Microeconomics Unit 2

If a perfectly competitive firm produces 10 widgets and has a marginal revenue of $5.00, what are the firm's total revenue and the price of widgets?

a. $50.00 and $5.00

Average total cost (ATC) equals

a. (fixed costs + variable costs) / quantity produced.

A perfectly competitive market is characterized by which of the following attributes: (i) many buyers and many sellers (ii) barriers to entry (iii) goods offered for sale are largely the same (iv) price takers

a. (i), (iii) and (iv)

Over what output range would marginal cost be above average variable cost (AVC) and below average total cost (ATC)?

a. 120 to 150

Which of the following cost functions always has a negative slope?

a. Average fixed cost

A profit maximizing monopolist will choose to produce approximately _________ units of output.

a. Q1

A profit maximizing monopolist will have total revenue roughly equal to

a. Q1 * P4

A firm in a market characterized by significant barriers to entry, products which have no close substitutes, and no competitors, is said to be

a. a monopoly.

Diminishing marginal product of labor occurs when

a. adding another unit of labor increases output, but not by as large a margin as the previously employed labor.

Interest paid on a bank loan is

a. an explicit cost

As the quantity produced increases,

a. average fixed cost decreases

For the perfectly competitive firm depicted in the graph

a. average revenue is equal to $5.00.

Diseconomies of scale occur when

a. average total cost increases as output increases.

In the short term, all of the following are variable costs of production except

a. building rent

As a monopolist increases the quantity of output it sells, the price consumers are willing to pay for the good __________ .

a. decreases due to the law of decreasing marginal benefit

The market demand curve for a single-price monopolist is typically

a. downward sloping and equal to the market demand curve.

Land, buildings, and production equipment are typically considered ________ of production in the short run

a. fixed costs

Industrial organization is the study of

a. how firms' decisions regarding prices and quantities depend on the market conditions they face.

Economists normally assume that the goal of a firm is to

a. maximize profit.

A ________ arises when there are economies of scale over a relevant range of output usually due to large fixed costs.

a. natural monopoly

When a perfectly competitive firm makes a decision to shut down in the short run, it is most likely that

a. price is below the average variable cost

The production function describes

a. the relationship between quantity of inputs and quantity of output.

When price is greater than marginal cost for a perfectly competitive firm

a. there are profit opportunities to be exploited by increasing production and output

If a perfectly competitive firm receives $500 in total revenue and has a marginal revenue of $10, what is the average revenue, and how many units were sold?

b. $10 and 50

The principle that rational people think at the margin (i) is important to understanding how firms decide how many workers to hire. (ii) is of little use to firms who are trying to maximize profit. (iii) provides the behavioral foundation for analyzing how firms make optimal decisions.

b. (i) and (iii) only

Barriers to entry may arise if: (i) A key resource is owned by a single firm (ii) The government awards a firm the exclusive right to produce a product, such as a patent or special license (iii) Average total costs are always declining (iv) A firm faces perfectly elastic demand

b. (i) or (ii) (iii)

The socially efficient level of output will generate a total surplus equal to

b. A + B + C + D + E + F

Which of the following industries is generally assumed to be most closely associated with a perfectly competitive market?

b. Agriculture

A profit maximizing monopolist will cause a deadweight loss equal to

b. F

Bill's Bones is an archeology company and retail outlet that "mines" and sells common fossils directly to the public. The structure of his firm's costs are as follows The most efficient or optimal scale of production for Bill's Bones occurs at

b. Q = 150.

Decreasing returns to scale occur when output is at

b. Q=400

The cost to produce the typical unit of output is the firm's

b. average total cost

Economies of scale occur when

b. average total cost declines as output increases.

A 'natural monopoly' occurs when

b. average total cost of production decreases continuously as more output is produced over the relevant range of product demand.

The marginal product of capital

b. is equal to the increase in output obtained from a one unit increase in capital.

The cost to produce one additional unit is called

b. marginal cost

For the perfectly competitive firm depicted in the graph

b. marginal revenue is equal to $5.00

When analyzing a firm's behavior, it is important to include all ________ of production.

b. opportunity cost

Economists typically assume that monopolists behave as

b. profit maximizers.

If this monopolist decided to produce (and sell) Q2 units of output

b. revenue would be less than if it sold Q0 units of output. IS WRONG

When price is below average variable cost, a firm in a competitive market will

b. shut down and incur the loss of fixed costs.

An example of an explicit cost of production would be

b. the cost of flour for a baker.

Accounting profit is equal to

b. total revenue minus the explicit cost of producing goods and services.

Profit is defined as

b. total revenue minus total cost.

If price is less than marginal cost, a perfectly competitive firm will

b.reduce its output.

When a firm in a perfectly competitive market shuts down production,

b.the market supply curve shifts left.

If price is greater than marginal cost for a profit maximizing firm in a perfectly competitive market, that firm

b.will increase its output.

