Micro Study Set Unit 2
If the price of good increases by 10% and the quantity demanded falls by 5% what is the elasticity of demand? Answer in absolute terms.
0.5
Billy Bob's Barber Shop knows that a 5 percent increase in the price of their haircuts results in a 15 percent decrease in the number of haircuts purchased. What is the elasticity of demand facing Billy Bob's Barber Shop?
3
When a business wants to increase it's revenue should it raise it's price?
It depends on the elasticity of demand
Revenue is equal to:
Price times quantity (P*Q)
___________ include all spending on labor, machinery, tools, and supplies purchased from other firms.
Total costs
_____________ is calculated by taking the quantity of everything that is sold and multiplying it by the sale price.
Total revenue
Economist usually refer to elasticity of demand in absolute terms.
True
Elasticity of demand is percentage change in quantity demanded divided by percentage change in price
True
______________ include all of the costs of production that increase with the quantity produced.
Variable costs
Which one of the following is the most accurate description of a monopolist?
a sole producer of a product for which good substitutes are lacking in a market with high barriers to entry
A manufacturer would likely make an entry in a market following the long-run process of beginning and expanding production in response to ________________ .
a sustained pattern of profits
The marginal revenue curve for a monopolist ____________________ the market demand curve.
always lies beneath
If the price that a firm charges is lower than its ____________ of production, the firm will suffer losses.
average cost
In order to determine ____________, the firm's total costs must be divided by the quantity of its output.
average cost
A situation known as _____________________ occurs when all production inputs are allowed to expand, but that expansion does not result in much of a change in the average cost of production.
constant returns to scale
When demand is inelastic:
consumers are not very responsive to changes in price.
It is said that in a perfectly competitive market, raising the price of a firm's product from the prevailing market price of $179.00 to $199.00, ____________________.
could likely result in a notable loss of sales to competitors
If a firm is experiencing _____________________, then as the quantity of output rises, the average cost of production rises.
decreasing returns to scale
Which of the following is most unlikely to present a barrier to entry into a market?
deregulation
According to the definition of profit, if a profit-maximizing firm will always attempt to produce its desired level of output at the lowest possible cost, then it will
do so regardless of what type of competition exists in a market.
A price cut will increase the total revenue a firm receives if the demand for its product is:
elastic
If the North American newsprint paper market has barriers to entry, then
entry will be blocked even if firms are earning high profits.
If monopolists are able to produce fewer goods and sell them at a higher price than they could under perfect competition, the result will be
high sustained profits.
Idaho farmers can sell as large a quantity of their potato crop as they wish,
if they set their own price in the long run, but in the short run, the market sets the price.
Economic profit can be derived from calculating total revenues minus all of the firm�s costs,
including its opportunity costs.
In microeconomics, the term _____________________ is synonymous with economies of scale.
increasing returns to scale
A natural monopoly occurs when the quantity demanded is ________ the minimum quantity it takes to be at the bottom of the long-run average cost curve
less than
Under perfect competition, any profit-maximizing producer faces a market price equal to its
marginal costs
Deregulation occurs when a government eliminates or scales back rules relating to all but one of the following. Which one is it?
natural monopoly
Following the assumption that firms maximize profits, how will the price and output policy of an unregulated monopolist compare with ideal market efficiency?
output will be too small and its price too high.
Firms operating in a market situation that creates ___________________, sell their product in a market with other firms who produce identical or extremely similar products.
perfect competition
The use of sharp, temporary price cuts as a form of _________________ would enable traditional US automakers to discourage new competition from smaller electric car manufacturers.
predatory pricing
The term _________________ refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product.
price taker
Why would labor be treated as a variable cost?
producing larger quantities of a good or service generally requires more workers
If the demand curve for a life-saving medicine is perfectly inelastic, then a reduction in supply will cause the equilibrium price to:
rise and the equilibrium quantity to stay the same.
For a perfectly competitive firm, the marginal cost curve is identical to the firm�s ________________ .
supply curve
If it was possible for one company to gain ownership control all of the uranium processing plants in the US, then
that firm could set up barriers to entry to discourage competition
A 25 percent decrease in the price of breakfast cereal leads to a 20 percent increase in the quantity of cereal demanded. As a result
the elasticity of demand will increase.
If a paper mill shuts down its operations for three months so that it produces nothing, its __________________ will be reduced to zero?
variable costs
In a free market economy, firms operating in a perfectly competitive industry are said to have only one major choice to make. Which of the following correctly sets out that choice?
what quantity to produce
