Microeconomics Exam Connect
Refer to the graph shown. If this monopolist sets the price to maximize profit, it will charge
$16 for its product At a price of $16, the quantity produced will be such that marginal revenue equals marginal cost
What is the total utility of five cans of soda?
50 Since the total utility of four cans of soda is 44 and the marginal utility of the fifth can is 6, the total utility of five cans of soda is 44 + 6 = 50.
Refer to the table shown. The marginal product of the sixth worker is
6 Hiring the sixth worker raises total output from 35 to 41, and so the marginal product of the sixth worker is 41 - 35 = 6
Refer to the graph shown. Assuming that this monopolist maximizes profit, it will produce:
600 units of output per day. Marginal revenue equals marginal cost at this output level, and so profits are maximized
What is the marginal utility of the fourth can of soda?
8 units of utility The marginal utility is the change in total utility. From three to four cans, this is 44 - 36 = 8.
Which of the following market structures does not have predictable price and output decisions at which the firms will arrive rationally?
Oligopoly Oligopolists engage in strategic decision making. Strategic decision making is difficult to predict. There are a variety of rational oligopoly decisions and oligopoly models.
Which of the following market structures is characterized by interdependent pricing and output decisions?
Oligopoly Since there are a small number of sellers in an oligopoly, each seller is influenced by the price and quantity decisions of other sellers.
The profit-maximizing condition for a perfectly competitive firm is
P = MC. Profits are maximized only when marginal revenue equals marginal cost. For a perfectly competitive firm price always equals marginal revenue and the firm can sell as much output as it wants at the market price; therefore, MR = P = MC.
Refer to the following graph. Assuming a marginal cost external to the trade equals the tax shown in the graph, the market price necessary to induce consumers to purchase the efficient quantity each year is
P2 The efficient price is where MSC= MSB, or P2.
Which of the following is an example of conspicuous consumption?
Purchasing an expensive automobile to impress others The point of conspicuous consumption is to impress others.
Refer to the graph shown. The profit-maximizing monopolist produces output
Q2 At this output level, marginal revenue equals marginal cost, and so profits are maximized
Suppose a monopolist is at the profit-maximizing output level. If the monopolist reduces output
both producer surplus and consumer surplus decrease. Consumer surplus falls because the decrease in output increases the price. Producer surplus falls because profits are reduced.
Refer to the graph shown. If the government imposed a price ceiling of $4, producers' revenue would
decline Elasticity of demand is 1 at $6; below $6, demand is inelastic. A decline in price in the range below $6 will reduce revenue.
Refer to the graph shown. If the government imposed a price ceiling of $4, the quantity purchased by consumers in this market would
decline from 4 to 2 Although quantity demanded at $4 is 6, consumers can buy only what producers are willing and able to sell.
Refer to the graph shown. If market price decreases from $7.00 per unit to $6.00 per unit, a profit-maximizing perfectly competitive firm will
decrease output from 850 to 750 The firm maximizes profit by setting marginal cost equal to price
Under the Texas law known as "rule of capture," land owners "get to pump as much of the water under it as they want. . . . 'This means whoever sucks it out first, it's their water'-even if that means there isn't enough left for others." Under this law, pumping large amounts of water
imposes a negative externality on others When property rights are poorly allocated, there can be effects on third parties not involved in the trade, as in this case
The consumption of an additional unit of a good provides additional satisfaction, which is called
marginal utility. See the definition of marginal utility in the textbook.
Each firm in perfect competition
sets quantity based on market price. In a perfectly competitive market, a firm can sell whatever quantity of output it wants at the market determined price regardless of the behavior of other firms.
In the short run
some inputs are variable and some inputs are fixed. At least one input is fixed in the short run.
A business owner makes 50 items by hand in six hours. She could have earned $10 an hour working for someone else. If each item sells for $5 and the explicit costs total $14, economic profit equals
$176 Economic profit equals explicit and implicit revenues ($5 × 50) minus explicit costs ($14) and implicit costs ($10/hour × 6 hours), or $176.
Refer to the graph shown. If the price were somehow held at $8.15 per unit, producer surplus would then equal
1,171.5 At the price of $8.15, producer surplus is equal to [(8.15 - 3.65) × (220)] + [(3.65 - 2) × (220) × (1/2)].
