micro final

An example of an explicit cost of production would be the A) lease payments for the land on which a firm's factory stands. B) cost of forgone labor earnings for an entrepreneur. C) lost opportunity to invest in capital markets when the money is invested in one's business. D) Both a and c are correct.

A) lease payments for the land on which a firm's factory stands.

economies of scale

ATC falls as Q increases

diseconomies of scale

ATC rises as Q increases

constant returns to scale

ATC stays the same as Q increases

suppose a firm operating in a perfectly competitive market sells 300 units of output at a price of $3 each. which of the following statements is correct

marginal revenue equals $3

Economists assume that the typical person who starts her own business does so with the intention of minimizing costs. maximizing profits. capturing the highest number of sales in her industry. donating the profits from her business to charity.

maximizing profits

Deadweight loss measures monopoly inefficiency. equals monopoly revenues minus profits. equals monopoly profits. exceeds monopoly profits.

measures monopoly inefficiency

Which of the following industries is least likely to exhibit the characteristic of free entry? ethnic restaurants municipal water and sewer grocery stores corn farming

municipal water and sewer

The amount of money that a firm receives from the sale of its output is called total gross profit. total revenue. net revenue. total net profit.

total revenue

In a competitive market the price is $8. A typical firm in the market has ATC = $6, AVC = $5, and MC = $8. How much economic profit is the firm earning in the short run?

$2 per unit

Chelsea wants to start her own Christmas ornament business. She can purchase a suitable factory that costs $100,000. Chelsea currently has $150,000 in the bank earning 3 percent interest per year. Suppose Chelsea purchases the factory using $50,000 of her own money and $50,000 borrowed from a bank at an interest rate of 6 percent. What is Chelsea's annual opportunity cost of purchasing the factory?

$4,500

Ryan sells 200 plastic ball point pens at $0.50 each. His total costs are $25. His profits are $75. $175. $100. $25.

$75

We can measure the profits earned by a firm in a competitive industry as (P - MC) × Q. MR × MC. (P - ATC) × Q. (MC - ATC) × Q.

(P-ATC)xQ

Allowing an inventor to have the exclusive rights to market her new invention will lead to (i) a product that is priced higher than it would be without the exclusive rights. (ii) desirable behavior in the sense that inventors are encouraged to invent. (iii) higher profits for the inventor.

(i) (ii) and (iii)

Katya owns a math-tutoring business. Her accountant most likely includes which of the following costs on her financial statements? (i) workbooks containing practice problems (ii) rent for the storefront (iii) wages Katya could earn as a bookkeeper (iv) interest that Katya's money was earning before she spent her savings to set up the tutoring business (iii) and (iv) only (i) only (i) and (ii) only (i), (ii), (iii), and (iv)

(i) and (ii) only

Which of the following are necessary characteristics of a monopoly? (i) The firm is the sole seller of its product. (ii) The firm's product does not have close substitutes. (iii) The firm generates a large economic profit. (iv) The firm is located in a small geographic market. (i) and (iii) only (i), (ii), (iii), and (iv) (i) and (ii) only (i), (ii), and (iii) only

(i) and (ii) only

Suppose a competitive market is comprised of firms that face identical cost curves. The firms experience an increase in demand that results in positive profits for the firms. Which of the following events are then most likely to occur? (i) New firms will enter the market. (ii) In the short run, price will rise; in the long run, price will rise further. (iii) In the long run, all firms will be producing at their efficient scale.

(i) and (iii) only

Which of the following statements is (are) true of a monopoly? (i) A monopoly has the ability to set the price of its product at whatever level it desires. (ii) A monopoly's total revenue will always increase when it increases the price of its product. (iii) The more a monopoly increases output, the higher the profits. (ii) only (ii) and (iii) only (i) and (ii) only (i) only

(i) only

An industry is a natural monopoly when (i) the government assists the firm in maintaining the monopoly. (ii) a single firm owns a key resource. (iii) a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms.

