Micro exam study
Marginal cost A. is the increase in total cost resulting from producing one more unit. B. always equals average cost. C. is the average cost of production divided by output. D. equals the increase in AVC resulting from producing one more unit.
A
Of the following, ________ is the best example of an oligopolistic industry. A. automobiles production B. electric power C. soybean farming D. grocery stores
A
The Oh So Humble Bakery sells 300 muffins at a price of $1 per muffin. Its explicit costs for producing 300 muffins are $250. If the bakery is earning a normal rate of return, then implicit costs must be A. $50. B. $100. C. $250. D. $350.
A
The demand curve facing a monopolistic firm is ________. A. downward-sloping B. horizontal C. vertical D. upward-sloping
A
economies of scale
As Q goes up in L-R ATC goes down
A ________ prevents new firms from entering and competing in a monopolistic industry. A. market power sharing agreement B. barrier to entry C. cartel agreement D. collusive agreement
B
A profit-maximizing monopolist will produce the level of output where A. marginal cost is minimized. B. marginal revenue equals marginal cost. C. price equals marginal cost. D. marginal revenue is zero.
B
Compared to a perfectly competitive firm, the demand schedule of a monopolistically competitive firm faces is A. perfectly price elastic. B. less price elastic. C. perfectly price inelastic. D. more price elastic.
B
If marginal cost is below average total cost, average total cost will A. remain constant. B. be decreasing. C. be increasing. D. be maximized.
B
There is easy entry into the ________ and ________ industries. A. oligopolistic; monopolistic B. perfectly competitive; monopolistically competitive C. monopolistically competitive; oligopolistic D. monopolistic; perfectly competitive
B
When Burger Barn hires one worker, 20 customers can be served in an hour. When Burger Barn hires two workers, 50 customers can be served in an hour. The marginal product of the second worker is __________ customers served per hour. A. 15 B. 30 C. 40 D. 67.5
B
A firm will choose to operate rather than shut down as long as A. AVC is greater than MC. B. AFC is greater than AVC. C. price is greater than or equal to AVC. D. price is greater than or equal to AFC.
C
For perfectly competitive firms A. total revenue equals price. B. marginal revenue equals total revenue. C. marginal revenue equals price. D. all of the above
C
In the short run average costs eventually ________ because of diminishing returns, and in the long run average costs eventually ________ because of diseconomies of scale. A. decrease; decrease B. decrease; increase C. increase; increase D. increase; decrease
C
The Wax Works sells 500 candles at a price of $10 per candle. The Wax Works' total economic costs for producing 500 candles are $2,000. The Wax Works' economic profit is A. $2,000. B. $3,000. C. $5,000. D. indeterminate from this information.
C
Under perfect competition, the efficient level of output is produced because A. firms earn only a normal profit in the long run. B. government regulates the output level that must be produced. C. price equals marginal cost. D. firms can earn an economic profit in the long run.
C
What is the maximum value the HHI can take on? A. 1,000 B. 5,000 C. 10,000 D. 100,000
C
If the marginal product of labor is greater than the average product of labor, then the A. marginal product must be increasing. B. marginal product must be decreasing. C. average product must be decreasing. D. average product must be increasing.
D
In a monopolistically competitive industry, A. firms are large relative to the total market. Your answer is not correct.B. there is only one firm. C. firms can be either large or small relative to the total market. D. firms are small relative to the total market.
D
In the long run, A. a firm can shut down, but it cannot exit the industry. B. a firm can vary all inputs, but it cannot change the mix of inputs it uses. C. all firms must make economic profits. D. there are no fixed factors of production.
D
In the long run, a monopoly A. will yield an efficient outcome. B. will never exit the industry. C. will always earn zero economic profits. D. may earn positive economic profits due to entry barriers
D
Industries in which firms are enjoying positive profits are likely to ________ in the long-run. A. expand or contract depending on the normal rate of return B. contract C. neither expand nor contract, as firms must earn an economic profit to stay in business D. expand
D
Marginal revenue for a perfectly competitive firm is A. upward sloping. B. vertical. C. downward sloping. D. horizontal.
D
The Specialty Cake Store, a monopolistically competitive firm, is producing 200 decorated cakes per day and selling each cake for $17. At that production level ATC is $20, AVC is $15, AFC is $5, and both MR and MC are $8. This firm should A. increase output to the point where price equals marginal cost. B. decrease output to the point where price equals average total cost. C. shutdown and produce zero cakes and just pay fixed costs. D. continue to produce 200 cakes, as price is greater than AVC.
D
The marginal cost curve intersects the ________ at its minimum. A. average variable cost curve B. average total cost curve C. average fixed cost curve D. A and B are both correct.
D
The version of the law of diminishing returns that applies to production A. applies in the short and long run. B. implies that as we add more workers our output decreases. C. is true only when all inputs are variable. D. applies only in the short run.
