are produced at their lowest
opportunity cost
The market structure that maximizes consumer surplus is
perfect competition
What should the perfectly competitive firm do in the short run if minimum AVC < P < minimum ATC?
produce at the output level where P = MC
The price elasticity of supply measures the responsiveness of quantity _____ to changes in _____
supplied; the price of the product
X-inefficiency results from
protection from competitive pressures
A form of regulation that controls a firm's prices and profits based on its costs and capital investments is called _____ regulation
rate of return
The economist Henry George proposed that all tax revenue be collected via taxes on land. If land were perfectly inelastic in supply, then a property tax on land would
result in no deadweight loss
Which of these is the MOST important determinant of the elasticity of supply?
time to adjust
The Federal Trade Commission Act prohibits
unfair competitive practices and deceptive acts
Which tax structure would be an example of a progressive tax?
$4,000 in taxes collected on $20,000 of income, and $10,000 in taxes collected on $40,000
Zhen left a job as an accountant making $80,000 a year to open his own business. Zhen now owns his own accounting firm and employs three bookkeepers to help manage his accounts. His total revenue this year was $525,000. Because he is well known for his estate planning and expertise, he is also paid $16,000 per year by a local news station to answer tax questions on their weekly Ask the Accountant segment. His explicit costs for payroll, insurance, taxes, mortgage, and utilities are $390,000. Zhen's economic profit is
$71,000
If the variable cost of producing five pairs of shoes is $50 and the variable cost of producing six pairs is $80, which statement is TRUE?
The average variable cost of the fifth pair is $10
In the market period, the price elasticity of supply is
0
Elastic supply could be indicated by a value of
1.7
Sandra's Coffee Shop uses robots to make coffee. Each robot is identical and is able to fill exactly 20 coffee orders per hour. If there are 5 robots, the total product is _____ and the marginal product of each robot is _____
100; 20
In the short run, producers have the ability to change plant capacity
False
Perfect price discrimination occurs only in perfect competition
False
Small businesses or sole proprietorships account for 70% of all businesses in the United States and also account for 70% of all products and services produced in the United States
False
Which situation would best describe a long-run production decision?
Jonah's Golf 'n' Fun Center opens a second location across town due to its popularity
Which business exhibits characteristics of a perfectly competitive firm?
JorDawn cannot tell which farm the peaches he purchased came from because all the peaches look alike
Suppose a perfectly competitive firm is in the following situation: P = $9; output = 4,000; ATC = $8; AVC = $6; and MC = $9. Which statement accurately describes the firm's and the market's situations?
The firm earns economic profit; the market is in a short-run equilibrium
A monopolist will shut down when _____ in the long run and when _____ in the short run
P < ATC; P < AVC
Constance manages a lumber mill in a perfectly competitive market. If the market price per piece is $5 and Constance's average total cost is $4, what will happen in the lumber industry in the long run?
Supply will increase and market price will decrease
Suppose a perfectly competitive firm faces the following situation: P = $8; output = 2,000; ATC = $6.50; and MC = $7. Which statement is an accurate description of the firm's situation?
The firm earns profit but is not maximizing its profit
Which condition is NOT necessary for price discrimination to exist?
The firm must set different prices to reflect marginal cost
Deadweight loss is minimized when both the demand and supply curves are price inelastic.
True
Entrepreneurs provide goods and services to markets
True
In a perfectly competitive market, if the price of a good is $165, then its marginal revenue is also $165
True
Natural monopolies occur when an industry can support only one firm
True
Perfectly competitive firms always earn zero economic profit in the long run
True
The market structure with the MOST market power is monopoly.
True
Two goods whose cross elasticity of demand equals -10.5 are likely close complements.
True
In a perfectly competitive market, the price of the good or service is determined by
market supply and market demand
Suppose a combination of population growth and rising incomes increases both the demand for and the price of housing. In response, existing builders and new entrants construct more new housing. As timber use outstrips the ability of forests to regrow, the price of timber rises. Consequently, the price of new housing rises. This scenario describes a(n)
increasing cost industry
Amy decides to open a bakery that will specialize in delicious gourmet brownies. Her explicit costs would include all of these EXCEPT the
interest earnings Amy forgoes from selling her savings bonds to finance her store
Heath's company currently produces 30 units of output. The price of the good is $8 per unit, while total fixed cost is $50 and average variable cost is $5 per unit. Heath's profit-maximizing company
is experiencing profit of $40
Suppose the market for premium music streaming exhibits the typical downward-sloping demand curve and upward-sloping supply curve. A new excise tax placed on music streaming services would lead to _____ consumer surplus, _____ producer surplus, and _____ deadweight loss
lower; lower; higher
A good with an income elasticity that is positive, but less than 1, is a(n) _____ good
normal
Ticketmaster's flexible pricing model allows it to charge a higher or lower price for tickets based on
shifts in demand
When moving down along a linear demand curve
the elasticity of demand changes from elastic to inelastic.
Marta takes her 72-year-old mother and her 11-year-old son to the local water park. Marta pays $12 for her ticket, $8 for her mother's ticket, and $6 for her son's ticket. This is an example of _____ price discrimination
third-degree