MICROECONOMICS UNIT 3

Ernie's Earmuffs produces 200 earmuffs per year at a total cost of $2,000 and $400 of this cost is fixed. What is Ernie's total variable cost? $2,400 $2,000 $1,600 $800

$1,600

GRAPH 3.1 For the monopoly shown in the figure above, when it maximizes its profit the marginal cost is ________ per unit and the price is ________ per unit. $10; $30 $20; $20 $10; $20 $30; $20.

$10; $30

TABLE 3.2 Roxie's Movie Theatre has a monopoly and discovers that at $12 a movie, no one is buying movie tickets during weekdays. Roxie's conducts a survey and the table above reveals the results of the survey. Roxie decides to price discriminate between weekend and weekday moviegoers. The marginal cost of a showing a movie is $6. Roxie's charges ________ on weekdays and ________ on weekends. $9; $12 $6; $15 $6; $18 $3; $12

$9; $12

Pizza Hut Labor (workers) 0 1 2 3 4 5 Total product (pizzas produced per hour) 0 5 9 12 14 15 Using the data in the above table, what is the marginal product of the third employee? 2 pizzas per hour 3 pizzas per hour 4 pizzas per hour 12 pizzas per hour

3 pizzas per hour

GRAPH 2.2 Given the total cost and total revenue curves in the figure above, what is the profit-maximizing output level? -30,000 bushels -60,000 bushels -80,000 bushels -All output levels occur between 30,000 and 80,000 bushels are profit-maximizing output levels.

60,000 bushels

________ is defined as any attempt to capture consumer surplus, producer surplus or economic profit. Search Rent seeking Maximizing monopoly profits Price discrimination

Rent seeking

GRAPH 2.5 The figure above shows the marginal revenue and long-run cost curves for a perfectly competitive firm. All other firms in the industry have identical curves. Which of the following statements is TRUE? -The firm's average cost exceeds the price. -Over time, firms will enter this industry. -The firm is earning economic profit. -None of these is true.

None of these is true.

When a single-price monopoly maximizes its profit, which of the following is FALSE? P = MC MC = MR P > MR None of these because they are all true.

P = MC

As output increases, average fixed cost always decreases. increases, then decreases. decreases, then increases. remains constant.

always decreases.

Monopolies can make an economic profit in the long run because of rent seeking by competitors. the elastic demand for the monopoly's product. the cost-savings gained by the monopoly. barriers to enter the monopoly's market.

barriers to enter the monopoly's market.

Monopoly has two key features, which are barriers to entry and no close substitutes. franchises and barriers to entry. barriers to entry and close substitutes. close substitutes and no barriers to entry.

barriers to entry and no close substitutes.

An example of a short-run fixed factor of production is capital equipment. labor. electricity. postage for mailing.

capital equipment.

Price discrimination takes place when a firm -charges the same price for all the units of its product that it sells. -charges different prices for different units of its product. -is discriminated against by consumers. -None of these answers is correct.

charges different prices for different units of its product.

Compared to a competitive industry, a monopoly transfers deadweight loss away from producers to consumers. deadweight loss away from consumers to producers. producer surplus to consumers. consumer surplus to producers.

consumer surplus to producers.

In perfect competition, restrictions on entry into an market apply to both capital and labor. apply to labor but not to capital. apply to capital but not to labor. do not exist.

do not exist.

Individual firms in perfectly competitive industries are price takers because -the government sets all prices. -buyers set prices. -firms decide together on the best price to charge. -each individual firm is too small to affect the market price.

each individual firm is too small to affect the market price.

In the short run, the firm makes zero economic profit when the price is ________ minimum average total cost, makes an economic profit when the price is ________ minimum average total cost, and incurs an economic loss when the price is ________ minimum average total cost. equal to; higher than; lower than equal to; lower than; higher than higher than; equal to; lower than lower than; equal to; higher than

equal to; higher than; lower than

Decent Donuts Labor (workers) Total product (dozens of donuts per day) L TP 0 0 1 12 2 26 3 44 4 64 5 86 6 110 7 122 8 125 9 127 10 128 Using the table above, for which of the following levels of employment does the marginal product of labor exceed the average product of labor at Decent Donuts? four workers seven workers both of these neither of these

four workers

Labor(workers per week) Output with Plant 1 (1 oven) (pizzas per week) Output with Plant 2 (2 ovens)(pizzas per week) L O1 O2 1 50 60 2 80 130 3 100 180 4 110 220 5 115 240 Silvio's Pizza is a small pizzeria. The firm's production function is shown in the table above. Suppose that Silvio's costs include only the cost of renting ovens, which is $100 per oven per week, the labor cost, $280 per worker per week, and the opportunity cost of Silvio's entrepreneurship, $1,000 per week.Suppose Silvio's kitchen currently has enough room for only one oven. If Silvio employs 3 workers, producing 200 pizzas per week is ________ in the short run and ________ in the long run. impossible; impossible impossible; possible possible; impossible possible; possible

impossible; possible

The marginal product of labor is equal to the -total product divided by the total number of workers hired. -increase in the total product that results from hiring one more worker with all other inputs remaining the same. -slope of the marginal product of labor curve. -None of these answers are correct.

increase in the total product that results from hiring one more worker with all other inputs remaining the same.

If a firm's marginal product of labor is greater than its average product of labor, then an increase in the quantity of labor it employs definitely -increases its total product. -increases its marginal product of labor. -decreases its average product of labor. -does not change its average product of labor.

increases its total product.

The marginal revenue curve for a single-price monopoly is horizontal. is upward sloping. lies above the market demand curve. lies below the market demand curve.

lies below the market demand curve.

"Diminishing marginal returns" refer to a situation in which the -marginal cost of the next worker hired is less than the marginal cost of the previous worker hired. -average cost of the next worker hired is less than the average cost of the previous worker hired. -marginal product of the next worker hired is less than the marginal product of the previous worker hired. -average product of the next worker hired is less than the average product of the previous worker hired.

marginal product of the next worker hired is less than the marginal product of the previous worker hired.

For a perfectly competitive firm, price is the same as -marginal revenue. -average variable cost. -total revenue. -Both answers marginal revenue and average variable cost are correct.

marginal revenue.

In the short run, a perfectly competitive firm's economic profits -must equal zero, that is, the firm earns a normal profit. -must be positive. -might be positive, negative (an economic loss), or zero (a normal profit). -must be negative, that is the firm must incur an economic loss.

might be positive, negative (an economic loss), or zero (a normal profit).

Perfect competition arises if the ________ efficient scale of a single producer is ________ relative to the demand for the good or service. minimum; small minimum; large maximum; small maximum; large

minimum; small

In economics, the short run is the time frame in which the quantities of ________ and the long run is the period of time in which ________. -some factors of production are variable; the quantities of all factors of production are fixed -all factors of production are variable but technology is fixed; technology is variable -all factors of production are fixed; the quantities of all factors of production can be varied -some factors of production are fixed; the quantities of all factors of production can be varied

some factors of production are fixed; the quantities of all factors of production can be varied

Which of the following is NOT a barrier to entry for a monopoly? economies of scale for the relevant range of output a patent on the product being sold the ability to charge a price that is above marginal cost receiving a public franchise

the ability to charge a price that is above marginal cost

Homer's Holesome Donuts has determined that its profit-maximizing quantity is 10,000 donuts per year. Homer's earns $12,000 in revenue from the sale of those donuts. Homer's has two costs. First he pays $16,000 in annual rental payments for its five-year lease on its store. Second Homer incurs an additional cost of $5,000 for ingredients. Should Homer's exit the market in the long run? -yes, because he is incurring an economic loss -yes, because all costs are fixed in the long run -no, because he is making an economic profit -no, because all costs are variable in the long run

yes, because he is incurring an economic loss

In the long-run equilibrium in a perfectly competitive market, the economic profit of the firms is positive. negative. zero. increasing.

zero.