D
The profit-maximizing level for all firms, regardless of industry structure, is the output level where A. ATC = P. B. P = MC. C. TR = MC. D. MC = MR.
D
A(n) ________ industry has a single, unique product and blocked entry. A. perfectly competitive B. monopolistically competitive C. oligopolistic D. monopolistic
D
A firm must earn an economic profit in order to receive a normal rate of return. True False
F
An industry in which there are five firms each accounting for 20 percent of the market has an HHI of 100. True False
F
Because the monopolist is the sole producer of a good, it can never incur a loss. True False
F
Economists consider the long run as a period of more than one year. True False
F
For a monopolistically competitive firm, its demand curve is the same as its marginal revenue curve. True False
F
H-H 1800-10000
Highly concentrated
H-H is what?
It's the sum of squared market shares of all firms in any industry.
To maximize profit
MR=MC
Sum of TRI and Sum of Q
Marginal Revenue
H-H 1000-1800
Moderately contentrated
monopolistic competition (3) list low point
Not at low point
Any firm's total revenue equals
P x Q
allocative efficiency
P=MC MR=MC P=MR
Monopoly (2) list P>ATC
Positive economic profit
What is the formula for the average product of labor?
Q/L
Collude in a market
Set a price in the market
The formula for the marginal product of labor is
Sum of Q / Sum of L
A monopolistically competitive firm maximizes profit by producing where marginal revenue equals marginal cost. True False
T
A firm's long run average cost curve represents the minimum cost of producing each level of output when the scale of production can be adjusted. True False
T
Because the marginal revenue curve for a monopolist lies below its demand curve, the profit-maximizing price of the monopolist will be above marginal cost. True False
T
Firms in perfectly competitive industries that are earning shortminusrun profits will likely break even in the long run. True False
T
law of diminishing returns
When additional units of a variable input are added to fixed inputs after a certain point, the marginal product of the variable input declines.
Cartel
a group of firms acting in unison
Short run
a period where some inputs are variables/ inputs are fixed
long run
all inputs are variables
Perfect comp (1) list p=MC
allocative efficiency
if economic profit is negative < o/
negative / exit
Monopoly (3) list low point
not at low point on L-R ATC
perfect comp (3) list low point
on L-R ATC
if P<MC
overproduction
How to find market share?
square the value - which gives H-H index.
if economic profit = o/
stable
Monopoly (1) list Price more than resources P>MC
underproduction
if P> MC
underproduction
monopolistic competition (1) list P>MC
underproduction
Perfect comp (2) list P=ATC
zero economic profit
monopolistic competition (2) list P=ATC
zero economic profit
Which of the following is the set of conditions necessary for long-run equilibrium for a perfectly competitive firm? A. P = SRMC = SRAC > LRAC B. P = SRMC < SRAC = LRAC C. P = SRMC = SRAC = LRAC D. P > SRMC = SRAC = LRAC
C
H-H 0-1000
not concentrated
Compared to a perfectly competitive firm having the same cost curves, a monopolistically competitive firm ________ output and ________ prices. A. reduces; raises B. raises; raises C. raises; reduces D. reduces; reduces
A
Firms that are "breaking even" are A. earning zero economic profits. B. earning less than a normal rate of return. C. shutting down in the short run. D. All of the above are correct.
A
For a monopoly to be a natural monopoly, A. economies of scale must be realized at a scale that is close to total demand in the market. B. economies of scale must be realized at a scale that is small relative to the market. C. there must be constant returns to scale. D. the long-run average cost curve must continue to increase until it hits the market demand curve
A
For a monopoly, the marginal revenue curve ________ its demand curve. A. is below B. has no relation to C. is the same as D. is above
A
For economies of scale, a(n) ________ in a firm's scale of production leads to ________ average total cost. A. increase; lower B. decrease; no change in C. decrease; lower D. increase; higher
A
Free entry implies that A. if firms in an industry are making excessively high profits, new firms are likely to enter the industry. B. a perfectly competitive firm can never earn a profit. C. the government regulates the number of firms that are allowed in an industry. D. firms will always earn a profit, as new firms can enter the industry at any time they like.
A
If P > ATC, then a profit maximizing, monopolistically competitive firm earns ________ economic profits. A. positive B. negative C. zero D. either positive or negative
A
If a firm shuts down in the short run, then A. its losses are equal to its fixed costs. B. it must be the case that its revenues from operating were less than its total costs. C. its economic profits are zero. D. fixed costs are greater than variable costs.
A
If at the current output of X the PX > MCX, then society gains by A. producing more X. B. producing less X. C. raising the price of X. D. increasing the cost of producing X.
A
If economic profit is zero, a firm A. earns exactly a normal rate of return. B. earns a negative rate of return. C. will leave the industry. D. earns a positive but below normal rate of return.
A
If firms in a monopolistically competitive industry are incurring losses, in the long run firms will leave this industry until A. P = ATC. B. P = MC. C. MR = ATC. D. MC = ATC.
A
If labor is a variable input in production, the law of diminishing marginal returns implies that in the short run A. labor's marginal product decreases after a certain point. B. total product is negative. C. total product is negative after a certain point has been reached. D. labor's marginal product is constant.
A
If the government stops enforcing its collusion laws and oligopolies are now able to collude, they will ________ the price charged and ________ the total output produced. A. increase; decrease B. decrease; decrease C. increase; increase D. decrease; increase
A
If the marginal product of labor equals the average product of labor, then the A. average product is maximized. B. marginal product is maximized. C. average product is still increasing. D. marginal product is still increasing.
A
If there are four firms in an industry and each has a 25 percent market share, then the Herfindahl-Hirschman Index equals A. 2,500. B. 2,800. C. 5,000. D. 6,600.
A
In a monopoly, the market demand curve is A. the same as the demand curve facing the firm. B. nonexistent. C. the summation of all the individual firm's cost curves. D. the marginal cost curve above minimum average variable cost.
A
In the short run when the marginal product of labor ________, the marginal cost of an additional unit of output ________. A. rises; falls B. falls; falls C. rises; rises D. falls; doesn't change
A
In the short run when the marginal product of labor ________, the marginal cost of an additional unit of output ________. A. falls; rises B. rises; doesn't change C. falls; falls D. rises; rises
A
In monopolistic competition, firms can have some market power A. because of barriers to entry into the industry. B. by producing differentiated products. C. because of barriers to exit from the industry. D. by virtue of size alone.
B
Barriers of entry (6)
1)Legal barriers 2)absolute cost advantages 3)scale advantages 4)control over an essential resource 5)access to marketing and distribution channels 6) brand loyalty
At an output of zero, ________ is zero. A. total variable cost B. total fixed cost C. total cost D. All of the above are correct.
A
A cartel is A. a group of oligopolists who make price and output decisions jointly. B. an industry that consist of several large firms and one or two smaller ones. C. an industry that consists of one large firm and several smaller ones. D. a group of oligopolists who compete in price but not in quality.
A
A form of industry structure characterized by a few firms each large enough to influence market price is A. oligopoly. B. perfect competition. C. monopolistic competition. D. monopoly.
A
A lawn service company has the following production possibilities. With one, two, three, and four workers, the company can mow 4, 9, 12, and 14 lawns per day, respectively. The average product of labor with three workers is A. 4. B. 12. C. 3.5. D. 3.
A
A monopolistically competitive firm maximizes profit where A. MR = MC. B. MC > MR. C. P = MC. D. MR > MC.
A
Although patents are a ________, they also provide ________. A. barrier to entry; an incentive for invention and innovation B. collusive agreement; an incentive for invention and innovation C. barrier to entry; for free entry of new firms D. collusive agreement; for free entry of new firms
A
An oligopoly is an industry market structure with A. a small number of firms each large enough to impact the market price of its output. B. many firms each too small to impact the market price. C. many firms each able to differentiate their product. D. a single firm in which the entry of new firms is blocked.
A
As new firms enter a monopolistically competitive industry, the demand A. and marginal revenue curves facing each firm begin to shift to the left. B. curve facing each firm begins to shift to the right but the marginal revenue curve remains constant. C. curve facing each firm shifts to the left, but the marginal revenue curve remains constant. D. and marginal revenue curves facing each firm begin to shift to the right.
A
Assume soybeans are produced in a perfectly competitive market. A soybean farmer is currently maximizing his profits. If the market price of soybeans falls, after the farmer adjusts to the new price, he will be producing ________ bushels of soybeans and his profit will be ________. A. fewer; lower B. the same number of; the same C. fewer; the same D. more; the same
A
Assume the market for orange juice is perfectly competitive. Orange juice producers currently earn a zero economic profit. Orange juice producers will likely begin to earn economic profits in the short run, and some producers will enter the industry until all firms in the industry earn a zero economic profit, if consumers A. switch from grape juice to orange juice. B. switch from orange juice to grape juice. C. do not change their demand for orange juice. D. All of the above are correct.
A
In the short run, when a monopolist incurs a loss it will A. produce as long as total revenue is sufficient to cover variable costs. B. produce as long as total revenue is sufficient to cover fixed costs. C. always produce where marginal cost equals marginal revenue. D. always shut down.
A
Marginal cost is a good measure of A. what society gives up by using resources to produce more of a good or service. B. the social value of a marginal unit of a good. C. the least costly way to produce all units of a good. D. what society gains by using resources to produce more of a good or service.
A
Marginal revenue is the A. added revenue that a firm takes in when it increases output by one additional unit. B. ratio of total revenue to quantity. C. difference between total revenue and total costs. D. additional profit the firm earns when it sells an additional unit of output.
