micro final

At an output of 1,000 units per year, a firm's fixed costs are $5,000 and its average variable costs are $6. Its total costs per year are

$11,000

The representative firm in a purely competitive industry

will earn zero economic profit in the long run.

A fall in the price of milk, used in the production of ice cream, will

increase the supply of ice cream.

One feature of pure monopoly is that the demand curve

slopes downward

If a nation is initially on its production possibilities curve, then it can increase its production of one good only by

decreasing the production of the other good

If X is a normal good, a rise in money income will shift the

demand curve for X to the right.

If products A and B are complements and the price of B decreases, the

demand for A will increase and the quantity of B demanded will increase.

An important similarity between a monopolistically competitive firm and a purely competitive firm is that

economic profit tends toward zero for both

Which of the following industries most closely approximates pure competition?

agriculture

In pure competition, the demand for the product of a single firm is perfectly

elastic because many other firms produce the same product

Economic profits are

equal to the difference between accounting profits and implicit costs

A price floor means that

government is imposing a minimum legal price that is typically above the equilibrium price.

If you owned a small farm, which of the following would most likely be a fixed cost?

hail insurance

Allocative efficiency occurs whenever

it is impossible to produce a net benefit for society by changing the combination of goods and services produced.

A significant difference between a monopolistically competitive firm and a purely competitive firm is that the

latter's demand curve is perfectly elastic.

A natural monopoly occurs when

long-run average costs decline continuously through the range of demand

Assume for a competitive firm that MC = AVC at $12, MC = ATC at $20, and MC = MR at $16. This firm will

minimize its losses by producing in the short run

In the long run, a firm will choose a plant size that has the

minimum average total cost of producing the target level of output.

Assume that a decline in consumer demand occurs in a purely competitive industry that is initially in long-run equilibrium. We can

not compare the original and the new prices without knowing what cost conditions exist in the industry.

Implicit costs are

opportunity costs of self-employed resources

A demand curve that is parallel to the horizontal axis is

perfectly elastic

"Economics is concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity." This statement is

positive and correct.

The law of supply suggests that the price-elasticity of supply is

positive.

A decrease in the demand for recreational fishing boats might be caused by an increase in the

price of outboard motors.

Allocative efficiency is concerned with

producing the combination of goods most desired by society.

A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from

product differentiation.

In which one of the following market models is X-inefficiency most likely to be the greatest?

pure monopoly

Local electric or gas utility companies mostly operate in which market structure?

pure monopoly

Any point inside the production possibilities curve indicates

that more output could be produced with the available resources.

Marginal product is

the change in total output attributable to the employment of one more worker.

A study of mass-transit systems in American cities revealed that in the long run, revenues generally decline after substantial fare increases. This would suggest that

the demand for mass transit is price-elastic in the long run.

A black market could arise as a result of

the imposition of a legal price ceiling below the equilibrium price

The term productive efficiency refers to

the production of a good at the lowest average total cost.

Normal profit is

the return to the entrepreneur when economic profits are zero.

Harvey quit his job at State University, where he earned $45,000 a year. He figures his entrepreneurial talent or forgone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 for each unit. Of the $75 per unit, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building. The economic profits of Harvey's firm in the first year were

$160,000

Harvey quit his job at State University, where he earned $45,000 a year. He figures his entrepreneurial talent or forgone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 for each unit. Of the $75 per unit, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building. The implicit costs of Harvey's firm in the first year were

$60,000

At an output of 1,000 units per year, a firm's variable costs are $5,000 and its average fixed costs are $3. Its total costs per year are

$8,000

Harvey quit his job at State University, where he earned $45,000 a year. He figures his entrepreneurial talent or forgone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 for each unit. Of the $75 per unit, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building. The total revenues of Harvey's firm in the first year were

$825,000

A monopolist is free to charge whatever price it wishes, to sell a certain level of output

False

A monopolist, being the sole seller in a market, is assured of positive economic profits.

False

In monopolistic competition, short-run positive economic profits of firms in the market will cause the market demand to expand.

False

Monopolistically competitive firms will achieve the most efficient allocation of society's resources because there are no significant barriers to entry into the industry.

False

Which of the following is true under conditions of pure competition?

No single firm can influence the market price by changing its production level.

In the short run, a profit-maximizing monopolistically competitive firm sets it price

above marginal cost.

In the short run, which of the following statements is correct?

Total cost will exceed variable cost.

A monopolist can use its pricing strategy as a barrier to entry by other firms.

True

As firms exit from a monopolistically competitive industry in the long run, the remaining firms' profits will begin to rise.

True

Brand names and packaging are forms of product differentiation under monopolistic competition.

True

The long-run supply curve for a purely competitive industry would be horizontal when

a decrease in product demand causes no effect in resource prices.

Suppose losses cause industry X to contract and, as a result, the prices of relevant inputs decline. Industry X is

an increasing-cost industry.

Monopolists are said to be allocatively inefficient because

at the profit-maximizing output, the marginal benefit of the product to society exceeds its marginal cost.

In long-run equilibrium under pure competition, all firms will produce at minimum

average total cost.

If marginal cost is below average variable cost,

both average total cost and average variable cost are decreasing.

A market for a product reaches equilibrium when

buyers intend to buy a quantity equal to the quantity that sellers intend to sell.

Marginal revenue is the

change in total revenue associated with the sale of one more unit of output

If a monopolist engages in price discrimination, it will

charge a higher price where individual demand is inelastic and a lower price where individual demand is elastic.

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 1,000 units is $2.50. The minimum possible average variable cost is $2.00. The market price of the product is $2.50. To maximize profits or minimize losses, the firm should

continue producing 1,000 units.

Suppose the market for corn is a purely competitive, constant-cost industry that is in long-run equilibrium. Now assume that an increase in consumer demand occurs. After all resulting adjustments have been completed, the new equilibrium price will be

the same as the initial equilibrium price, but the new industry output will be greater than the original output.

One argument for having the government regulate natural monopolies is that without regulation,

these monopolies produce at a level where marginal benefit is greater than marginal cost.