BECO 4310 Final-Charles Long, Texas Tech University

When the water reserves in Southern California substantially dwindle (from time to time) because of a decrease in rainfall, state and local official often call on residents in the area to conserve water. Which of the following would you expect to happen in response to appeals for water conservation, if prices are not also raised?

-Residents will solve the water shortage by curbing their consumption in various ways because they have a common interest in having adequate water supplies in the future -water reserves will continue to dwindle but only at a slightly lower rate, if at all

When a good or service involves network effects,

-a consumers benefit depends on how many other consumers are using the goods or service -producers may drop the initial price to the point of incurring loses to build the network and increase future demand

Rational behavior implies that

-a person will choose among preferences so as to maximize his or her satisfaction -a person can rank preferences -a person has preferences and can identify them

Firms can minimize or control hold-up problems by

-buying equipment and routing it to the suppliers -buying an input from several suppliers

Relative price changes encourage changes in consumer behavior that reallocate resources toward the optimal allocation through

-inducing a substitution effect -inducing an income effect

The marginal cost curve first slopes down and then up because of

-initial increasing marginal returns from additional labor input and then decreasing marginal returns from additional labor input -initial benefits from specialization of labor and then diminishing marginal returns from labor

The marginal cost curve first slopes down and then up because of

-initial increasing marginal returns from additional labor input then decreasing marginal returns -Initial benefits from specialization of labor and then diminishing marginal returns from labor

The monopolist's market power is constrained by

-its cost structure -the number of substitute products consumers can choose -market demand -government action, or the threat of government action

The economic theory of groups predicts that small groups are likely to be more prevalent and successful in achieving their goals than large groups because

-large groups will have members with diverse interests -large groups are hard for leaders to direct and control -the free rider problem is less likely to occur in small groups than in large groups

Evaluating the ratios of different products' marginal utilities to their prices enables us to

-move toward consumer equilibrium -determine if we should purchase more of one product and less of another -compare products whose prices are not the same compare products of unlike nature (such as haircuts and automobiles)

"Bargains" may be more expensive than one realizes because

-of costs of transportation -of the opportunity cost of time -the explicit costs of nonsale items may be marked up -of costs acquiring information

Which of the following are true about property rights?

-property rights extend the range of trades -conflict over resources use,or the potential for conflict, can be alleviated by the development of property rights -property rights help make clear the relationship between the public and private sectors of the economy

the price elasticity of demand facing individual firms under monopolistic competition depends on

-the number of other competitors -the ease with which existing competitors can expand their businesses to accommodate new customers -the ease with which new firms can enter the market

What costs are included in "normal profits"?

-the opportunity cost of the firms owner/manager -the opportunity cost of the capital -the risk of doing business

Which of the following statements is true?

Both incentives and command-and-control mechanisms are needed in business

Implicit cost is

a forgone opportunity and does not involve a money payment

If quantity supplied exceeds quantity demanded,

a surplus exists and the price will decrease in the near future because sellers will competitively bid down the price

Which of the following will cause an increase in the supply of a product?

an advancement in technology that reduces costs of production

A firm will maximize profits by producing

an output in which marginal revenue equals marginal cost

The law of diminishing marginal returns states that

as additional units of labor are added to a fixed quantity of another resource, there is some output level beyond which the additional output will begin to diminish

The monopolistically competitive firms has a more elastic demand curve than the monopolist

because of competition from other firms

The elasticity coefficient of demand

changes along a linear demand curve

If a product has an elastic demand, this means that

consumers are relatively sensitive to a change in the price of the product

If the market price of a good produced in a perfectly competitive market falls below the average total cost curve but the price is still above the average variable cost curve, an individual firm in the short run will

continue to produce, but will curb production until price equals marginal cost

If advancements in computer ans telephony technologies cause external coordinating costs to go down by more than they cause internal coordinating costs to go down, then firm sizes will tend to

decrease

If there is an increase in the profitability of producing goods other than good A, then the supply of good A can be expected to

decrease

Which of the following does not create a barrier to market entry?

diseconomies of scale

the more elastic the monopolistic competitor's demand curve is, the

easier it is for firms to enter the market and duplicate the product

When an individual or a manager disregards sunk cost and includes the opportunity cost in making a particular decision, that person is deciding based on...

economic cost

Under monopolist competition, short run economic profits will lead in the long run to

entry of new firms and a reduction in the prices charged by all firms

If there are scale of economies that firms in a perfectly competitive market can realize, then in the long run firms will

expand their scales, increase market supply, lower market price, and lower their economic profits

If marginal cost exceeds marginal revenue, then the

firm is adding more to its cost than to its revenues by producing the last unit

If the cost of moniitoring employees goes down, everything else held constant, firm sizes will tend to

increase

According to the law of supply, an increase in the price of a good will

increase the quantity supplied

When diminishing marginal returns sets in, marginal cost

increases

A sunk cost is a cost

incurred in the past that cannot be altered by current decisions

If a firm reports a "profit" on its income statement of $50 million on its income statement (or profit and loss statement), then we know the firms economic profit is

less than 50 million

After the law of diminishing marginal returns has set in and output is expanded, then

marginal costs will be rising

In any production period, a firm should continue production until

marginal revenue is equal to marginal cost

The common interest theory of group behavior assumes that people are

motivated by their shared values

Thinking through the effects of incentives built into firms pay strategies is important because

pay incentives can communicate to a firms workforce what top executives want to accomplish

Scarcity exists because

people are unable to satisfy all of their wants at nay given point in time

communally owned resources are often "overused" or "misused" if

people within the community do not fully account for the effects that their own use of the resource has on others

Because of the law of diminishing marginal utility,

prices must be reduced to entice people to buy more

Which of the following statements characterizes perfect competition?

producers enjoy complete freedom of entry into and exit from the industry

Criticisms of perfect competition include:

real world markets may often be unstable, or move toward equilibrium in a "cobweb" manner.

If economies of scale are modest and quickly turn into diseconomies of scale, then we would expect

relatively small firms to be found in this industry

A key lesson to be taken from the study of perfect competition and pure monopoly is that business should

seek to develop entry barriers while they are developing their products

Because of scarcity, society must face some unavoidable questions. Which of the following is not one of the unavoidable questions?

should good and services be produced

Characterizes firms in monopolistically competitive markets

success of firms rests on their ability to differentiate their products from their competitors products

The upward sloping portion of a firms marginal cost curve is the firm's

supply curve

Marginal utility is associated with extra satisfaction of

the last unit consumed

Cost/benefit analysis suggests that accident prevention should be extended as long as

the marginal cost of preventing accidents is lower than the marginal benefits of preventing accidents

The primary incentive that drives managers of firms to direct their strategies toward activities that increase wealth is

the reward of profit

The real cost of acquiring or doing something is

the value of the highest preferred alternative that must be forgone

A personal computer operating system is a good example of a network good because

the value of the operating system goes up when more people buy the operating system

In perfectly competitive industries, short-run profits

will cause firms to enter the market, which will reduce the market price

Monopolies....

Profit maximization by restricting production, equates marginal revenue to marginal cost

Restaurants give senior citizens a discount on their meal prices. What is the best explanation for such a practice?

Seniors have higher elasticities of demand than younger people