A
Monopolistically competitive firms prevent the efficient use of resources because in long-run equilibrium A. price is greater than marginal cost. B. price is less than marginal cost. C. marginal cost is greater than average total cost. D. price equals marginal cost.
A
Products may be homogeneous or differentiated in the ________ market structure. A. oligopolistic B. perfectly competitive C. monopolistic D. monopolistically competitive
A
Profit is A. TR minusTC. B. TR minusTVC. C. TR minusTFC. D. TVC minusTFC.
A
The XYZ Computer Company has a monopoly over the production of a specialized color printer. The XYZ Computer Company will find it profitable to increase the production of specialized color printers as long as marginal cost A. is less than marginal revenue. B. is greater than marginal revenue. C. is positive. D. equals marginal revenue.
A
The main decision for a profit maximizing perfectly competitive firm is not what ________ but what ________. A. price to charge; level of output to produce B. level of output to produce; total revenue to achieve C. price to charge; total cost to achieve D. level of output to produce; price to charge
A
The process by which inputs are combined, transformed, and turned into outputs is called A. production. B. outsourcing. C. technology. D. capitalization.
A
The rate of return on capital that is just sufficient to keep owners and investors satisfied is called A. a normal rate of return. B. the price-earnings ratio. C. economic profit. D. a minimum efficient scale.
A
The fast-food industry is not considered perfectly competitive because: A. the firm's products are not homogeneous. B. there are a small number of dominant firms. C. entry and exit are strictly regulated by the government. D. there are a very large number of firms.
A
Total cost is calculated as A. the sum of total fixed cost and total variable cost. B. the sum of all the firm's explicit costs. C. the sum of average fixed cost and average variable cost. D. the product of average total cost and price.
A
Upon graduating with an accounting degree, you open your own accounting firm of which you and your assistant are the only employees. To start the firm you passed on a job offer with a large accounting firm that offered you a salary of $50,000 annually. Last year you earned a total revenue of $120,000. Rent and supplies last year were $50,000. Your assistant's salary is $30,000 annually. Your annual economic profit is A. minus$10,000. B. $20,000. C. $40,000. D. $70,000.
A
Which of the following represents an accurate situation for a perfectly competitive firm? A. P = $9 and MR = $9 B. P = $12 and MR = $8 C. P = $5 and MR = $7 D. P = $16 and MR = $0
A
Which type of cost does not depend on a firm's output? A. fixed cost B. total cost C. marginal cost D. variable cost
A
You are the owner and only employee of a company that writes computer software that is used by gamblers to collect sports data. Last year you earned a total revenue of $90,000. Your costs for equipment, rent, and supplies were $60,000. To start this business you invested an amount of your own capital that could pay you a return of $40,000 a year. A yearly normal rate of return for your computer software firm would be A. $40,000. B. $100,000. C. $60,000. D. $20,000.
A
________ are likely a fixed cost of a firm. A. Mortgage payments for a new warehouse B. Utility costs C. The costs of raw materials used in production D. Expenses for holiday office parties
A
diseconomies of scale
As Q goes up in L-R ATC goes up
In an oligopolistic industry, the price firms charge and the quantity they produce would be the same as if the industry was a monopoly if A. the market is contestable. B. the oligopolists collude. C. the oligopolists behave as Cournot assumed. D. one of the oligopolists acts as a dominant firm price leader.
B
A household will buy a good as long as the A. good's use value is less than the price being charged for the good. B. marginal utility from its consumption is greater than or equal to its market price. C. good still provides the consumer with average utility. D. good's price is greater than the maximum a consumer would be willing to pay for it.
B
A monopolistically competitive firm that is incurring a loss will produce in the short run as long as the revenue the firm receives is sufficient to cover A. fixed costs. B. variable costs. C. advertising costs. D. marginal costs.
B
A monopolistically competitive firm that is incurring a loss will shut down if A. marginal revenue is less than marginal cost. B. revenues are less than variable costs. C. price is less than marginal cost. D. price is less than average total cost.
B
A monopoly is an industry with a single firm which produces A. a product for which there are a few close substitutes. B. a product for which there are no close substitutes. C. a standardized product. D. a product for which there are many close substitutes.
B
A perfectly competitive industry consists of firms that produce ________ products. A. unique B. identical C. significantly differentiated D. slightly differentiated
B
Amy borrowed $20,000 from her parents to open a bagel shop. She pays her parents a 5% yearly return on the money they lent her. Her other yearly fixed costs equal $9,000. Her variable costs equal $30,000. In her first year, Amy sold 40,000 dozen at a price of $1.50 per dozen. Amy's total costs equal A. $50,000. B. $40,000. C. $59,000. D. $39,000.
B
As long as economic profits are being earned in an industry, firms will ________ the industry and the supply curve will shift to the ________. A. exit; left B. enter; right C. exit; right D. enter; left
B
Assume the total product of two workers is 100 and the total product of three workers is 120. The average product of three workers is ________, and the marginal product of the third worker is ________. A. 20; 100 B. 40; 20 C. 13.33; 6.67 D. 120; 100
B
Economic costs A. are the opportunity cost of each factor of production minus any interest charges paid on borrowed funds. B. include both a normal rate of return on investment and the opportunity cost of each factor of production. C. are equal to total revenue minus accounting profit. D. are equal to the direct costs of hiring all factors of production.
B
Firms cannot enter an industry in which positive profits are being earned in A. the long run. B. the short run. C. the short run and in the long run. D. As long as positive profits are being earned, firms can enter the industry in both the short run and the long run.
B
If an individual perfectly competitive firm charges a price above the industry equilibrium price, it will A. sell all that it can produce and gain equal revenue with competitors. B. not sell any of what it produces. C. sell all that it can produce and gain more revenue than competitors. D. sell part of what it can produce and gain less revenue than competitors will.
B
If marginal cost is above average variable cost, then A. marginal cost must be decreasing. B. average variable cost is increasing. C. average variable cost is decreasing. D. average variable cost is constant.
B
If the HerfindahlminusHirschman Index of an industry is less than 1,000, then the Antitrust Division of the Justice Department A. considers the industry already concentrated. B. considers the industry unconcentrated. C. will challenge any merger that would increase the index by over 100 points. D. will challenge any merger that raises the index by more than 50 points.
B
If we know average total cost and the amount of output, then we can always calculate total cost by A. adding average total cost and the amount of output. B. multiplying average total cost by the amount of output. C. subtracting the amount of output from average total cost. D. dividing average total cost by the amount of output.
B
In an oligopolistic industry where the oligopolists collude, the price firms charge would be ________, and the quantity they produce would be ________, if the industry was a monopoly. A. lower than; lower than B. the same as; the same as C. higher than; higher than D. higher than; lower than
B
In the short run, a firm A. can enter an industry where positive profits are being earned. B. has at least one fixed factor of production. C. can exit an industry and all of its factors of production are variable.. D. both B and C are correct.
B
Industry A has two firms that each control 50 percent of the market. Industry B has three firms, where one firm controls 70 percent of the market and the other two firms control 15 percent of the market each. According to the HHI, which industry is more concentrated? A. Industry A B. Industry B C. Both industries are equally concentrated D. indeterminate from the given information.
B
Relative to a competitively organized industry, a monopoly is more likely to produce A. less output, charges lower prices, and earns economic profits. B. less output, charges higher price, and earns economic profits. C. more output, charges higher prices, and earns economic profits. D. less output, charges lower prices, and earns only a normal profit.
B
The Lawn Ranger, a landscaping company, has total costs of $4,000 and total variable costs of $1,000. The Lawn Ranger's total fixed costs are A. $0. B. $3,000. C. $5,000. D. indeterminate because the firm's output level is not known.
B
The Sweet Success Bakery sells 400 cakes at a price of $10 per cake. Its total economic costs for producing 400 cakes are $500. The Sweet Success Bakery's economic profits are A. $100. B. $3,500. C. $4,500. D. indeterminate from this information.
B
The Wax Works sells 500 candles at a price of $5 per candle. The Wax Works' total economic costs for producing 500 candles are $3,000. The Wax Works' economic profit is A. minus$3,000. B. minus$500. C. $2,500. D. $3,000.
B
The classic examples of natural monopolies over the years have been A. agriculture. B. public utilities. C. auto manufacturers. D. retail trade.
B
The long run equilibrium for a monopolistically competitive firm is efficient because its profits equal zero in the long run. True False
B
The ________ is the share of industry output in sales or employment accounted for by the top firms in an industry. A. competitive index B. concentration ratio C. contestability ratio D. collusive level
B
Upon graduating with an accounting degree, you open your own accounting firm of which you and your assistant are the only employees. To start the firm you passed on a job offer with a large accounting firm that offered you a salary of $50,000 annually. Last year you earned a total revenue of $120,000. Rent and supplies last year were $50,000. Your assistant's salary is $30,000 annually. Your annual operating profit is A. minus$10,000. B. $40,000. C. $70,000. D. $80,000.
B
We know that monopolistically competitive firms prevent the efficient use of resources because they produce where A. P > ATC. B. P > MC. C. P = MC. D. MR > P.
B
When firms earn below normal rates of return A. they raise their prices to increase their profits. B. they tend to leave the industry and seek profits elsewhere. C. they tend to stay in the industry in anticipation of other firms leaving the industry. D. they are still breaking even economically.
B
When some firms exit a monopolistic competitive industry, the demand curves of the remaining firms in the industry ________. A. shift to the left B. shift to the right C. shift downward D. do not change
B
When the demand curve is a downward sloping straight line, the slope of the marginal revenue curve is A. always equal to one. B. twice as steep as the demand curve. C. the same as the slope of the demand curve. D. half as steep as the demand curve.
