Microeconomics Final Ch. 10,11,12,13

14. (Table: Oil Pumps) Refer to the table. An oil producer owns two pumps: Oil Pump One and Oil Pump Two. If the market price of oil is $20 per barrel, how many barrels of oil get produced?

10

. (Figure: Maximum Willingness to Pay) Refer to the figure. What is the maximum price that the consumer is willing to pay for 100 units?

100

5. (Figure: Maximum Willingness to Pay) Refer to the figure. What is the profit-maximizing quantity for this monopolist

110

7. (Figure: Regulated versus Unregulated Monopolist) Refer to the figure. Calculate consumer surplus when this monopoly is regulated.

6400

9. (Figure: Regulated versus Unregulated Monopolist) Refer to the figure. Calculate the deadweight loss when this monopoly is unregulated.

850

13. In which of the following scenarios will automobile prices be the lowest?

A competitive automobile company buys its steel from a competitive steel producer.

12. What is the Invisible Hand Property 1?

In a free market, the total costs of producing output are minimized because each firm produces up to the point where P = MC.

6. Figure: Deadweight Loss

Refer to the figure. Deadweight loss caused by monopoly pricing is represented by the area: def.

4. A student trying to maximize her semester GPA already studies as many hours as possible but can perhaps use that time more efficiently. A marginal hour spent studying economics will raise her GPA by 0.05. A marginal hour spent studying literature will raise her GPA by 0.02. Should she reallocate her time?

She should spend more time studying economics and less time studying literature.

11. When a single firm can supply the entire market at lower cost than two or more firms, we say that the industry is:

a natural monopoly.

17. The elimination principle, a general feature of competitive markets, tells us that:

above-normal profits are temporary.

9. The elimination principle illustrates the idea that:

above-normal profits will be eliminated by the entry of new firms into the industry.

15. If markets are not competitive:

the invisible hand does not work perfectly.

11. A free market can naturally allocate production across firms in an industry to minimize total costs due to:

the invisible hand.

1. In a monopoly market:

the lure of above-normal profits may give a firm an incentive to develop new products and technologies

20. If an industry is highly profitable, it is an indication that:

the marginal value of resources is high, and more resources need to flow into the industry.

19. The Invisible Hand Property 2 maintains that:

the right mix of resources will be found in each industry, maximizing the total value of production.

(Table: Oil Pumps) Refer to the table. Suppose that we want to produce seven barrels of oil. To minimize costs, we should produce:

three barrels of oil from Oil Pump One and four barrels of oil from Oil Pump Two.

When comparing a monopoly with a competitive industry, monopoly quantity:

will be lower, and monopoly price will be higher, than that of a competitive firm

If a firm has revenues of $100, explicit costs of $50, and implicit costs of $50, its economic profit is:

$0.

4. (Figure: Regulated versus Unregulated Monopolist) Refer to the figure. Calculate the change in consumer surplus from an unregulated monopoly to a regulated monopoly.

$2,800

3. Which of the following statements is TRUE? I. A free market minimizes the total costs of producing output. II. In a free market, P = MC1 = MC2 = . . . MCN. III. Every firm faces the same price in a competitive market.

I, II, and III

18. What is the profit-maximization condition for a monopolist?

MR = MC

8. Which of the following statements is TRUE?

Monopolies create incentives for additional research and development.

Competitive firms want to enter industries in which:

P > AC.

12. Which of the following is always TRUE for monopolies?

P > MR

14. Which of the following represents the nature of a monopolist's deadweight loss?

Some consumers are willing to pay more than the monopolist's marginal cost of production, but the monopolist does not produce these units.

1. What happens in a competitive industry when more firms enter?

Supply increases and the price declines, which in turn lowers profits

10. (Table: Oil Pumps) Refer to the table. Suppose that this market is producing six barrels of oil from Oil Pump One and two barrels of oil from Oil Pump Two. What happens to the total costs of production if we produce one less barrel of oil from Oil Pump One and one more barrel of oil from Oil Pump Two?

The total costs of production fall by $16.00.

3. (Figure: Maximum Willingness to Pay) Refer to the figure. What is the profit that the monopolist is earning?

There is not enough information to answer the question

13. "[I]n capitalist reality as distinguished from its textbook picture, it is not that kind of competition which counts but the competition from the new commodity, the new technology, the new source of supply, the new type of organization . . . competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives." This process is called:

creative destruction.

2. In a competitive industry, entry and exit decisions:

ensure that labor and capital move across industries to optimally balance production.

10. The more inelastic the demand curve for a product is, the:

higher is the monopolist's price markup.

16. Apple's iPod provides an example that market power may arise from:

innovation

16. Consider industries X and Y. Industry X has total revenue of $100 million and total costs of $77 million. Industry Y has total revenue of $80 million and total costs of $40 million. We should expect that:

labor and capital will move from Industry X to Industry Y.

18. Suppose that you own two farms on which to grow corn. In order to lower the cost of production, you determine to increase production on Farm 1 and reduce it on Farm 2. This implies that the marginal cost of production on Farm 1 is:

less than the marginal cost of production on Farm 2.

Invisible Hand Property 1 says that without any single person in charge, free markets will result in equal ______ and price will be set to it.

marginal cost

15. The power to raise price above marginal cost without fear that other firms will enter the market is:

market power.