MicroEcon 247 Practice Final Exam Part 1 (all MindTap Quizlets into one)
Which statement best explains economies of scale?
Average cost declines in the long run.
Which statement applies when marginal cost equals average total cost?
Average total cost is at its minimum.
Which statement best applies to a perfectly competitive firm with a positive economic profit?
It will attract new firms into the industry in the long run.
Which condition is required for a monopolistically competitive firm to be in its long-run equilibrium?
MR = MC
What is a characteristic of a perfectly competitive market?
Marginal revenue equals average revenue.
Which statement is an example of implicit costs?
Opportunity cost of resources owned by the firm.
What is the simplest way for a monopoly to arise?
Own a key resource.
Which one of the following is NOT a condition for a firm's long-run decision to exit the market?
P < TC
Which of the following correctly describes long-run equilibrium for the oligopolist?
P = MC
In the short run, what is the level of output a profit-maximizing price taker should choose?
P = MC, but only if P ≥ AVC
Which of the following best explains inefficient allocation of resources under monopoly?
P > MC
Which statement is an example of explicit costs?
Payments made by the firm to others.
At the present level of production, a monopolistically competitive firm observes that P = $100, MR = $50, MC = $50, and ATC = $75. On the basis of these figures, what can we expect?
The firm is maximizing profit.
A benevolent social planner who wanted to maximize total surplus in the market would ask the monopolist to produce the level of output where the demand curve and marginal-cost curve intersect.
True
A natural monopoly arises because a single firm can supply a good or service to an entire market at lower cost than could two or more firms.
True
As members of a cartel, individual firms must consider two basic effects of price and output levels before making any decisions.
True
As the number of sellers in an oligopoly grows larger, an oligopolistic market looks more and more like a competitive market. The price approaches marginal cost, and the quantity produced approaches the socially efficient level of output.
True
Because supply decisions cannot be analyzed without knowing the demand curve, monopolies essentially do not have a supply curve.
True
Defenders of advertising argue that firms use advertising to provide information to customers. This information allows customers to make better choices about what to buy and enhances the ability of markets to allocate resources efficiently.
True
In a competitive market where MR = MC, firms will always maximize profits.
True
Marginal cost equals average total cost when average total cost is at a minimum.
True
Marginal cost is the increase in total cost that arises from an extra unit of production.
True
Marginal revenue for the competitive firm is the additional revenue resulting from the sale of one more unit of output, and is equal to the market price.
True
Price, marginal revenue, and average revenue are identical for a competitive firm.
True
Simply by advertising to the consumer, a firm may indicate something about the quality of its product to the consumer.
True
The cartel model of oligopoly assumes that oligopolies act as if they were monopolists that have assigned output quotas to individual member firms of the oligopoly so that total output is consistent with joint-profit maximization.
True
The long-run equilibrium of a competitive market with free entry and exit has firms operating at their efficient scale, that is, the minimum average total cost.
True
The marginal product is essentially the additional unit of output per unit of input.
True
The prisoners' dilemma is a particular "game" between two captured prisoners that illustrates why cooperation is difficult to maintain, even when it is mutually beneficial.
True
The quantity that minimizes average total cost is called the efficient scale of the firm. Monopolistically competitive firms produce below this level.
True
What is average-cost pricing best used for?
limiting a regulated monopolist to normal profits
Mr. Smith's apple farm operates in a competitive market. If Smith reduces production by 15 percent, which consequence should ensue?
no change in his prices
What do both monopolistic competition and monopoly share in common?
product-demand curves that are downward sloping
Which of the following is an example of variable cost in the short run?
raw materials, energy costs, and hourly labour
In Canada, pharmaceutical products are restricted from advertising to the general public. What is the result of such restrictions?
reducing the competitive nature of the pharmaceutical industry in Canada
A maker of electronic equipment will not allow retailers to handle its line of equipment if they sell it below the factory list price. Which concept does this illustrate?
resale price maintenance agreement
If prices tend to increase as industry output increases in the long run, which term best describes the long-run supply curve?
slopes upward
What is marginal cost?
the change in total cost that comes from a change in output
Which characteristic influences market structure?
the firm's ability to influence price
Which of the following best defines the marginal product of labour?
the increase in output from one more unit of labour
What is a short-run supply curve for a perfectly competitive firm?
the portion of the firm's marginal-cost curve that lies above the average-variable-cost curve
What is the industry supply curve?
the sum of firms' marginal-cost curves
What is the intention of collusion?
to boost the profits of firms in an industry
What is average total cost?
total cost divided by the quantity of output
Which of the following best describes the problem of "excess capacity"?
producing output below efficient scale
At what level of output would a monopolist produce to maximize profit?
producing the output for which marginal revenue equals marginal cost
What is characteristic of a monopolistically competitive industry?
product differentiation
When a firm employs 50 workers, total output is 720 units per day. When the firm employs 51 workers, total output is 726 units per day. What is the marginal product of labour for this output range?