B
Which of the following refers to a short run phenomenon? A. economies of scale B. diminishing returns C. constant returns to scale D. diseconomies of scale
B
Which type of barrier to entry allowed the electric company to maintain a monopoly over the production of electricity? A. diseconomies of scale B. economies of scale C. a patent D. ownership of a scarce factor of production
B
You own and are the only employee of a company that customizes bicycles. Last year your total revenue was $60,000. Your costs for rent and supplies were $25,000. To start this business you invested an amount of your own capital that could pay you a $45,000 a year return. Your economic profit last year was A. minus$20,000. B. minus$10,000. C. $15,000. D. $35,000.
B
Profit-maximizing firms want to maximize the difference between A. marginal revenue and average cost. B. total revenue and total cost. C. marginal revenue and marginal cost. D. total revenue and marginal cost.
B
A form of oligopoly in which a dominant firm sets the price and all smaller firms in the industry follow the dominant firm's pricing policy is called A. the Cournot model. B. a cartel. C. the price-leadership model. D. the contestable markets model.
C
A market demand curve is ________. A. perfectly inelastic B. upward sloping C. downward sloping D. perfectly elastic
C
A monopolist is currently maximizing profits. In addition, if P > ATC > MC, then the monopolist A. just breaks even. B. is covering total variable costs but not total fixed costs. C. earns positive economic profits. D. is covering total fixed costs but not total variable costs.
C
A perfectly competitive firm will earn positive economic profits in the range of output for which the firm's price is ________ its minimum average total cost. A. equal to B. below C. above D. below its marginal cost and
C
Amy borrowed $20,000 from her parents to open a bagel shop. She pays her parents a 5% yearly return on the money they lent her. Her other yearly fixed costs equal $9,000. Her variable costs equal $30,000. In her first year, Amy sold 40,000 dozen at a price of $1.50 per dozen. Amy's total fixed costs equal A. $21,000. B. $1,000. C. $10,000. D. $9,000.
C
Which of the following is most likely to be a variable cost for a firm? A. The franchiser's fee that a restaurant must pay to the national restaurant chain B. The monthly rent on office space that it leased for a year C. The payroll taxes that are paid on employee wages D. The interest payments made on loans
C
Because of a patent, Alcoa is the only manufacturer of soda cans with a stay-put tab. Alcoa can earn a profit on the sale of soda cans with stay-put tabs A. only in the long run because government regulations prevent monopolists from earning profits in the short run. B. in the short run but not in the long run because new firms will enter the industry in the long run. C. in the long run because entry into the industry by new firms is blocked until the patent expires. D. in the long run but not the short run because the monopolist will face competition in the short ru
C
Economists usually assume that ________ is a fixed input in the ________ run. A. labor; short B. capital; long C. capital; short D. labor; long
C
Fixed costs are best described as: A. Costs that depend on the level of production chosen. B. Total variable cost (TVC) divided by the number of units of output. C. Costs that are incurred even if the firm is currently producing nothing. D. The change in total cost that results from producing one more unit of output.
C
From society's point of view, a monopolist produces too little because price A. is less than average cost. B. is less than marginal cost. C. exceeds marginal cost. D. exceeds average cost.
C
If TR > TVC but TR < TC, a firm would ________ in the short run and ________ in the long run. A. shut down; expand B. operate; expand C. operate; exit the industry D. shutdown; exit the industry
C
In long-run equilibrium for a monopolistically competitive firm, the firm's ________ curve is just tangent to its average total cost curve. A. marginal revenue B. marginal cost C. demand D. supply
C
Market power refers to a firm's ability to A. sell any amount of output it desires at the market-determined price. B. monopolize a market completely. C. raise price without losing all sales of its product. D. charge any price it likes.
C
Monopolistic competition is an industry market structure with A. many firms each too small to impact the market price of its output. B. a single firm in which the entry of new firms is blocked. C. many firms each able to differentiate their product. D. a small number of firms each large enough to impact the market price of its output.
C
On the downward sloping portion of a firm's long run average cost curve, it is experiencing A. constant returns to scale B. diminishing marginal returns C. economies of scale D. diseconomies of scale
C
The average product of labor with four workers is A. 14. B. 3. C. 3.5. D. 4.
C
The formula for total fixed cost is A. TFC = TC + TVC. B. TFC = TVC - TC. C. TFC = TC - TVC. D. TFC = TC Over TVC
C
The increase in total cost resulting from producing one more unit of output. is called A. variable cost. B. opportunity cost. C. marginal cost. D. average total cost.
C
The marginal revenue curve for a monopolist is A. horizontal. B. U-shaped. C. downward sloping. D. the same as its demand curve.
