Microeconomics
Refer to the table to the right which shows cost data for Lotus Lanterns, a producer of whimsical night lights. What is the average total cost of production when the firm produces 120 lanterns?
$14
Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. The table to the right shows the firm's demand and cost schedules. What is Eco Energy's profit?
$145
Why does a monopoly cause a deadweight loss?
because it does not produce some output for which marginal benefit exceeds marginal cost
If the marginal cost curve is below the average variable cost curve, then
average variable cost is decreasing
Consumers benefit from monopolistic competition by
being able to choose from products more closely suited to their tastes.
A monopolistically competitive industry that earns economic profits in the short run will
experience the entry of new rival firms into the industry in the long run.
Average fixed costs of production
falls as long as output is increased
Collusion between two firms occurs when
firms explicitly or implicitly agree to adopt a uniform business strategy.
An oligopolistic industry is characterized by all of the following except
firms pursuing aggressive business strategies, independent of rivals' strategies.
The study of how people make decisions in situations where attaining their goals depends on their interactions with others is called
game theory.
A patent or copyright is a barrier to entry based on
government action to protect a producer
A profit maximizing monopoly's price is
greater than the price that would prevail if the industry is perfectly competitive.
A monopolistically competitive firm will
have some control over its price because its product is differentiated.
A merger between the Ford Motor Company and General Motors would be an example of a
horizontal merger.
Oligopolies are difficult to analyze because
how firms respond to a price change by a rival is uncertain.
Suppose OPEC has only two producers, Saudi Arabia and Nigeria. Saudi Arabia has far more oil reserves and is the lower cost producer compared to Nigeria. The payoff matrix in the table to the right shows the profits earned per day by each country. "Low output" corresponds to producing the OPEC assigned quota and "high output" corresponds to producing the maximum capacity beyond the assigned quota. What is the Nash equilibrium in this game?
in the nash equilibrium saudi arabia produces a low output and earns a profit of 80 million and nigeria produces a high output and 30 million respectively
A public franchise
is a government designation that a private firm is the only legal producer of a good or service.
A firm that has the ability to control to some degree the price of the product it sells
is a price maker
A merger between firms at different stages of production of a good
is a vertical merger.
A dominant strategy
is one that is the best for a firm, no matter what strategies other firms use.
A firm has successfully adopted a positive technological change when
it can produce more output using the same inputs
Which of the following is not a source of technological advancement for a producer?
outsourcing some aspect of production.
Refer to the diagram to the right. The average product of the 4th worker
17
Refer to the diagram to the right which shows the demand and cost curves for a monopolist. What is the amount of the monopoly's total cost of production?
$17700
Refer to the diagram to the right which shows the demand and cost curves for a monopolist. What is the amount of the monopoly's total revenue?
$20,400
Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. Calculate Vipsana's total cost per day when she produces 50 gyros using two workers?
$340
What is the marginal revenue of the sixth unit of output?
$4
Golda Rush quit her job as a manager for Home Depot to start her own hair dressing salon, Goldilocks. She gave up a salary of $40,000 per year, invested her savings of $30,000 (which was earning 5 percent interest) and borrowed $10,000 from a close friend, agreeing to pay 5 percent interest per year. In her first year, Golda spent $18,000 to rent a salon, hired a part-time assistant for $12,000 and incurred another $15,000 on equipment and hairdressing material. Based on this information, what is the amount of her implicit costs?.
$41,500
Golda Rush quit her job as a manager for Home Depot to start her own hair dressing salon, Goldilocks. She gave up a salary of $40,000 per year, invested her savings of $30,000 (which was earning 5 percent interest) and borrowed $10,000 from a close friend, agreeing to pay 5 percent interest per year. In her first year, Golda spent $18,000 to rent a salon, hired a part-time assistant for $12,000 and incurred another $15,000 on equipment and hairdressing material. Based on this information, what is the amount of her explicit costs?
$45500
Refer to the diagram to the right which shows the demand and cost curves facing a monopolist. Suppose the monopolist represented in the diagram to the right produces positive output. What is the price charged at the profitminus maximizing/lossminusminimizing output level?
$68
The figure to the right shows the cost structure for a firm. When the output level is 100 units average fixed cost is
$8
Refer to the diagram to the right which shows short run cost and demand curves for a monopolistically competitive firm in the market for designer watches. If the firm represented in the diagram is currently producing and selling Qa units, what is the price charged?
$P2
Refer to the diagram to the right which shows short run cost and demand curves for a monopolistically competitive firm in the market for designer watches. What is the area that represents the total revenue made by the firm?
0P2cQa
Refer to the table to the right which shows the technology of production at the Matsuko's Mushroom Farm for the month of May. What is the average product of labor when the farm hires 5 workers?
10.8 ponuds
Refer to the table to the right which shows cost data for Lotus Lanterns, a producer of whimsical night lights. What is the total variable cost of production when the firm produces 115 lanterns?