6 units per day
Which statement is the most accurate for a natural monopoly?
A single firm can supply a good or service to an entire market at a smaller cost than could two or more firms.
Which statement best describes a monopoly?
A single firm supplies the industry's entire output.
Which statement best applies to the long run?
All costs can vary.
In a monopolistically competitive market, which outcome does the free entry of firms ensure?
Both economic profits and losses evaporate over the long term.
In the prisoners' dilemma game, neither Bonnie nor Clyde has any information about the other's decision. What is the best possible outcome for Clyde?
Clyde confesses, and Bonnie remains silent.
A competitive firm will produce the output that allows it to maximize profits where total revenue is a maximum.
False
A firm is said to be an oligopoly if it has a low percentage concentration ratio.
False
A firm will shut down if the revenue it would get from producing is less than its total cost of production.
False
A monopolistically competitive firm, like a perfectly competitive firm, can increase the quantity it produces and lower the average total cost of production.
False
Diminishing marginal product occurs when the average product of an input declines as the quantity of the input increases.
False
Diseconomies of scale arise when the long-run average total cost is diminishing as the quantity of output increases.
False
Excess capacity occurs under monopolistic competition because the price is always equal to the marginal revenue.
False
For a monopoly, price is equal to marginal revenue and is equal to marginal cost. For the competitive firm, price is greater than marginal revenue and is equal to marginal cost.
False
Marginal revenue for the monopoly is similar to marginal revenue for the competitive firm. It remains constant when the monopolist sells an additional unit of output.
False
Monopolistically competitive firms maximize profits by equating price and marginal revenue.
False
Monopolistically competitive firms produce efficiently because they realize zero economic profits in the short run.
False
Oligopolies have no trouble maintaining monopoly profits because there is no evidence of self-interest in this type of market structure.
False
Patents and copyright laws have little effect on monopolies.
False
Predatory pricing occurs when firms with market power use that power to raise prices above the competitive level.
False
The demand curve for a purely competitive industry is perfectly elastic, but the demand curve faced by the individual firm in a competitive market is downward sloping.
False
The quantity of output that minimizes the average variable cost is called the efficient scale of the firm.
False
The wonderful thing about labour is that the more people you hire; the more units you can make.
False
When firms are competitive they exhibit downward-sloping demand curves; however, as monopoly is the sole producer in its market, it exhibits a horizontal market-demand curve.
False
Which statement best describes a monopolistically competitive firm?
In the short run, a monopolistically competitive firm can earn an economic profit.
As production increases, how does a unit's share of fixed costs change?
It continually decreases as output increases.
Suppose a regulatory commission sets the price required for efficient allocation of resources. What consequence would this have on the firm?
It incurs losses.
What is a characteristic of the demand for a factor of production, such as labour?
It is a derived demand.
How does marginal-revenue curve for a monopoly appear?
It lies below its demand curve.
What is the primary reason for a government-created monopoly?
The government gives a firm the exclusive right to sell some good or service.
Which of the following is the condition for a perfectly competitive market?
There are many sellers and buyers, and the products produced in the market are similar.
Which statement best describes collusive arrangements?
There is an opportunity for firms to make economic profits.
Which statement best characterizes fixed costs?
They are costs that do not vary with output.
Why do brand names exist?
They enable producers to act as price setters.
Because no money flows out of the business to pay for opportunity costs, they never show up on the financial statements. Therefore, which of these statements follows?
This must be an economist's analysis of the business.
What can alter the equilibrium purchase price of a piece of land?
a change in the land's current value of marginal product
What is a sunk cost?
a cost that has already been committed and cannot be recovered
What is a characteristic of monopolistic competition?
a large number of sellers in the industry
In the case of price discrimination, what would necessitate a lower price in the market?
a more elastic demand
What is a barrier to entry?
a single producer is more efficient than a large number of producers
If the Organization of the Petroleum Exporting Countries (OPEC) is to be successful, what should each member state do?
agree on both the price and the amount to produce individually
Which of the following represents the costs of regulation?
costs of conforming to federal regulation
What is product differentiation?
differences in location, customer service, packaging, and style
What is characteristic of the Nash equilibrium?
economic actors who are interacting choose their best strategy given the strategies chosen by others
In long-run equilibrium, what does the monopolistically competitive firm do?
experiences excess capacity
What would be a major threat to a cartel?
firms secretly cutting price
What is a distinguishing characteristic of market structure?
number of firms
The shaving industry has a multitude of products, including razors, blades, lotions, etc. Which market best illustrates this industry?
oligopoly
What would be subtracted from a firm's revenue to measure economic profit?
opportunity costs
What is an example of a market with many firms?
perfect competition and monopolistic competition
Which term refers to the act of posting a list price below cost in hopes of gaining market share?
predatory pricing
When a perfectly competitive firm produces another unit of output, what equals its marginal revenue?
price
What is the practice of selling the same goods to different customers at different prices but with the same marginal cost known as?
price discrimination