(iii) only

Economists normally assume that the goal of a firm is to (i) sell as much of its product as possible. (ii) set the price of the product as high as possible. (iii) maximize profit. (i), (ii), and (iii) (iii) only (ii) and (iii) only (i) and (ii) only

(iii) only

Long run supply curve is horizontal if

- All firms have identical costs - And costs do not change as other firms enter or exit the market

LR S curve may slope upward: firms have different costs

- As P rises, firms with lower costs enter the market before those with higher costs. - Further increases in P make it worthwhile for higher-cost firms to enter the market, which increases market quantity supplied. - Hence, LR market supply curve slopes upward.

long run supply curve might slope upward if

- Firms have different costs - Or costs rise as firms enter the market

Increasing Q has two effects on revenue in monopolists

- Output effect: higher output raises revenue - Price effect: lower price reduces revenue

LR S curve may slope upward: costs rise as firms enter the market

-In some industries, the supply of a key input is limited (e.g., amount of land suitable for farming is fixed). -The entry of new firms increases demand for this input, causing its price to rise. -This increases all firms' costs. -Hence, an increase in Pis required to increase the market quantity supplied, so the supply curve is upward-sloping.

Economies of scale

-Long-run average total cost falls as the quantity of output increases • Increasing specialization among workers • More common when Q is low

diseconomies of scale

-Long-run average total cost rises as the quantity of output increases -Increasing coordination problems in large organizations. • E.g., management becomes stretched, can't control costs. • More common when Qis high.

constant returns to scale

-Long-run average total cost stays the same as the quantity of output changes

(Entry and exit in the long run) if existing firms earn a positive economic profit:

-new firms enter, SR market supply shifts right _P falls, reducing profits and slowing entry

(Entry and exit in the long run) if existing firms incur losses:

-some firms exit, SR market supply shifts left -P rises, reducing remaining firms' losses

Wanda owns a lemonade stand. She produces lemonade using five inputs: water, sugar, lemons, paper cups, and labor. Her costs per glass are as follows: $0.01 for water, $0.02 for sugar, $0.03 for lemons, $0.02 for cups, and $0.10 for the opportunity cost of her labor. She can sell 300 glasses for $0.50 each. What are Wanda's total accounting profits?

126

Let L represent the number of workers hired by a firm, and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L = 12, Q = 122) and (L = 13, Q = 130). Then the marginal product of the 13th worker is 10 units of output. 8 units of output. 122 units of output. 132 units of output.

8 units of output

In a competitive market the current price is $5. The typical firm in the market has ATC = $5.50 and AVC = $4.50. a) New firms will likely enter this market to capture any remaining economic profits. b) The firm will earn zero profits in both the short run and long run. C) In the short run firms will continue to operate, but in the long run firms will leave the market. d) In the short run firms will shut down, and in the long run firms will leave the market.

C) In the short run firms will continue to operate, but in the long run firms will leave the market.

Which of the following statements comparing monopoly with competition is correct? A) The deadweight loss associated with monopoly is caused by the positive economic profits of the monopolist; competitive firms do not earn a positive economic profit so there is no deadweight loss under competition. b) A monopolist produces a higher level of output and charges a lower price than a competitive firm would. C) With perfect price discrimination, the total surplus under monopoly can be the same as under competition. D) With or without price discrimination, the consumer surplus under monopoly is at least as large as it would be under competition.

C) With perfect price discrimination, the total surplus under monopoly can be the same as under competition.

Which of the following is not a characteristic of a competitive market? a) buyers and sellers are price takers B) each firm sells a virtually identical product c) entry in limited d) each firm chooses an output level that maximizes profit

C) entry is limited

(firms in a competitive market) what Q maximizes a firms profit?

If Q increases by one unit, revenue rises by MR and cost rises by MC

In a competitive market with free entry and exit, if all firms have the same cost structure, then Option c: the price of the product will differ across firms. Option b: all firms will operate at their efficient scale in the long run. Option a: all firms will operate at their efficient scale in the short run. Option d: Both Option a and Option b are correct.

Option b: all firms will operate at their efficient scale in the long run.

zero economic profit when

P= min ATC

why do competitive firms stay in business if they make zero profit?

Total cost includes all implicit costs like the opportunity cost of the owner's time and money -Zero-profit equilibrium •Economic profit is zero - Accounting profit is positive

Monopoly pricing prevents some mutually beneficial trades from taking place. These unrealized, mutually beneficial trades are a sunk cost to society. also observed in competitive markets. of little concern to society. a deadweight loss to society.

a deadweight loss to society.

Suppose you value a special watch at $100. You purchase it for $75. On your way home from class one day, you lose the watch. The store is still selling the same watch, but the price has risen to $85. Assume that losing the watch has not altered how you value it. What should you do? a) Pay the $85 to buy the watch. b) Do not buy the watch. c) Wait to see if the watch goes on sale. If the price drops to $75 or less, buy the watch. d) Wait to see if the watch goes on sale. If the price drops to $25 or less, buy the watch.

a) Pay the $85 to buy the watch.

