micro final

If a perfectly competitive firm increases production from 10 units to 11 units and the market price is $20 per unit, total revenue for 11 units is:

$220.

The restaurant industry is characterized by excess capacity. This means that:

the profit-maximizing level is less than the level that minimizes average total costs.

What's an example that illustrates a negative externality?

the risks to nonsmokers from second-hand smoke

A familiar example of a negative externality is traffic congestion. In principle, it should be possible to internalize this externality by permitting drivers to negotiate rights to drive during particular times. The most likely reason that these negotiations do NOT happen is that:

the transaction costs associated with identifying and establishing communication among the many interested parties would be prohibitive.

Tacit collusion is relatively easy for oligopolists if:

there are only a few firms in the industry.

MR = MC is a profit-maximizing rule for any firm T or F?

true

There is no role for advertising in perfect competition. T or F?

true

In an oligopoly market, collusion between firms usually leads to higher profits than does noncooperative behavior. However, formal, overt collusion doesn't usually occur in the United States because:I. it is illegal.II. there is an incentive for each firm to cheat on a collusive agreement.III. an oligopolistic firm will typically prefer lower profits for itself if the only way to make higher collective profits in the industry is to improve the profit position of its rivals.

I and II

In perfect competition, the firm produces the output such that _____, and in monopoly, the firm produces the output such that _____.

P = MR = MC; P > MR = MC

A downward-sloping demand curve will ensure that _____ is TRUE for a monopoly.

P > MR

In monopolistic competition, long-run equilibrium is characterized by:

P > MR.

The owners of the gas stations in a town are trying to set up a cartel that will raise the price of gasoline. Which scenario will INCREASE the chances that the cartel will fail because of cheating by the owners?

The gas stations vary in terms of the services that they provide.

What would make it difficult for oligopolists to collude?

There are few buyers in the market.

A Pigouvian tax can lead to the efficient level of production and consumption of:

a common resource.

the perfectly competitive model does assume

a great number of buyers, easy entry and exit from the market, that firms attempt to maximize their total revenue

Tacit collusion in an industry is limited by:

a large number of firms and the bargaining power of buyers.

The market for breakfast cereal contains hundreds of similar products, such as Froot Loops, cornflakes, and Rice Krispies, that are considered to be different products by different buyers. This situation violates the perfect competition assumption of:

a standardized product.

The perfectly competitive model does NOT assume:

a standardized product.

Pigouvian taxes:

are designed to reduce external costs.

Conditions that keep new firms out of a monopoly market are:

barriers to entry.

If a monopolist is producing a quantity where MC = P, then profit:

can be increased by decreasing production

If a monopolist is producing a quantity where MC > MR, then profit:

can be increased by decreasing production.

Advertising is an economically productive activity and NOT a waste of resources because it:

can convey information about the product.

Because monopoly firms are price setters, they:

can sell more only by lowering the price

In the long run, monopolistically competitive firms:

cannot earn an economic profit.

Monopolistic competition in an industry will result in _____ because firms produce _____.

chronic excess capacity; less than the minimum-cost output

A good that is nonexcludable but rival in consumption is considered a:

common resource good.

In the long run, each firm in a perfectly competitive industry will:

earn only enough to cover the opportunity costs of all resources used in production.

A price-discriminating firm will adjust prices so that customers with more _____ demand pay _____ customers with _____ elastic demand.

elastic; less than; less

To maximize profits, a firm in monopolistic competition should produce such that marginal cost:

equals marginal revenue.

If firms are taking economic losses in the short run, then in the long run, firms will leave the industry, industry output will _____, and economic losses will _____.

fall; decrease

Common resources tend to be overused because:

individuals tend to ignore the cost their use of the resource has on others.

Suppose Sarah's pottery studio is charging the market price, which is slightly higher than her average total cost. This means that Sarah:

is earning a small economic profit.

A monopolistically competitive firm has a downward-sloping demand curve for its product, primarily because:

its product is differentiated.

The short-run supply curve for a perfectly competitive firm is its:

marginal cost curve above its average variable cost curve.

If a monopolistically competitive firm is producing the profit-maximizing level of output and is earning an economic profit in the short run:

marginal revenue equals marginal cost.

Suppose a monopolistically competitive firm can increase its profits by decreasing its output. At the current output:

marginal revenue is less than marginal cost.

When an activity like education generates a positive externality, the:

market demand curve is below the marginal social benefit curve.

The ability of a monopolist to raise the price of a product above the competitive level by reducing the output is known as:

market power.

In contrast with perfect competition, a monopolist:

may have economic profits in the long run.

To practice effective price discrimination, a monopolist must be able to:

prevent the resale of goods among groups of buyers.

f a monopoly has a linear demand curve and is producing at the profit-maximizing level of output, at that level of output, demand is:

price-elastic.

The equilibrium price of a guidebook is $35 in the perfectly competitive guidebook industry. Our firm produces 10,000 guidebooks for an average total cost of $38, marginal cost of $30, and average variable cost of $30. Our firm, in the short run, should:

produce more guidebooks because the next guidebook produced will increase profit by $5.

In the short run, if P = ATC, a perfectly competitive firm:

produces output and earns zero economic profit.

The downward-sloping demand curve for a monopolistically competitive firm:

reflects product differentiation.

Suppose a perfectly competitive market is suddenly transformed into one that operates as a monopoly market. We would expect price to _____, output to _____, consumer surplus to _____, producer surplus to _____, and deadweight loss to _____.

rise; fall; fall; rise; rise

Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the short run, the market price will _____ and the output of a typical firm will _____.

rise; rise

On hot summer days, beach parking lots are usually full by early morning even though one must pay in order to park there. Parking at such lots is:

rival in consumption and excludable.

If a Florida strawberry wholesaler operates in a perfectly competitive market, that wholesaler will have a _____ share of the market, and consumers will consider her strawberries and her competitors' strawberries to be _____. Therefore, _____ advertising will take place in this market.

small; standardized; little or no

The Herfindahl-Hirschman index is a measure of concentration found by:

squaring the percentage market share of each firm in the industry and then summing the squared market shares.

If the market supply and demand curves for a common resource include all costs, then:

the common resource will be used at the socially optimal level.

excess capacity

the difference between a firm's profit-maximizing quantity and the quantity that minimizes average cost

Market share

the fraction of the total industry output accounted for by that producer's output

One government policy for dealing with natural monopoly is to:

impose a price ceiling to reduce economic profit.

Which factor is NOT a source of product differentiation?

price

HHI somewhat competitive

1000-1800

HHI > 1800

oligopoly

HHI strongly competitive market

<1000

A perfectly competitive firm maximizes profit in the short run by producing the quantity at which:

MR = MC.

If the price is greater than the average variable cost and less than the average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:

continue to produce at an economic loss.

Critics of the National Collegiate Athletic Association (NCAA) argue that the NCAA monopolizes college athletics and prevents student athletes from earning money while in college. If this is true, what type of entry barrier does the NCAA have?

control of a scarce resource or input

A competitive firm operating in the short run is maximizing profits and just breaking even. Its costs include a monthly state license fee of $100 that must be paid for as long as the firm operates. If the license fee is raised to $150, what should the firm do to maximize profits in the short run?

not change output

Suppose that some firms in a perfectly competitive industry are earning positive economic profits. In the long run, the:

number of firms in the industry will increase.

The market structure characterized by a few interdependent firms and barriers to entry is called:

oligopoly.

The demand curve faced by a single perfectly competitive firm is:

perfectly elastic