1157
Refer to the diagram to the right. The marginal product of the 3rd worker is
15
A United States government patent lasts
20 years
The figure to the right shows the cost structure for a firm. When output level is 100, what is the total cost of production?
2000
Refer to the table to the right which shows cost data for Lotus Lanterns, a producer of whimsical night lights. What is the marginal cost per unit of production when the firm produces 100 lanterns?
32
Refer to the table to the right which shows the technology of production at the Matsuko's Mushroom Farm for the month of May. Diminishing marginal returns sets in when the ________ worker is hired.
3rd
Refer to the table to the right which shows the technology of production at the Matsuko's Mushroom Farm for the month of May. What is the marginal product of the 4th worker?
5 pounds
If 11 workers can produce a total of 54 units of a product and a 12th worker has a marginal product of 6 units, then the average product of 12 workers is
5 units
Refer to the diagram to the right which shows the demand and cost curves facing a monopolist. Suppose the monopolist represented in the diagram to the right produces positive output. What is the profit maximizing/lossminus minimizing output level?
630 units
Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly. Which of the following statements comparing the conditions in the industry under both market structures is true?
A monopoly will produce less and charge a higher price than would a perfectly competitive industry producing the same good.
Figure to the right shows the cost and demand curves for a monopolist. If the firm maximizes its profits, the deadweight loss to society due to this monopoly is equal to the area
ACE
Which of the following equations is correct?
AFC + AVC = ATC
Refer to the diagram to the right which shows the demand and cost curves for a monopolist. What is likely to happen to this monopoly in the long run?
As long as there are entry barriers, this firm will continue to enjoy economic profits.
Which of the following is a reason why a firm would experience diseconomies of scale?
As the size of the firm increases it becomes more difficult to coordinate the operations of its manufacturing plants.
What type of protection does U.S. law grant the creator of a book, film or piece of music?
A copyright, which grants the exclusive right to use the creation during the author's lifetime and to his or her heirs for 70 years after the author's death.
Refer to the diagram to the right. Identify the curves in the diagram.
E = marginal cost curve; F = average total cost curve; G = average variable cost curve; H = average fixed cost curve.
Which of the following explains why the marginal cost curve has a U shape?
Initially, the marginal product of labor rises, then falls
Which of the following statements best describes the economic short run?
It is a period during which at least one of the firm's inputs is fixed
Refer to the diagram to the right which shows short run cost and demand curves for a monopolistically competitive firm in the market for designer watches. What is the area that represents the total fixed cost of production?
P1bdP3
Refer to the diagram to the right which shows the demand and cost curves facing a monopolist. The firm's profit maximizing price is
P3.
Which of the following is true for a monopolistically competitive firm in long run equilibrium?
P=ATC and MR=MC
Refer to the diagram to the right. Identify the minimum efficient scale of production
Qb
The first important federal law passed to regulate monopolies in the United States was the
Sherman Act.
Refer to the diagram to the right. The average product of labor declines after L2 because
The marginal product of labor is below the average product of labor
The marginal revenue from one additional unit sold is the sum of the gain in revenue from selling the additional unit and the loss in revenue from having to charge a lower price to sell the additional unit. Based on the diagram in the figure,
Y represents the gain (output effect) and X the loss (price effect).
Refer to the diagram to the right which shows short run cost and demand curves for a monopolistically competitive firm in the market for designer watches. Should the firm represented in the diagram continue to stay in business despite its losses?
Yes, its total revenue covers its variable cost.
Suppose OPEC has only two producers, Saudi Arabia and Nigeria. Saudi Arabia has far more oil reserves and is the lower cost producer compared to Nigeria. The payoff matrix in the table to the right shows the profits earned per day by each country. "Low output" corresponds to producing the OPEC assigned quota and "high output" corresponds to producing the maximum capacity beyond the assigned quota. Is there a dominant strategy for Saudi Arabia and, if so, what is it?
Yes, the dominant strategy is to produce a low output.
A set of actions that a firm takes to achieve a goal, such as maximizing profits, is called
a business strategy
A monopolist faces
a downward sloping demand curve.
What is a prisoners' dilemma?
a game in which players act in rational, selfminus interested ways that leave everyone worse off
A cartel is
a group of firms that enter into a formal agreement to fix prices to maximize joint profits.
A monopolistically competitive market is described as one in which there are
a large number of firms selling similar, but not identical, products.
Marginal cost is the
additional cost of producing an additional unit of output
Which of the following is an example of a way in which a firm in oligopoly can escape the prisoners' dilemma?
advertising that it will match its rival's price
Refer to the diagram to the right. Diminishing returns to labor set in
after L1
To maintain a monopoly, a firm must have
an insurmountable barrier to entry.
The Clayton Act prohibited
any merger if its effect was to substantially lessen competition or create a monopoly
Refer to the diagram to the right. The vertical difference between curves F and G measures
average fixed cost
If production displays economies of scale, the long run average cost curve is
downward-sloping
Economic cost of production differ from accounting costs in that
economic cost adds the opportunity cost of a firm using its own resources while accounting cost does not.