If government officials break up a natural monopoly into four smaller firms, then a) the average cost of production will increase. b) consumers will benefit from lower average total costs. c)each firm will be unable to maximize profits due to increased competition. d) competition will force firms to produce surplus output, which drives up price.

a) the average cost of production will increase.

In a perfectly competitive market, the market supply curve is a) the horizontal sum of all the individual firms' supply curves. b) always a horizontal line. c) the marginal cost curve above average total cost for a representative firm. d) the vertical sum of all the individual firms' supply curves.

a) the horizontal sum of all the individual firms' supply curves.

Since the 1980s, Wal-Mart stores have appeared in almost every community in America. Wal-Mart buys its goods in large quantities and, therefore, at cheaper prices. Wal-Mart also locates its stores where land prices are low, usually outside of the community business district. Many customers shop at Wal-Mart because of low prices. Local retailers, like the neighborhood drug store, often go out of business because they lose customers. This story demonstrates that a) there are economies of scale in retail sales. b) there are diminishing returns to producing and selling retail goods. c) consumers do not react to changing prices. d) there are diseconomies of scale in retail sales.

a) there are economies of scale in retail sales.

Which of the following expressions is correct? accounting profit = total revenue - implicit costs accounting profit = economic profit + implicit costs economic profit = accounting profit + explicit costs economic profit = total revenue - implicit costs

accounting profit = economic profit + implicit costs

The value of a business owner's time is an example of an opportunity cost. a fixed cost. total revenue. an explicit cost.

an opportunity cost

For an individual firm operating in a competitive market, marginal revenue equals

average revenue and the price for all levels of output

Which of the following statements is correct? a) Opportunity costs equal explicit minus implicit costs. b) Economists consider opportunity costs to be included in a firm's costs of production. c) Economists consider opportunity costs to be included in a firm's total revenues. d) All of the above are correct.

b) Economists consider opportunity costs to be included in a firm's costs of production.

Which of the following statements best reflects a price-taking firm? a) The firm can sell only a limited amount of output at the market price before the market price will fall. b)If the firm were to charge more than the going price, it would sell none of its goods. c)Both b and c are correct. d)If the firm were to charge less than the going price, it would maximize its profits and revenues.

b) If the firm were to charge more than the going price, it would sell none of its goods.

Which of the following is an example of a barrier to entry? a) Luke charges a higher hourly price to business students than to liberal arts students for his economics tutoring. b) John obtained a copyright for the song he wrote and recorded. c) Mark charges a lower price to students than to faculty for his tattoo services. d) Matthew offers free samples of his latest flavored coffee drink to entice customers to buy a cup.

b) John obtained a copyright for the song he wrote and recorded.

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then a)average revenue exceeds marginal cost. b)decreasing output would increase the firm's profit. c)All of the above are correct. d)the firm is earning a positive profit.

b) decreasing output would increase the firm's profit.

The long-run average total cost curve is always a) horizontal. b) flatter than the short-run average total cost curve, but not necessarily horizontal. c) falling as output increases. d) rising as output increases.

b) flatter than the short-run average total cost curve, but not necessarily horizontal.

When a factory is operating in the short run, a)it cannot alter variable costs. b)it cannot adjust the quantity of fixed inputs. c)average fixed cost rises as output increases. d)total cost and variable cost are usually the same

b) it cannot adjust the quantity of fixed inputs

Firms may experience diseconomies of scale when a) there are too few employees, and managers do not have enough to do. b) large management structures are bureaucratic and inefficient. c) they are too small to take advantage of specialization. d) average fixed costs begin to rise again.

b) large management structures are bureaucratic and inefficient.

The monopolist's profit-maximizing quantity of output is determined by the intersection of which of the following two curves? a) average variable cost and average revenue b) marginal cost and marginal revenue c) average total cost and marginal revenue d) marginal cost and demand

b) marginal cost and marginal revenue

If a firm uses labor to produce output, the firm's production function depicts the relationship between a)the maximum quantity that the firm can produce as it adds more capital to a fixed quantity of labor. b)the number of workers and the quantity of output. c)marginal product and marginal cost. d)fixed inputs and variable inputs in the short run.

b) the number of workers and quantity of output

A firm will shut down in the short run if, for all positive levels of output, a) its losses exceed its fixed costs. b)All of the above are correct. c)its total revenue is less than its variable costs. d)the price of its product is less than its average variable cost.

b)All of the above are correct.