C
The pizza delivery industry is monopolistically competitive. Little Joe's Pizzeria raises its prices by 10%, but all the other pizzerias in town keep their prices the same. Which of the following is most likely to occur? A. Little Joe's Pizzeria's profits will increase. B. Little Joe's Pizzeria will not be able to sell any pizzas, because it was the only firm to raise its price. C. Little Joe's Pizzeria will lose some of its customers. D. The number of customers served by Little Joe's Pizzeria will increase.
C
The restaurant industry is an example of a(n) ________ industry. A. oligopolistic B. perfectly competitive C. monopolistically competitive D. monopolistic
C
The Herfindahl-Hirschman Index is A. calculated as the sum of the market shares of the top four firms. B. not used by the government in considering mergers. C. calculated by summing the squared market share percentages for all firms in the industry. D. calculated as the sum of the market shares for all firms in the industry.
C
Total variable cost ________ as output increases, and total fixed cost ________ as output increases. A. increases; decreases B. does not change; does not change C. increases; does not change D. increases; increases
C
Under perfect competition A. resources are allocated among firms equitably. B. final products are distributed among households equitably. C. the system produces the goods and services consumers want. D. All of the above are correct.
C
When an increase in the scale of production leads to higher average costs, the industry exhibits A. increasing returns to scale. B. constant returns to scale. C. decreasing returns to scale. D. diminishing returns.
C
When total product is maximized, marginal product A. and average product are positive. B. is positive but average product is zero. C. is zero but average product is positive. D. and average product are zero.
C
When ________ for a monopolistically competitive firm, the firm is in longminusrun equilibrium. A. MR > MC and P > ATC B. MR = MC and P > ATC C. MR = MC and P = ATC D. MR < MC and P < ATC
C
You are hired as an economic consultant to The Pampered Pet Shop. The Pampered Pet Shop operates in a perfectly competitive industry. This firm is currently producing at a point where market price equals its marginal cost. The Shop's total revenue exceeds its total variable cost, but is less than its total cost. You should advise the firm to A. cease production immediately because it is incurring a loss. B. raise its price until it breaks even. C. produce in the short run to minimize its loss, but exit the industry in the long run. D. lower its price so that it can sell more units of output.
C
You are the owner and only employee of a company that writes computer software that is used by gamblers to collect sports data. Last year you earned a total revenue of $90,000. Your costs for equipment, rent, and supplies were $60,000. To start this business you invested an amount of your own capital that could pay you a return of $40,000 a year. Your accounting profit last year was A. $60,000. B. $10,000. C. $30,000. D. $50,000.
C
A monopoly is an industry with A. a small number of firms each large enough to impact the market price of its output.. B. many firms each too small to impact the market price of its output. C. many firms each able to differentiate their product. D. a single firm in which the entry of new firms is blocked.
D
A perfectly competitive firm breaks even at the level of output where A. P > ATC. B. P < ATC. C. P = MC. D. P = ATC.
D
All of the following industry types have market power except A. oligopoly. B. monopoly. C. monopolistic competition. D. perfect competition.
D
Amy borrowed $20,000 from her parents to open a bagel shop. She pays her parents a 5% yearly return on the money they lent her. Her other yearly fixed costs equal $9,000. Her variable costs equal $30,000. In her first year, Amy sold 40,000 dozen at a price of $1.50 per dozen. Amy's profit is A. $50,000. B. $30,000. C. $0. D. $20,000.
D
Assume the market for beef is perfectly competitive. Beef producers are currently earning a zero economic profit. If consumers switch to beef from chicken, which of the following is most likely to occur? A. Beef producers will incur economic profits in the short run. Some producers will enter the industry as long as all firms in the industry are earning an economic profit. B. Beef producers will now incur economic profits in both the short run and the long run. C. Beef producers will now earn economic losses in the short run and there will be no additional adjustments in the long run. D. Beef producers will incur economic profits in the short run. Some producers will enter the industry until all firms in the industry are earning a zero economic profit.
D
Assume the wool industry is perfectly competitive. Why is it difficult for a wool producer to make excess profits in the long run? A. the fact that wool producers are price takers B. the assumption that wool producers in the industry do not differentiate their products C. the fact that the demand curve facing each wool producer is perfectly elastic D. There is free entry into the wool industry.
D
Assume Cathy's Cupcake Company operates in a perfectly competitive market producing 10,000 cupcakes per day. At this output level, price exceeds this firm's marginal and average variable costs. To maximize profits, Cathy's should A. make no adjustments as they are already maximizing their profits. B. stop producing since it is earning a loss. C. decrease their output. D. increase their output.
D
Economic profit is A. TVC minusTFC. B. TR minusTFC. C. TR minusTVC. D. TR minusTC.
D
Fixed costs A. depend on a firm's level of output. B. are total costs minus average variable costs. C. are zero if a firm produces no output. D. do not exist in the long run.
D
For a profit-maximizing monopolist A. P < MR. B. P = MR. C. P is unrelated to MR. D. P > MR.
D
For a monopolist, price A. can be greater than or less than marginal revenue. B. equals marginal revenue at all output levels. C. is less than marginal revenue. D. is greater than marginal revenue.