A local electricityminus generating company has a monopoly that is protected by an entry barrier that takes the form of
economies of scale.
If, when a firm doubles all its inputs, its average cost of production decreases, then production displays
economies of scale.
The average total cost of production
equals total cost of production divided by the level of output
If a firm faces a downward sloping demand curve
it must reduce its price to sell more units.
Refer to the diagram to the right which shows the demand and cost curves facing a monopolist. Suppose the monopolist represented in the diagram to the right produces positive output. What is the profit/loss per unit?
loss of $7 per unit
Refer to the diagram to the right which shows the demand and cost curves facing a monopolist. If the firm's average total cost curve is ATC1, the firm will
make a profit
Refer to the diagram to the right. The firm represented in the diagram makes
makes zero economic profit. This is the correct answer.
One reason why, in the last four decades, the number of new auto makers in the world has been very small compared to the past is that
new producers cannot match the economies of scale of existing auto makers
In an oligopoly market
one firm's pricing decision affects all the other firms.
When a monopolistically competitive firm cuts its price to increase its sales, it experiences a gain in revenue due to the
output effect.
Which of the following firms is patent protection of vital importance to?
pharmaceutical firms
A Nash equilibrium is
reached when each player chooses the best strategy for himself, given the strategies chosen by the other players in the group.
Which of the following is an implicit cost of production?
rent that could have been earned on a building owned and used by the firm
Governments grant patents to encourage
research and development on new products.
Merger guidelines developed by the U.S. Department of Justice and the Federal Trade Commission use the Herfindahlminus Hirschman Index as a measure of concentration. This index measures concentration in an industry by
squaring the market shares of each firm in an industry and then adding up the values of the squares.
Refer to the diagram to the right which shows the demand and cost curves facing a monopolist. If the firm's average total cost curve is ATC3, the firm will
suffer a loss.
The law of diminishing marginal returns states
that at some point, adding more of a variable input to a given amount of a fixed input, will cause the marginal product of the variable input to decline.
Refer to the diagram to the right. Diminishing marginal productivity sets in after
the 2nd worker is hired
The marginal product of labor is defined as
the additional output that results when one more worker is hired, holding all other resources constant.
Refer to the diagram to the right which shows short run cost and demand curves for a monopolistically competitive firm in the market for designer watches. What is the area that represents the loss made by the firm?
the area P2cdP3
Refer to the diagram to the right. The curve labeled "E" is
the marginal product curve
The demand curve for the monopoly's product is
the market demand for the product
The production function shows
the maximum output that can be produced from each possible quantity of inputs.
Because a monopoly's demand curve is the same as the market demand curve for its product
the monopoly must lower its price to sell more of its product
Which of the following is the best example of an oligopolistic industry?
the pharmaceutical industry
Suppose we want to use game theory to analyze how an oligopolist selects its optimal price. The cells of the payoff matrix show
the profit that each producer can expect to earn from every combination of strategies by the firms in the market.
A monopoly is characterized by all of the following except
there are only a few sellers each selling a unique product.
What is the incentive for a firm to join a cartel?
to be able earn larger profits than if it was not part of the cartel.
What is the profit maximizing rule for a monopolistically competitive firm?
to produce a quantity such that marginal revenue equals marginal cost
The basic activity of a firm is .
to use inputs to produce outputs of goods and services.
A monopolist's profit maximizing price and output correspond to the point on a graph
where marginal revenue equals marginal cost and charging the price on the market demand curve for that output
When a firm produces 50,000 units of output, its total cost equals $6.5 million. When it increases its production to 70,000 units of output, its total cost increased to $9.4 million. Within this range, the marginal cost of an additional unit of output is
$145.
Refer to the diagram to the right which shows the demand and cost curves for a monopolist. What is the amount of the monopoly's profit?
$2,700
Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. The table to the right shows the firm's demand and cost schedules. What is the most output (Q) that Eco Energy can produce that will maximize profit and what is the price (P) charged?
P=$50; Q=6 cases
Suppose OPEC has only two producers, Saudi Arabia and Nigeria. Saudi Arabia has far more oil reserves and is the lower cost producer compared to Nigeria. The payoff matrix in the table to the right shows the profits earned per day by each country. "Low output" corresponds to producing the OPEC assigned quota and "high output" corresponds to producing the maximum capacity beyond the assigned quota. Is there a dominant strategy for Nigeria and, if so, what is it?
Yes, the dominant strategy is to produce a high output.
The table to the right shows the payoff matrix for Wal Mart and Target from every combination of pricing strategies for the popular PlayStation 3. At the start of the game each firm charges a low price and each earns a profit of $7,000. For each firm, is there a better outcome than the current situation in which each firm charges the low price and earns a profit of $7,000?
Yes, the firms can implicitly collude and agree to charge a higher price.
