Micro Final (Ch 13-16)

A firm that is currently producing at a level of output where marginal revenue is greater than marginal cost can increase profits by producing one more unit of output. a. True b. False

a

An increase in market demand for a product in a competitive market will raise profits for firms currently in the market. a. True b. False

a

Consider a competitive market with a large number of identical firms. The firms in this market do not use any resources that are available only in limited quantities. In this market, an increase in demand will a.increase price in the short run but not in the long run. b.increase price in the long run but not in the short run. c.increase price both in the short and the long run. d.not affect price in either the short or the long run.

a

Free entry eliminates long-run profits for firms in competitive and monopolistic industries. a. True b. False

a

If a firm finds that it could reduce its long-run average total cost by increasing output, then it must be experiencing a. economies of scale. b. constant returns to scale. c. diseconomies of scale. d. coordination problems.

a

If regulators required firms in monopolistically competitive markets to set price equal to marginal cost, a.firms would respond by lowering their costs. b.firms would require a subsidy to stay in business c.new firms that enter the market would operate at efficient scale. d.the most efficient firms would not be affected.

a

If the government regulates the price a natural monopolist can charge to be equal to the firm's average total cost, the firm has no incentive to reduce costs. a. True b. False

a

The cost of producing the typical unit of output is the firm's a.average total cost. b.opportunity cost. c.variable cost. d.marginal cost.

a

What happens when a monopolist increases the price of its good? a. Consumers buy less. b. Consumers may buy more or less, depending on the price elasticity of demand. c. Consumers buy more. d. Consumers buy the same amount.

a

When a firm produces 875 units of output, the firm's average fixed cost is $0.28, the firm's average variable cost is $0.20, and the firm's marginal cost is $0.22. The firm's total cost of producing 875 units is a. $420.00. b. $245.00. c. $175.00. d. $367.50.

a

Which of the following goods are likely to be sold in a monopolistically competitive market? a.jeans b.breakfast cereal c.electricity distribution in Chicago d.postage stamps

a

Which of the following represents a difference between a monopoly and a monopolistically competitive firm in the long run? a. Economic profits for a monopolist can be positive, while economic profits for a monopolistically competitive firm are zero in the long run. b. Economic profits for a monopolist can be negative, while economic profits for a monopolistically competitive firm are positive in the long run. c. Economic profits for a monopolist and monopolistically competitive firm are zero in the long run. d. Economic profits for a monopolist and monopolistically competitive firm can be positive in the long run.

a

Why is monopoly profit not a social problem? a. It represents a transfer from the consumer to the producer with no loss in total surplus. b. Monopolies earn positive profit while competitive firms do not. c. The size of the economic pie falls when monopoly profits increase. d. Monopolists have lower marginal costs than perfectly competitive firms.

a

A competitive market will typically experience entry and exit until accounting profits are zero. a. True b. False

b

A monopolistically competitive industry is characterized by a.many firms, differentiated products, and barriers to entry. b.many firms, differentiated products, and free entry. c.a few firms, identical products, and free entry. d.a few firms, differentiated products, and barriers to entry.

b

A patent gives a single person or firm the exclusive right to sell some good or service forever. a. True b. False

b

Economies of scale occur when a firm's a.marginal costs are constant as output increases. b.long-run average total costs are decreasing as output increases. c.long-run average total costs are increasing as output increases. d.marginal costs are equal to average total costs for all levels of output.

b

Firms with identical cost structures in a competitive market will have an upward sloping market long-run supply curve. a. True b. False

b

Fixed costs that are not relevant to production decisions are known as a. explicit costs b. sunk cost c. implicit costs d. opportunity costs.

b

For a large firm that produces and sells automobiles, which of the following costs would be a variable cost? a.the $20 million payment that the firm pays each year for accounting services b.the cost of the steel that is used in producing automobiles c.the rent that the firm pays for office space in a suburb of St. Louis d.All of the above are correct.

b

If a firm finds that small increases and decreases in output do not change its long-run average total cost, then it must be experiencing a. economies of scale. b. constant returns to scale. c. diseconomies of scale. d. coordination problems.

b

If there is a reduction in market demand in a competitive market, then in the short run prices will a. not move from the minimum of average total cost. b. decrease. c. not move from the minimum of marginal cost. d. increase.

b

Marginal costs are costs that do not vary with the quantity of output produced. a. True b. False

b

Monopolistic competition is characterized by a few sellers offering similar products, whereas oligopoly is characterized by many sellers offering differentiated products. a. True b. False

b

The long-run supply curve for a competitive industry a.may be horizontal if entry into the industry lowers average total cost. b.may be upward-sloping if higher-cost firms enter the industry. c.will be horizontal if there is free entry into the industry. d.will be upward-sloping if there are barriers to entry into the industry.

b

The monopolist's supply curve is shown by the marginal cost curve above the minimum point of average total cost, like the competitive firm's supply curve. a. True b. False

b

The product-variety externality and the business-stealing externality are both spillover costs of new firms entering a monopolistically competitive market. a. True b. False

b

When a certain competitive firm produces and sells 100 units of output, marginal revenue is $80. When the same firm produces and sells 200 units of output, what is average revenue? a.$40 b.$80 c.$160 d.This cannot be determined from the given information.

b

When advertising is used to relay information about price, each firm is able to enhance market power. a. True b. False

b

Which of the following is not an example of price discrimination? a. Hotel rates for AAA members are lower than for nonmembers. b. An ice cream shop charges more money for ice cream in a cone versus a cup. c. Greyhound offers a lower price for weekend travel compared to weekday rates on the same routes. d. Kellogg-s cereal provides cents-off coupons for its product.

b

Which of the following market structures require that price is greater than marginal cost as a profit-maximizing condition? a. monopolistic competition and perfect competition b. monopoly and monopolistic competition c. monopoly and perfect competition d. monopoly, monopolistic competition, and perfect competition

b

Which two curves are tangent to each other in a monopolistically competitive market with zero economic profit? a.demand and average variable cost b.demand and average total cost c.marginal revenue and average variable cost d.marginal revenue and average total cost

b

As competitors enter a monopolistically competitive industry, the incumbent firms demand curves shift a.To the left and become less elastic b.To the right and becomes less elastic c.To the left and becomes more elastic d.To the right and becomes more elastic

c

Economists normally assume that the goal of the firm is to a. maximize welfare. b. minimize cost. c. maximize profit. d. maximize total revenue.

c

Evidence suggests that, in markets with differentiated products but little advertising, a.consumers are not confused by conflicting signals. b.firms are generally less profitable. c.markets are less efficient. d.consumers make better choices.

c

GianCarlo used to work as an architect for $50,000 per year but quit in order to start his own photography business. To invest in his photography business, he withdrew $20,000 from his savings, which paid 2% interest, and borrowed $40,000 from his brother, whom he pays 3% interest per year. Last year GianCarlo paid $10,000 for supplies and had revenues of $70,000. GianCarlo asked William the accountant and Henry the economist to calculate his photography business's annual costs. a. William says his costs are $10,000, and Henry says his costs are $61,600. b. William says his costs are $61,600, and Henry says his costs are $61,600. c. William says his costs are $11,200, and Henry says his costs are $61,600. d. William says his costs are $10,000, and Henry says his costs are $120,000.

c

If a firm finds that increases in output lead to increases in long-run average total cost, then it must be experiencing ____________________ , which could be caused by __________________. a. economies of scale; specialization b. constant returns to scale; coordination problems c. diseconomies of scale; coordination problems d. diseconomies of scale; specialization

c

In a monopolistically competitive industry, firms set price a.equal to marginal cost since each firm is a price taker. b.below marginal cost since each firm is a price taker. c.above marginal cost since each firm is a price setter. d.always a fraction of marginal cost since each firm is a price setter.

c

Jacqui decides to open her own business and earns $50,000 in accounting profit the first year. When deciding to open her own business, she withdrew $20,000 from her savings, which earned 5 percent interest. She also turned down three separate job offers with annual salaries of $30,000, $40,000, and $45,000. What is Jacqui's economic profit from running her own business? a.$-56,000 b.$-6,000 c.$4,000 d.$19,000

c

When an industry is a natural monopoly, a.it is characterized by constant returns to scale. b.it is characterized by diseconomies of scale. c.a larger number of firms may lead to a lower average cost. d.a larger number of firms will lead to a higher average cost.

d

Which of the following is not correct with respect to firms in a competitive market in the long-run? a. economic profits are zero b. price is equal to average total cost c. price is above average total cost d. price is equal to marginal cost

c

A monopolist maximizes profits by a.producing an output level where marginal revenue equals marginal cost. b.charging a price that is greater than marginal revenue. c.earning a profit of (P - MC) x Q. d.Both a and b are correct.

d

A monopolistically competitive firm a. operates at a socially efficient level since price is greater than marginal cost. b. operates with a deadweight loss since price is equal to marginal cost. c. operates at a socially efficient level since price is equal to marginal cost. d. operates with a deadweight loss since price is greater than marginal cost.

d

Monopolistically competitive firms have excess capacity. To maximize profits, firms will a.increase their output to lower their average total cost of production and eliminate the excess capacity. b.produce where price equals marginal cost to eliminate the excess capacity. c.produce where average revenue equals marginal cost to eliminate the excess capacity. d.maintain the excess capacity

d

Signaling theory suggests consumers can indirectly measure quality from an advertisement a. that is cheap and provides a lot of information. b. that is cheap and provides little information. c. that is of poor quality and confusing. d. that is expensive and provides little information.

d

The soft drink industry spends a substantial amount of revenue on advertising. It is likely that a. all of the choices are correct. b. the soft drink industry is perfectly competitive. c. advertising in this market does little to change consumer preferences. d. there is a large variety of soft drinks available in the market.

d