D
If firms in a monopolistically competitive industry are incurring losses, in the long run A. the government will subsidize the losses incurred by these firms so as to maintain competition in the industry. B. firms will leave this industry until the firms that remain are earning a positive economic profit. C. investment in this industry will increase to reduce production costs. D. firms will leave this industry until the remaining firms are earning a normal profit.
D
If there are two firms in an industry and each has 50 percent market share, then the Herfindahl-Hirschman Index equals A. 2,500. B. 6,600. C. 2,800. D. 5,000
D
Marginal cost is ________ average variable cost when ________. A. less than; total cost is maximized B. greater than; average fixed cost is minimized C. equal to; average total cost is minimized D. equal to; average variable cost is minimized. Your answer is correct.
D
Monopolistic competition differs from perfect competition primarily because in A. perfect competition, firms can differentiate their products. B. monopolistic competition, entry into the industry is blocked. C. monopolistic competition, there are relatively few barriers to entry. D. monopolistic competition, firms can differentiate their products.
D
Perfectly competitive firms A. are small relative to the size of the market. B. sell homogeneous products. C. are price takers. D. All of the above are correct.
D
Profit is equal to A. total revenue divided by marginal revenue. B. marginal revenue minus marginal cost. C. total revenue divided by total cost. D. total revenue minus total cost.
D
Suppose we know that a monopolist is maximizing its profits. Which of the following is a correct inference? The monopolist has A. set price equal to its average cost. B. maximized its total revenue. C. maximized the difference between marginal revenue and marginal cost. D. equated marginal revenue and marginal cost.
D
The Specialty Cake Store, a monopolistically competitive firm, is producing 200 decorated cakes per day and selling each cake for $12. At that production level ATC is $20, AVC is $15, AFC is $5, and both MR and MC are $8. This firm should A. increase output to the point where price equals marginal cost. B. decrease output to the point where marginal cost equals average cost. C. continue to produce 200 cakes, as price is greater than AFC. D. produce zero cakes and just pay fixed costs.
D
The XYZ Computer Company has a monopoly over the production of a specialized color printer. The XYZ Computer Company will find it profitable to reduce output as long as marginal revenue A. is positive. B. equals marginal cost. C. is greater than marginal cost. D. is less than marginal cost.
D
The rising part of a perfectly competitive firm's marginal cost curve that is equal to or above points on its average variable cost curve is the firm's A. normal profit curve. B. long run supply curve. C. economic profit curve. D. short run supply curve.
D
When a decrease in the scale of production leads to higher average costs, the industry exhibits A. constant returns to scale. B. decreasing returns to scale. C. diminishing returns. D. increasing returns to scale.
D
Which type of cost does depend on a firm's output? A. marginal cost B. total cost C. variable cost D. all of the above
D
Wilbur's Widgets, a widget company, produces 100 widgets. Its average fixed cost is $5 and its total variable cost is $300. What is the total cost of producing 100 widgets? A. $300 B. $305 C. $500 D. $800
D
You are the owner and only employee of a company that writes computer software that is used by gamblers to collect sports data. Last year you earned a total revenue of $90,000. Your costs for equipment, rent, and supplies were $60,000. To start this business you invested an amount of your own capital that could pay you a return of $40,000 a year. Your economic profit last year was A. $30,000. B. $10,000. C. minus$40,000. D. minus$10,000.
D
________ reflects household willingness to pay and ________ reflects the opportunity cost of the resources needed to produce a good. A. Marginal utility; price B. Price; average total cost C. Demand; price D. Price; marginal cost
D
For a firm, its economic profit is usually greater than its accounting profit. True False
F
For economic analysis, the short run is considered less than one year. True False
F
If demand in a perfectly competitive market increases, then an individual firm in that industry will see its profits fall. True False
F
In most oligopolistic industries, positive profits attract new firms and thus increase production. True False
F
Firms maximize their profits by producing the output level where MR = MC. T F
T
For economic analysis, the long run is any period in which all inputs are variable (regardless of the length of time involved). True False
T
If a monopolistically competitive industry is earning short-run profits, new competitors will enter the industry in the long run and compete away those profits. True False
T
The marginal cost curve intersects the average total cost curve at its minimum point. True False
T
The profit-maximizing level of output for a monopolist is the one at which marginal revenue equals marginal cost. True False
T
If, at the output where marginal revenue equals marginal cost, price is between average total cost and average variable cost, a firm will continue to produce in the short run. True False
T
The formula for average fixed costs is
TFC/Q
economic profit formula
TR-TC
If economic profit > o/
entry
Total cost
explicit + implicit cost TFC + TVC
A profit-maximizing monopolist will always raise output if marginal revenue exceeds marginal cost. True False
t
Ceteris paribus, for a monopoly to sell more output, it must lower its price. True False
t