Refer to the graph shown. In equilibrium, consumer surplus is equal to
1,400 Consumer surplus is the area between the demand curve and the price of $5.00 per unit. This area is equal to (12 - 5) × (400) × (1/2)
Refer to the graph shown. Assume that the market is initially in equilibrium at a price of $10 and a quantity of 500 units. In equilibrium, consumer surplus is equal to
2,500 Consumer surplus is [20 - 10] × 500 × (1/2).
Refer to the table shown. When average product is 8, total output is
48 When the average product is 8, employment is 6. Since total output equals the average product times the number of workers, it must equal 48
A perfectly competitive firm will be profitable if price at the profit-maximizing quantity is above
ATC If price exceeds average total cost or cost per unit, a firm is making positive economic profits.
When four Infineon Technologies executives participated in an international conspiracy to fix prices for computer memory chips, they were acting with other firms as
a cartel. Price fixing is an attempt by several firms to act as if they were one large monopoly. A cartel describes this behavior.
To calculate the total utility of consuming N quantity of a product
add the total satisfaction of consuming each product up to N Total utility is the sum of the satisfaction from consuming each product.
Economists generally call the effect of an agreement on others that is not taken into account by the parties making the agreement
an externality The effects on third parties not taken into account by the parties making the agreement.
Total consumer surplus is measured as the area
between the vertical axis, the demand curve, and a horizontal line through the market price Given quantity demanded, consumer surplus is the distance between the demand curve and the price consumers must pay.
Suppose Paul has chosen a combination of two goods, A and B, such that the marginal utility per dollar spent for good A (MUA/PA) is .6 and the marginal utility per dollar spent for good B (MUB/PB) is 1. To increase utility with the same amount of money, Paul should:
increase the number of B consumed and decrease the number of A consumed. Since MU/P of A < MU/P of B, Paul should consume more B. Doing so will raise MU/P of A and lower MU/P of B.
To address the problems created by negative externalities, economists prefer programs that
make people who have the lowest cost of reducing consumption choose to undertake the most reduction. Economists prefer efficient programs, that is, those which require that individuals equate marginal costs and marginal benefits. This means that those people for whom reducing consumption is less costly will undertake the greatest reduction.
At the socially optimum quantity of production, price equals
marginal cost If price equals marginal cost, the social benefit from producing an additional unit of output just equals the social cost, and so no improvement in welfare is possible.
A perfectly competitive firm in the long run earns
positive normal profits but zero economic profits Firm exit and entry in the long run guarantees zero economic profits, but entrepreneurs still earn a normal profit that reflects the opportunity cost of operating a firm.
If the minimum that the Smith family would be willing to sell their house for is $185,000, but they in fact sell it for $210,000, they will receive
producer surplus in the amount of $25,000 Producer surplus is the difference between what the seller will accept and the actual price he or she receives: $210,000 - $185,000 = $25,000.
Marginal revenue is equal to
the change in total revenue associated with a change in quantity. This is how marginal revenue is calculated, according to the textbook
The deadweight loss from monopoly exists because
the marginal benefit of the monopolist's product to society exceeds the monopolist's marginal cost. The social cost of monopoly exists because the price of a monopolist (marginal benefit to consumers) exceeds the monopolist's marginal cost.
If a positive externality is associated with the purchase of smoke detectors
the marginal social benefit of smoke detectors exceeds their price A positive externality causes the marginal social benefit to exceed the marginal private benefit (and marginal private cost, or price).
A significant difference between monopoly and perfect competition is that
the monopolist's demand curve is the industry demand curve, whereas the competitive firm's demand curve is perfectly elastic Since the monopolist is the only seller in a market, its demand curve must be the market demand curve and is downward-sloping. Since competitive firms are too small to affect market price, their demand curves must be perfectly elastic, or horizontal.
Implicit cost refers to
the opportunity cost of factors of production provided by the owners of the firm This is the definition of implicit cost.
If a corrective tax on gasoline results in the efficient output of gasoline by internalizing negative externalities associated with pollution
the tax will generate enough revenue to compensate society for the damages resulting from the pollution that still occurs. Since the tax is equal to the marginal cost of the consumption of gasoline imposed on third parties, the revenue generated by the tax equals the total cost of the pollution to society
