Microeconomics Final Exam

A dominant strategy exists if:

a player has a strategy that yields the highest payoff regardless of the other player's choice.

One reason for the ________ slope of the demand curve is that as prices fall ________.

downward; more people find that the price is less than their reservation price.

Suppose farmers in a given market can either grow soy beans or corn on their land. In addition, suppose an increase in the demand for corn causes the price of corn to increase. As a result of the increase in the price of corn, farmers who were already growing corn will earn an: economic loss in the short run. economic profit in the long run. economic profit in the short run. economic loss in the long run.

economic profit in the short run.

A credible promise is an action that is: in the promiser's self interest to keep. legally enforceable. made by an honest person. possible to keep.

in the promiser's self interest to keep.

Suppose two demand curves intersect and so have a point in common. At that point, demand shown by the steeper curve will be _______ the flatter curve.

less elastic than

That one should only take an action if the __________ ________ is equal to or exceeds the ___________ ____

marginal benefit; marginal cost

A market that has no barriers to entry and many small firms selling products that are slightly different from one another is best described as:

monopolistic competition

As the market price of a service increases, more potential sellers will decide to perform that service because: higher prices result in higher revenue. more potential sellers will find that the market price exceeds their reservation price. it's more prestigious to produce high-priced services. higher prices lead to lower opportunity costs.

more potential sellers will find that the market price exceeds their reservation price.

Fred runs a fishing lodge and has a very profitable business during the summer. In the fall, the number of guests at the lodge starts to decline. Fred should keep the lodge open: all year because his summer profits offset any losses he might have in the winter. only during those months in which his total revenue exceeds his total cost. only during those months in which his total revenue exceeds his fixed cost. only during those months in which his total revenue exceeds his variable cost.

only during those months in which his total revenue exceeds his variable cost.

A monopoly that attempts to charge the socially desirable price will invariably reduce their economic profit because price and marginal cost is higher than marginal revenue. price is lower than marginal cost. marginal cost is equal to zero. average cost and marginal cost are equal.

price and marginal cost is higher than marginal revenue.

An increase in consumers' demand for espresso will lead to an increase in ______, while an increase in the number of firms producing espresso will lead to a(n) ______. quantity supplied; decrease in supply supply; increase in quantity supplied quantity supplied; increase in supply supply; decrease in supply

quantity supplied; increase in supply

A prisoner's dilemma illustrates situations in which: resources with the lowest opportunity cost should be used first. everyone does best when each person specializes in the activities in which he or she has a comparative advantage. efficiency is an important social goal. there is a conflict between the narrow self-interest of individuals and the broader interests of a group.

there is a conflict between the narrow self-interest of individuals and the broader interests of a group.

What will happen to the equilibrium price and quantity of beef if the price of BBQ sauce increases? (Assume BBQ sauce is a complement to beef.)

Both will decrease

Economies of scale, which is also known as a Natural Monopoly, exist when: firms become larger. input prices are falling. the average cost of production falls as output rises. doubling all the inputs leads to less than double the output.

the average cost of production falls as output rises.

One of the defining characteristics of an oligopoly is that: the strategic interactions between a firm and its rivals have a major impact on its profits. no single firm has an impact on the market as a whole .there are only a few buyers in the market. there are no barriers to entry to the market.

the strategic interactions between a firm and its rivals have a major impact on its profits.

Even when a firm produces the level of output at which price equals marginal cost, it should shut down if its total revenue is less than its marginal cost. fixed cost. variable total cost.

variable cost

the difference between the benefit gained and the cost incurred of taking an action.

Economic surplus

Suppose a firm produces the level of output at which the marginal cost of the last unit produced equals the price of the good. Which of the following statements is always true? The firm should shut down if its total revenue is less than its variable cost. The firm will earn a positive economic profit. The firm is maximizing its profit. The firm should produce more if its economic profit is positive.

The firm should shut down if its total revenue is less than its variable cost.

Which of the following would cause an increase in quantity supplied of wheat? The price of fertilizer farmers' use in their fields decreases. The price farmers receive for their wheat rises. The price firms pay for liability insurance falls. New, better technology for farming is introduced.

The price farmers receive for their wheat rises.

Assume that steel is used to produce monkey wrenches. Ceteris paribus, if the price of steel rises, then:

The supply curve for monkey wrenches will shift to the left.