________ do not vary with the amount of output a firm produces.

c. Fixed costs

Which of the graphs shown below best depicts the demand side of the market for a typical monopolist?

c. Panel b

Which of the average total cost curves shown would be consistent with a natural monopolist?

c. Panel c.

At what level of output would marginal cost equal average total cost (ATC)?

c. Q=150

The efficient scale of a firm occurs when

c. average total cost is minimized IS WRONG

When average total cost is less than marginal cost

c. average total cost must be increasing

To the best of their ability, a profit maximizing producer always chooses to produce the level of output where

c. marginal revenue equals marginal cost.

When a monopolist faces a downward sloping market demand curve, its

c. marginal revenue is greater than the price of the units it sells. IS WRONG

A profit maximizing monopolist will produce the number of units that coincides with the level of output at which

c. marginal revenue is just equal to marginal cost.

In order to sell more of its product a monopolist

c. must lower its price on all units it sells.

An industry is a(n) ________ when a single firm can supply a good or service to an entire market at a lower cost than two or more firms could.

c. natural monopoly

When a monopolist increases the number of units it sells, there are two effects on revenue, the _________________ and the _______________________.

c. output effect, price effect

If rational, profit maximizing firms (like rational people) think at the margin, then marginal adjustments to production

c. should always increase profit (or decrease loss)

An example of an implicit cost of production would be

c. the cost of space in your home used for a home office

If marginal cost exceeds marginal revenue

c. the firm may still be generating economic profit, but will not be maximizing profit

An example of an implicit cost of production would be

c. the income an entrepreneur could have earned working for someone else.

For a firm that operates in a perfectly competitive market

c. the price it charges for its product is not dependent on the quantity sold

Categorizing a factor of production, such as a large piece of machinery, as a fixed cost or a variable cost often depends on

c. the time horizon being considered

Economic profit is equal to

c. total revenue minus the total opportunity cost of producing goods and services.

Over a sufficiently long period of time, all costs are

c. variable

The entry and exit decisions of firms are signaled by

c.economic profits and economic losses.

A firm will choose to increase production when

c.marginal cost is less than marginal revenue

If XYZ company chooses not to produce anything this month, its ________ will be zero for the month

check

XYZ corporation produced 300 units of output but sold only 275 of the units it produced. The average cost of production for each unit of output produced was $100. Each of the 275 units were sold for a price of $95. Total revenue for the XYZ corporation would be:

d. $26,125

A profit maximizing monopolist will have economic profits roughly equal to

d. (P4 - P1) * Q1

What level of output is associated with maximum revenue?

d. 9

Firms maximize profits when marginal cost equals

d. All of the above

When will a perfectly competitive firm be making zero economic profit?

d. All of the above

Economies of scale can occur when

d. All of the above are possible.

When marginal cost is less than average total cost,

d. All of the above.

Over what range of output is marginal revenue declining?

d. None. Marginal revenue is constant over the whole range of output.

Increasing returns to scale occur when output is a

d. Q = 120.

Constant returns to scale occur when output is at

d. Q = 320.

At what level of output would marginal cost equal average variable cost (AVC)?

d. Q=120

Firms in a perfectly competitive market are said to be price takers because

d. all of the above

For a firm in a perfectly competitive market, __________________ equals the price of the good

d. all of the above

If you were to buy a product from a perfectly competitive firm, the price you would pay for the product would be

d. all of the above

In a perfectly competitive market, the long-run process of entry and exit ends only when

d. all of the above

Which of the following is a reason that barriers to entry exist?

d. all of the above

Foregone interest from investing your savings in a business is an example of

d. an implicit cost.

The fundamental source of monopoly market power arises from

d. barriers to entry

Typically, the marginal cost curve ________ as output increases.

d. briefly decreases then increases

When price is below average total cost, a firm in a competitive market will

d. continue to operate as long as average revenue exceeds average variable cost

The slope of the demand curve faced by a monopolist is ________ the slope of the market demand curve.

d. equal to

For a competitive firm, marginal revenue ________ the price of its good, and for a monopolist, marginal revenue ________ the price of its good.

d. equals, is less than

Firms can have (i) accounting profits and economic losses. (ii) accounting profits and economic profits. (iii) accounting losses and economic losses. (iv) accounting losses and economic profits.

d. only (i), (ii), and (iii)

A ________ cost is a cost that has already been committed and cannot be recovered

d. sunk

The market for wheat is usually a good example of a perfectly competitive market because

d. the wheat produced by farmers is largely the same from one farmer to another.

The real economic problem with monopolies is their ability

d. to restrict output below the socially efficient level of production

The marginal product of labor can be defined as

d. ∆ total output / ∆ quantity of labor, where ∆ denotes "change in".

When new firms enter a market in pursuit of economic profit,

d.economic profit of existing firms in the market will begin to fall, all else equal.

The goal of a(n) ________ is to maximize profit

e. all of the above

The supply curve for an individual firm in a perfectly competitive market

e. both b and c are correct