A firm that wants to achieve economies of scale could do so by a)producing an output level higher than the efficient scale. b)assigning limited tasks to its employees, so they can master those tasks. c)employing a smaller number of workers. d)producing a smaller quantity of output.

b)assigning limited tasks to its employees, so they can master those tasks

When firms are said to be price takers, it implies that if a firm raises its price, firms in the industry will exercise market power. buyers will pay the higher price in the short run. buyers will go elsewhere. competitors will also raise their prices.

buyers will go elsewhere

Which of the following statements regarding a competitive firm is correct? a) Because demand is downward sloping, if a firm increases its level of output, the firm will have to charge a lower price to sell the additional output. b) If a firm raises its price, the firm may be able to increase its total revenue even though it will sell fewer units. c) For all firms, average revenue equals the price of the good. d) By lowering its price below the market price, the firm will benefit from selling more units at the lower price than it could have sold by charging the market price.

c) For all firms, average revenue equals the price of the good.

When a competitive market experiences an increase in demand that increases production costs for existing firms and potential new entrants, which of the following is most likely to arise? a) The condition of free entry into the market will be violated. b) The long-run market supply curve will be horizontal as new firms enter and drive the price downward. c) The long-run market supply curve will be upward sloping. d) Producer profits will fall in the long run.

c) The long-run market supply curve will be upward sloping.

Suppose the long-run supply curve for a good is upward-sloping. The upward slope could be explained by a) the fact that a resource used in the production of the good is available only in limited quantities. b) a breakdown of the "price taking" feature of competition. c) decreases in production costs resulting from more firms coming into the market. d) a breakdown of the "free entry and exit" feature of competition.

c) decreases in production costs resulting from more firms coming into the market.

When a profit-maximizing firm in a competitive market has zero economic profit, accounting profit a) is negative. b) could be positive, negative or zero. c) is at least zero. d)is also zero.

c) is at least zero.

A perfectly price-discriminating monopolist is able to a) produce a socially-optimal level of output, but not maximize profit. b) exercise illegal preferences regarding the race and/or gender of its employees. c) maximize profit and produce a socially-optimal level of output. d) maximize profit, but not produce a socially-optimal level of output.

c) maximize profit and produce a socially-optimal level of output.

Due to the nature of the patent laws on pharmaceuticals, the market for such drugs a) always remains a monopolistic market. b) always remains a competitive market. c) switches from monopolistic to competitive once the firm's patent runs out. d) switches from competitive to monopolistic once the firm's patent runs out.

c) switches from monopolistic to competitive once the firm's patent runs out.

When a competitive market experiences an increase in demand that increases production costs for existing firms and potential new entrants, which of the following is most likely to arise? a) The condition of free entry into the market will be violated. b) Producer profits will fall in the long run. c)The long-run market supply curve will be upward sloping. d) The long-run market supply curve will be horizontal as new firms enter and drive the price downward.

c)The long-run market supply curve will be upward sloping.

The monopoly Q is too low

could increase total surplus with a larger Q

Which of the following statements is not correct? a) Diminishing marginal product explains increasing marginal cost. b) In the long run, there are no fixed costs. c) Marginal cost is independent of fixed costs. d) Economies of scale is a short-run concept.

d) Economies of scale is a short-run concept.

In the long run, a)inputs that were variable in the short run become fixed. b)variable inputs are rarely used. c)inputs that were fixed in the short run remain fixed. d)inputs that were fixed in the short run become variable.

d) inputs that were fixed in the short run become variable

Considering the relationship between average total cost and marginal cost, the marginal cost curve for this firm must a) be horizontal. b) lie entirely above the average total cost curve. c) be U-shaped. d) lie entirely below the average total cost curve.

d) lie entirely below the average total cost curve.

In a perfectly competitive market, the process of entry and exit will end when firms face a) average revenue greater than marginal cost. b) accounting profits equal to zero. c) total revenue equal to average total cost. d) marginal revenue equal to long-run average total cost.

d) marginal revenue equal to long-run average total cost.

When comparing short-run average total cost with long-run average total cost at a given level of output, a) short-run average total cost is typically the same as long-run average total cost. b) short-run average total cost is typically below long-run average total cost. c) the relationship between short-run and long-run average total cost follows no clear pattern. d) short-run average total cost is typically above long-run average total cost.

d) short-run average total cost is typically above long-run average total cost.

The analysis of competitive firms sheds light on the decisions that lie behind the a) way financial markets set interest rates. b) demand curve. c) way firms make pricing decisions in the not-for-profit sector of the economy. d) supply curve.

d) supply curve.

Suppose that you value a hat from your favorite university at $20. The university bookstore has the hat on sale for $15. You purchase the hat but lose it on the way home. What should you do? Assume that losing the hat does not alter how you value it. a)Wait until the cost of the hat falls to $5 or less before purchasing another hat. b)Wait until the cost of the hat falls to $15 or less before purchasing another hat. c)Do not purchase another hat regardless of the price. d)Go back to the bookstore and purchase another hat.

d)Go back to the bookstore and purchase another hat.

Which of the following statements is correct regarding a firm's decision-making? a) The decision to shut down and the decision to exit are both short-run decisions. b)The decision to exit is a short-run decision, whereas the decision to shut down is a long-run decision. c)The decision to shut down and the decision to exit are both long-run decisions. d)The decision to shut down is a short-run decision, whereas the decision to exit is a long-run decision.

d)The decision to shut down is a short-run decision, whereas the decision to exit is a long-run decision.

The short-run market supply curve in a perfectly competitive industry a)is perfectly inelastic at the market price. b)is perfectly elastic at the market price. c)shows the variety of prices that different firms will charge for a given quantity. d)shows the total quantity supplied by all firms at each possible price.

d)shows the total quantity supplied by all firms at each possible price.

The economic inefficiency of a monopolist can be measured by the

deadweight loss

Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue does not change. decreases. increases. increases if MR < ATC and decreases if MR > ATC.

does not change

In the long run a company that produces and sells laundry detergent incurs total costs of $2,500 when output is 1,250 units and $2,750 when output is 1,500 units. For this range of output, the laundry detergent company exhibits constant returns to scale. economies of scale. efficient scale. diseconomies of scale.

economies of scale.

David's firm experiences diminishing marginal product for all ranges of inputs. The total cost curve associated with David's firm is unrelated to the production function. gets flatter as output increases. gets steeper as output increases. is constant for all ranges of output.

gets steeper as output increases.

Price discrimination

is an attempt by a monopoly to increases its profit by selling the same good to different customers at different prices.

In order to sell more of its product, a monopolist must

lower its price

When a profit-maximizing competitive firm finds itself minimizing losses because it is unable to earn a positive profit, this task is accomplished by producing the quantity at which price is equal to average variable cost. marginal cost. average fixed cost. sunk cost.

marginal cost

Kate is a professional opera singer who gives voice lessons. the vocal music industry is competitive. Kate hires an economist to analyze her small business. The economist recommends that Kate give fewer voice lessons. The economist must have concluded that Kates

marginal cost exceeds her marginal revenue

Economic profit is equal to total revenue minus the opportunity cost of producing goods and services. accounting cost of producing goods and services. implicit cost of producing goods and services. explicit cost of producing goods and services.

opportunity cost of producing goods and services

The marginal product of labor can be defined as the change in a) labor divided by the change in total cost. b) profit divided by the change in labor. C)output divided by the change in labor. d) labor divided by the change in output.

output divided by the change in labor.

For a monopoly, the socially efficient level of output occurs where average revenue equals average total cost. price equals marginal cost. marginal revenue equals marginal cost. marginal revenue equals average total cost.

price equals marginal cost.

A profit-maximizing firm will shut down in the short run when price is less than average variable cost. average revenue is greater than average fixed cost. average revenue is greater than marginal cost. price is less than average total cost.

price is less than average variable cost

A monopolist maximizes profits by

producing an output level where marginal revenue equals marginal cost.

Economists assume that the goal of the firm is to maximize total satisfaction. costs. profits. revenue.

profits

The most likely explanation for economies of scale is decreasing marginal cost. increasing marginal cost. specialization of labor. coordination problems.

specialization of labor.

The production decisions of perfectly competitive firms follow one of the Ten Principles of Economics, which states that rational people think at the margin. prefer to purchase products from smaller rather than larger firms. equate prices to the average costs of production. consider sunk costs.

think at the margin

The nature of a firm's cost (fixed or variable) depends on the firm's revenues. price the firm charges for output. time horizon under consideration. explicit but not implicit costs.

time horizon under consideration.

The amount of money that a firm pays to buy inputs is called fixed cost. total cost. marginal cost. variable cost.

total cost

A firm will shut down in the short run if the total revenue that it would get from producing and selling its output is less than its fixed costs. variable costs. opportunity costs. total costs.

variable cost