Microeconomics Midterm #2

Marginal revenue and marginal cost

A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating:

faces a less elastic demand curve

Compared to a competitive firm, a monopolistically competitive firm:

The study of how people behave in strategic situations

Game theory:

150, 46, 196

Refer to the data. We can infer that, at 2 output, this firm's total fixed, total variable, and total costs are:

output is not at the intersection of marginal cost and average total cost

The monopolistically competitive firm illustrated in the diagram exhibits productive inefficiency because its profit maximizing:

Is using the least-cost combination of resources to produce its output but should use more of both

Assume a candle manufacturer is employing two resources L and C in such quantities that the MRPs are $30 and $25, respectively. The prices of the resources are $24 and $20, respectively. This firm:

area AFHC

Refer to the diagram. If this firm produces its profit-maximizing output, its potential profit is:

Monopolistic Competition

Suppose several firms in a purely competitive industry begin to experiment slightly with their product designs. This product differentiation allows them to modestly increase their prices and increase their short-run profits. The industry now more closely resembles:

The demand for the product or service that it helps produce

The demand for a resource depends primarily on:

competitors will follow a price cut but ignore a price increase

The kinked-demand curve of an oligopolist is based on the assumption that:

3 Associates

Use the data from the following table for the next question. A law firm has discovered the following relationship between the number of junior associates and its total revenue. Refer to the data. If the market pay for a junior associate is $1500, the law firm should hire:

Brand image

Which of the following is not a barrier to entry?

P4, 30

Which one of the following price-quantity combinations is not on this competitive firm's short-run supply curve?

100%

Which value (in percentage form) of the four-firm concentration ratio is most likely to indicate a monopolistically competitive market?

Average costs of producing any output are greater than the minimum possible average costs

X-inefficiency is said to occur when a firm's:

An economic profit that could be increased by producing less output

At a monopolist's current output, ATC = $13, P = $14, MC = $6 and MR = $5. This firm is realizing:

P3

At which of the following prices will the firm produce a positive amount but incur a loss?

Firms behave strategically

In an oligopolistic industry:

3800

A particular industry consists of three firms whose market shares are 50%, 30%, and 20%. The Herfindahl index for the industry is:

Price equals marginal cost

When a purely competitive firm is in long-run equilibrium:

Upsloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve

A purely competitive firm's short-run supply curve is:

Tourism increases in popularity, increasing the demand for workers at tourist resorts

Which is an example of a change in product demand that increases labor demand?

P = MC = minimum ATC

Which of the following conditions is true for a purely competitive firm in long-run equilibrium?

innovate to lower operating costs and generate short-run economic profits

Entrepreneurs in purely competitive industries:

A purely competitive and imperfectly competitive producer will both hire less labor

If the wage rate increases, what will a purely competitive and an imperfectly competitive producer do?

There are many firms/ similar products/ businesses can change prices/ low barrier of entry

In a monopolistically competitive market:

Produce the output at which marginal revenue equals marginal cost

In long run equilibrium, both competitive firms and monopolistic firms that maximize profits:

Until economic profits are zero

In the long run, new firms will enter a monopolistically competitive industry:

P = ATC

In the short run, a purely competitive firm will earn a normal profit when:

Above Marginal Cost

In the short-run, a profit-maximizing monopolistically competitive firm sets it price:

Takers

Individual firms in purely competitive markets are price ______

12.5, 55, 67.5

Refer to the data. At 4 units of output, average fixed cost, average variable cost, and average total cost are:

Marginal productivity theory of income distribution

"Income receivers should be paid in accordance with the value of output each produces." This statement is consistent with the:

It is unclear what the firm should do without knowing marginal revenue

A monopolistically competitive firm in the short run is producing where price is $3.00 and marginal cost is $1.50. To maximize profits:

Input prices fall or technology improves as the industry expands

A decreasing-cost industry is one in which:

the process by which new firms and new products replace existing dominant firms and products

Creative destruction is:

Total revenue from the use of an additional unit of a resource

Marginal revenue product is the increase in:

Oligopoly

An industry whose Herfindahl index is 5300, producing a standardized product, is most likely an example of:

$2

Answer the next question on the basis of the following table showing the demand schedule facing a nondiscriminating monopolist. Refer to the data. The marginal revenue of the fourth unit of output is:

MC = MR (marginal cost equals marginal revenue)

Many people believe that monopolies charge any price they want to without affecting sales. Instead, the output level for a profit-maximizing monopoly is determined by:

advertising, product promotion, and changes in the real or perceived characteristics of a product

Nonprice competition refers to:

the selling of a given product at different prices that do not reflect cost differences

Price discrimination refers to:

P1 but the firm would incur a loss

Refer to the diagram. A regulatory commission that wished to establish a fair return output level for this firm would set price at: A regulatory commission that wished to establish a socially optimal output level for this firm would set price at:

Marginal revenue is zero

Refer to the diagram. At output q2, or q1, or q3:

M units at price A and make a profit

Refer to the diagram. This nondiscriminating monopolist will produce:

Gamma would prefer to switch to a low-price strategy

Refer to the matrix, which shows the profit payoffs to each of two oligopolistic firms of following either a high- or low-price policy. Gamma's payoffs are in the lower left corner of each cell; Delta's in the upper right. If Gamma uses a high-price strategy and Delta uses a low-price strategy:

$30 for both Gamma and Delta

Refer to the matrix, which shows the profit payoffs to each of two oligopolistic firms of following either a high- or low-price policy. Gamma's payoffs are in the lower left corner of each cell; Delta's in the upper right. If both firms make their decisions independently, the most likely outcome is:

The demand for resource X to be more elastic than the demand for resource Y

Resource Y has no close substitutes whereas resource X has many close substitutes. Other things equal, we would expect:

demand is more inelastic

Suppose a monopolist could segment its market into two distinct submarkets and prevent resale between them. Its profits would increase if it charged a higher price to the group whose:

$9.00

Suppose hiring an extra worker increases a firm's output from 90 to 100 units per hour. If the firm has to reduce its price from $1 to $.99 to sell the additional output, the marginal revenue product of the last worker is:

Price Leadership

Suppose only three airlines service a particular route. One of the airlines typically signals its price intentions through a daily posting on its internet site, which the other two quickly match. This best describes:

Increase the demand for computer design engineers

The "derived demand" concept suggests that an increase in the demand for computers will:

The ratio of output (sales) of the four largest firms in an industry relative to total industry sales (expressed as a percentage)

The 4-firm concentration ratio is calculated by:

is the sum of the squared percentage market shares of all firms in the industry

The Herfindahl index is:

Law of diminishing returns

The marginal revenue product of an input in a competitive market decreases as a firm increases the quantity of an input used because of the:

Economic profits earned by firms already in the industry

The primary force encouraging the entry of new firms into a purely competitive industry is:

A few firms producing either a differentiated product

The term oligopoly indicates:

The production of a good at the lowest average total cost

The term productive efficiency refers to: