Micro quiz questions ch 6-14

The supply of product X is elastic if the price of X rises by

5 percent and quantity supplied rises by 7 percent

The law of diminishing returns results in

a total product curve that eventually increases at a decreasing rate.

Refer to the diagram. In short-run equilibrium, the monopolistically competitive firm shown will set its price

above ATC.

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

above marginal cost.

The basic difference between the short run and the long run is that

at least one resource is fixed in the short run, while all resources are variable in the long run.

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

average total cost.

The law of diminishing marginal utility states that

beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer.

A perfectly inelastic demand schedule

can be represented by a line parallel to the vertical axis.

A perfectly elastic demand curve implies that the firm

can sell as much output as it chooses at the existing price.

What do the income effect, the substitution effect, and diminishing marginal utility have in common?

They all help explain the downsloping demand curve.

Which of the following is not characteristic of the demand for a commodity that is elastic?

Total revenue increases if price is increased.

Farmer Jones is producing wheat and must accept the market price of $8.50 per bushel. At this time, her average total costs and her marginal costs both equal $8.50 per bushel. Her minimum average variable costs are $6.25 per bushel. In order to maximize profits or minimize losses in the short run, farmer Jones should

continue producing the same level of output.

For which one of the following goods would we need to sum individual demand curves vertically to obtain the total demand curve?

courts of law

If a purely competitive decreasing-cost industry is realizing economic losses, we can expect industry supply to

decrease, output to fall, price to rise, and profits to rise.

Price is constant to the individual firm selling in a purely competitive market because

each seller supplies a negligible fraction of total supply.

We would expect an industry to expand if firms in that industry are

earning economic profits.

An industry is expected to expand if firms in the industry are earning positive

economic profits.

The price elasticity of demand of a straight-line demand curve is

elastic in high-price ranges and inelastic in low-price ranges.

In the long run, the price charged by a monopolistically competitive firm seeking to maximize profit will

exceed MC but equal ATC.

Which of the following is most likely to be an implicit cost for Company X?

forgone rent from the building owned and used by Company X

The Herfindahl index

gives much greater weight to larger firms than to smaller firms in an industry.

Accounting profits are typically

greater than economic profits because the former do not take implicit costs into account.

A monopolistically competitive firm has a

highly elastic demand curve.

A purely competitive seller should produce (rather than shut down) in the short run

if total revenue exceeds total cost or if total cost exceeds total revenue by some amount less than total fixed cost.

An antidrug policy that reduces the supply of heroin might

increase street crime because the addict's demand for heroin is highly inelastic.

The long-run average total cost curve

indicates the lowest unit costs achievable when a firm has had sufficient time to alter plant size.

An industry having a four-firm concentration ratio of 75 percent

is an oligopoly.

The special-interest effect is one that yields

large economic gains to a small number of people and small economic losses to a large number of people.

Suppose that the price of product X rises by 20 percent and the quantity supplied of X increases by 15 percent. The coefficient of price elasticity of supply for good X is

less than 1, and therefore supply is inelastic.

The nondiscriminating pure monopolist must decrease price on all units of a product sold in order to sell more units. This explains why

marginal revenue is less than average revenue.

If a pure monopolist is operating in a range of output where demand is elastic,

marginal revenue will be positive but declining.

In long-run equilibrium, purely competitive markets

maximize the sum of consumer surplus and producer surplus.

In the short-run equilibrium, a monopolist's profits

may be positive, negative, or zero.

(Consider This) "Variety is the spice of life" is best applied to which market structure?

monopolistic competition

A leftward shift in the supply curve of product X will increase equilibrium price to a greater extent the

more inelastic the demand for the product.

The price elasticity of demand is generally

negative, but the minus sign is ignored.

Economic analysis of a monopolistically competitive industry is more complicated than that of pure competition because

of product differentiation and consequent product promotion activities.

Diseconomies of scale occur mainly because

of the inherent difficulties involved in managing and coordinating a large business enterprise.

A purely competitive firm is precluded from making economic profits in the long run because

of unimpeded entry to the industry.

At the profit-maximizing level of output for a monopolist,

price is greater than marginal cost.

A firm is producing an output such that the benefit from one more unit is more than the cost of producing that additional unit. This means the firm is

producing less output than allocative efficiency requires.

Which of the following characteristics provide a monopolistically competitive firm some monopoly power?

product differentiation

Assume that a consumer purchases a combination of product A and product B such that the MUa/Pa = 8 and MUb/Pb = 6. To maximize utility without spending more money, the consumer should

purchase more of product A and less of product B.

Augi's Art Shack sells art supplies in a perfectly competitive market. The firm is currently realizing economic profits of $150,000 in the short run. In the long run we would expect Augi's to

realize economic profits of $0.

Refer to the total revenue graph above. An increase in the quantity of product X demanded from 14,000 to 16,000 units implies that the price of product X was

reduced and the demand is inelastic.

The substitution effect

refers to the change in the quantity demanded of a good due to a change in its relative price.

Long-run equilibrium for a monopolistically competitive firm where economic profits are zero results from

relatively easy entry.

The pursuit through government for special benefits at someone else's expense refers to

rent-seeking behavior.

If the price of product Y is $18 and its marginal cost is $25,

resources are being overallocated to Y.

If the price of bottled water is $2.00 and the marginal cost of producing it is $1.50,

resources are being underallocated to bottled water.

One feature of pure monopoly is that the demand curve

slopes downward.

The long run is a period of time, or a time frame, in which

the amount of all resources can be varied.

We would expect

the demand for Coca-Cola to be more price elastic than the demand for soft drinks in general.

If the four-firm concentration ratio for industry X is 80,

the four largest firms account for 80 percent of total sales.

The elasticity of demand for a product is likely to be greater,

the greater the amount of time over which buyers adjust to a price change.

The narrower the definition of a product,

the larger the number of substitutes and the greater the price elasticity of demand.

The demand curve confronting a nondiscriminating pure monopolist is

the same as the industry's demand curve.

It takes a considerable amount of time to increase the production of pork. This implies that

the short-run supply curve for pork is less elastic than the long-run supply curve for pork.

Suppose you have a limited money income and you are purchasing products A and B, whose prices happen to be the same. To maximize your utility, you should purchase A and B in such amounts that

their marginal utilities are the same.

Suppose that total sales in an industry in a particular year are $120 million and sales by the top four sellers are $30 million, $20 million, $15 million, and $10 million, respectively. We can conclude that

this industry is an oligopoly.

A firm reaches a break-even point (normal profit position) where

total revenue and total cost are equal.

Where total utility is at a maximum, marginal utility is

zero.

Suppose that as the price of Y falls from $2.00 to $1.90, the quantity of Y demanded increases from 110 to 118. Then the absolute value of the price elasticity (using the midpoint formula) is approximately

1.37.

Suppose that you could either prepare your own tax return in 5 hours or hire a tax specialist to prepare it for you in 1 hours. You value your time at $22.00 an hour; the tax specialist will charge you $65 an hour. The opportunity cost of preparing your own tax return is

$110.

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.

Suppose that Joe sells pork in a purely competitive market. The market price of pork is $4 per pound. Joe's marginal revenue from selling the 21st pound of pork would be

$4.

Which of the following statements is correct?

In the long run, purely competitive firms and monopolistically competitive firms earn zero economic profits, while pure monopolies may or may not earn economic profits.