Micro test 1 review
The diamond-water paradox arises because:
essential goods may be cheap while nonessential goods may be expensive.
Suppose that Dairy Barn Foods produces a regular sour cream with 10 grams of fat per serving, and a "low fat" sour cream with only 5 grams of fat per serving (assume that this is still considered a lot of fat to consume per serving). According to prospect theory, how should Dairy Barn promote its "low fat" sour cream?
It should advertise that the "low fat" sour cream has only "half the fat" of the regular sour cream.
In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. Refer to the above information. For a purely competitive firm, total revenue graphs as a:
straight, upsloping line.
Total utility may be determined by:
summing the marginal utilities of each unit consumed.
What do the income effect, the substitution effect, and diminishing marginal utility have in common?
They all help explain the downsloping demand curve.
A purely competitive firm's short-run supply curve is:
upsloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve.
The ability of a good or service to satisfy wants is called:
utility
In the short run a purely competitive firm that seeks to maximize profit will produce:
where total revenue exceeds total cost by the maximum amount.
Creative destruction is least beneficial to:
workers in the "destroyed" industries.
Assume a purely competitive increasing-cost industry is initially in long-run equilibrium and that an increase in consumer demand occurs. After all economic adjustments have been completed product price will be:
higher and total output will be larger than originally.
A constant-cost industry is one in which:
if 100 units can be produced for $100, then 150 can be produced for $150, 200 for $200, and so forth.
A purely competitive firm:
cannot earn economic profit in the long run.
Marginal revenue is the:
change in total revenue associated with the sale of one more unit of output.
Suppose you find that the price of your product is less than minimum AVC. You should:
close down because, by producing, your losses will exceed your total fixed costs.
An increase in the price of product A will:
decrease the marginal utility per dollar spent on A.
Diminishing marginal utility explains why:
demand curves are downsloping
The demand curve in a purely competitive industry is _____, while the demand curve to a single firm in that industry is _____.
downsloping, perfectly elastic
The MR = MC rule can be restated for a purely competitive seller as P = MC because:
each additional unit of output adds exactly its price to total revenue.
Prashanth decides to buy a $75 ticket to a particular New York professional hockey game rather than a $50 ticket for a particular Broadway play. We can conclude that Prashanth:
has a higher "marginal utility to price ratio" for the hockey game than for the play.
For a purely competitive firm total revenue:
has all of these characteristics.
If a purely competitive constant-cost industry is realizing economic profits, we can expect industry supply to:
increase, output to increase, price to decrease, and profits to decrease.
A decreasing-cost industry is one in which:
input prices fall or technology improves as the industry expands.
The marginal revenue curve of a purely competitive firm:
is horizontal at the market price
Assume the XYZ Corporation is producing 20 units of output. It is selling this output in a purely competitive market at $10 per unit. Its total fixed costs are $100 and its average variable cost is $3 at 20 units of output. This corporation:
is realizing an economic profit of $40.
The utility of a good or service:
is the satisfaction or pleasure one gets from consuming it.
If a purely competitive firm shuts down in the short run:
it will realize a loss equal to its total fixed costs.
Assume a purely competitive, increasing-cost industry is in long-run equilibrium. If a decline in demand occurs, firms will:
leave the industry and price and output will both decline
In a decreasing-cost industry:
lower demand leads to higher long-run equilibrium prices.
In the short run the individual competitive firm's supply curve is that segment of the
marginal cost curve lying above the average variable cost curve
In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. Refer to the above information. For a purely competitive firm, marginal revenue graphs as a:
straight line, parallel to the horizontal axis.
If the price of product Y is $25 and its marginal cost is $18:
resources are being underallocated to Y
Long-run competitive equilibrium:
results in zero economic profits.
A purely competitive firm should produce in the short run if its total revenue is sufficient to cover its:
total variable costs
The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi is:
8 units of utility.
A product has utility if it:
satisfies consumer wants.
While eating at Alex's "Pizza by the Slice" restaurant, Kara experiences diminishing marginal utility. She gained 10 units of satisfaction from her first slice of pizza consumed, and would only receive 5 units of satisfaction from consuming a second slice. Based on this information we can conclude that:
Alex may have to lower the price to convince Kara to buy a second slice.
Firms seek to maximize:
total profit
The short-run supply curve of a purely competitive producer is based primarily on its:
MC curve
Which of the following has been a significant factor in iPods replacing portable CD players?
Most consumers perceive iPod portability and storage to be superior to CD players.
Mrs. Arnold is spending all her money income by buying bottles of soda and bags of pretzels in such amounts that the marginal utility of the last bottle is 60 utils and the marginal utility of the last bag is 30 utils. The prices of soda and pretzels are $.60 per bottle and $.40 per bag respectively. It can be concluded that:
Mrs. Arnold should spend more on soda and less on pretzels.
In the short run, a purely competitive firm will earn a normal profit when:
P = ATC
In the short run a purely competitive firm will always make an economic profit if:
P > ATC.
Susie buys two goods - rounds of golf and massages. Suppose that the price of a round of golf is $20, and the price of a massage is $30. In a typical week Susie will play two rounds of golf, getting 20 units of satisfaction from the second round. She normally buys three massages each week, with the third giving her 30 units of satisfaction. If she were to buy a fourth massage in a week, it would give her 20 units of satisfaction. If the price of massages is reduced to $15, which of the following outcomes might we expect to occur?
Susie would buy more massages and fewer rounds of golf, as predicted by the substitution effect.
A purely competitive seller is:
a "price taker."
Economists would describe the U.S. automobile industry as:
an oligopoly
An increasing-cost industry is associated with:
an upsloping long-run supply curve.
A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating:
marginal revenue and marginal cost.
In long-run equilibrium, purely competitive markets:
maximize the sum of consumer surplus and producer surplus.
An industry comprised of 40 firms, none of which has more than 3 percent of the total market for a differentiated product is an example of:
monopolistic competition.
If a purely competitive firm is producing at the MR = MC output level and earning an economic profit, then:
new firms will enter this market
A purely competitive firm is precluded from making economic profit in the long run because:
of unimpeded entry to the industry.
An industry comprised of a small number of firms, each of which considers the potential reactions of its rivals in making price-output decisions is called:
oligopoly
An industry comprised of four firms, each with about 25 percent of the total market for a product is an example of
oligopoly
In which of the following market structures is there clear-cut mutual interdependence with respect to price-output policies?
oligopoly
The demand schedule or curve confronted by the individual purely competitive firm is:
perfectly elastic.
Marginal utility can be:
positive, negative, or zero.
In the short run a purely competitive seller will shut down if:
price is less than average variable cost at all outputs
A firm finds that at its MR = MC output, its TC = $1,000, TVC = $800, TFC = $200, and total revenue is $900. This firm should:
produce because the resulting loss is less than its TFC.
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.
On a per unit basis economic profit can be determined as the difference between:
product price and average total cost.
An industry comprised of a very large number of sellers producing a standardized product is known as:
pure competition
In which of the following industry structures is the entry of new firms the most difficult?
pure monopoly
In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. Refer to the above information. For a purely competitive firm:
the demand and marginal revenue curves will coincide
The lowest point on a purely competitive firm's short-run supply curve corresponds to:
the minimum point on its AVC curve.
Creative destruction is:
the process by which new firms and new products replace existing dominant firms and products.
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.
Assume a purely competitive firm is maximizing profit at some output at which long-run average total cost is at a minimum. Then:
there is no tendency for the firm's industry to expand or contract.
In a purely competitive industry:
there may be economic profits in the short run but not in the long run.
Economists use the term imperfect competition to describe:
those markets which are not purely competitive.