Clep Micro Practice 2
that each party in a strategic game wants to stick with its strategy, given what the other party is doing.
A Nash equilibrium is a term from game theory that indicates
shut down immediately
A competitive firm facing the demand and cost curves in the figure should
both players have a dominant strategy.
A dominant strategy equilibrium exists when
two competitors
A duopoly has
the MRPL equals or exceeds the wage.
A firm's demand curve for labor is equivalent to its marginal revenue product curve for labor, and a wage-taking firm should hire until
Place a tax on parties equal to the value of the lost sleep that results
A loud party in the neighborhood is disturbing people living nearby who would like to sleep. Which of the following is most likely to lead to an efficient solution to the problem?
only one firm.
A monopoly consists of
an economic rent
A payment in excess of a transfer earning is called
horizontal marginal revenue and demand curve.
A perfectly competitive firm has what kind of curve(s)
resources are not specialized
A production possibility frontier will be a straight line when
point G or E.
A regulated monopoly could occur at
a reflection of a competitive labor (resource) market. It is the earning that could have been received elsewhere.
A transfer earning is
an oligopoly
An industry with three firms selling a standardized or differentiated product would be called
sell at price, PA and produce output at XA.
An unregulated monopoly would
neither party has an incentive to deviate from his or her strategy
At a Nash equilibrium,
Zero
At a market price of $19, how many batteries will the firm produce?
31,000
At a market price of $22, how many batteries will the firm produce?
CBGE
At a market price of $37, maximum profits are
economic losses.
At the market price of $22, the output will result in
Economic profits are zero and the firm is operating inefficiently.
At the profit-maximizing output, which of the following is correct?
2 tomatoes
Based on the PPF in the figure, the opportunity cost of producing the seventh carrot is
price greater than marginal revenue.
Compared to perfect competition in the long run, monopoly has
a relatively large number of competitors.
Competitive and monopolistically competitive industries both have
externalities and should be subsidized
Education makes Chris a better worker, voter, parent, and citizen. Because the benefits from education go beyond those that Chris enjoys himself, education provides
I. Total Fixed Costs III. Marginal Cost IV. Total Costs
Every time Mr. Hamm makes another pizza in his shop, he places $0.45 worth of sauce on top. For Mr. Hamm, the cost of pizza sauce is a component of which of the following?
they should shut down.
Firms maximize profit by producing where MR = MC, unless price is below AVC, in which case
I. Perfect competition II. Oligopoly III. Monopoly IV. Monopolistic competition (Firms with every type of market structure maximize profits by producing where marginal cost equals marginal revenue, if at all).
Firms with the following market structure(s) maximize profits by producing where marginal cost equals marginal revenue, if at all.
those that do not change as more output is produced
Fixed costs are
OX output and OD price.
For this firm operating under monopolistic competition, which of the following is the profit-maximizing output and price?
80
Given the cost and revenue curves in the figure, how many units of output should be produced in order to maximize profit?
the marginal utility from eating the last cookie is zero.
If a consumer is not required to pay a monetary price for each cookie she consumes, the consumer will stop eating cookies when
Alec's income elasticity of demand is 1.5.
If a decrease in income of 10 percent would cause Alec's consumption of vitamins to increase by 15 percent, which of the following statements is the most likely to be correct?
The price elasticity of demand is elastic.
If a firm decreases its prices by 15 percent and its total revenue increases by 30 percent, which of the following is correct?
A perfectly vertical supply curve.
If one person has the only original signed copy of The Wealth of Nations by Adam Smith, which of the following would illustrate this situation?
The firm would be subsidized. (The firm would be subsidized at the point at which P = MC (socially efficient, see 17 above) or the point of intersection of MC with the demand curve).
If regulation of a natural monopoly occurs where marginal cost intersects the demand curve, which of the following is correct?
the marginal cost curve intersects the demand curve
If the government wants to establish a socially optimal price for a natural monopoly, it should select the price at which
II. The firm must have market power. III. Buyers with differing demand elasticities must be separable. V. The firm must be able to prevent the re-sale of its products.
In order for a firm to successfully carry out price discrimination, which of the following conditions must hold?
aggregate the firm supply curves horizontally
In order to find the market supply curve for a particular good, one would
Market failure
In the absence of intervention, imperfect competition, externalities, public goods, and imperfect information all result in which of the following?
A. Price signals that guide producers on what, when, how, and for whom to produce goods and services. C. Voluntary market exchange between buyers and sellers. D. Distribution of income and goods on the basis of contribution or productivity. E. Profit motivation.
In the design of a competitive market system, which of the following describes how resources are allocated?
consumer surplus = ABC (BCD is supplier or producer surplus, and OACE is total utility (in terms of dollars).
In the figure, consumer surplus is represented by the area
earns zero economic profit (in the long run, the lack of barriers to entry will allow similar firms to compete away demand until economic profits are zero).
In the long run, a monopolistically competitive firm
supply is able to adjust fully to changes in demand in the long run.
In the long run, all inputs are variable. In other words
The average fixed cost and average total cost curves will shift upward. (An increase in the price of capital is an increase in total fixed costs. This increases AFC. Since ATC = AFC + AVC, it also increases ATC. Because fixed costs do not change with output, marginal cost and variable cost remain the same).
In the short run, a firm employs labor and capital to produce gadgets. If the annual price of capital increases, what will happen to the short-run cost curves?
the changes in demand.
In the short run, all inputs are not variable; some are fixed in quantity. In the short run, supply is unable to adjust fully to
Factors of production
Labor, human capital, entrepreneurship, natural resources, and physical capital are all examples of which of the following?
whenever two circles appear in the same square of a payoff matrix.
Nash equilibrium occurs
all barriers to entry
Patents, control of resources, economies of scale, and exclusive licenses are
More consumer choices, greater price elasticity of demand, more competitors.
Relatively free or easy entry (low or nonexistent barriers to entry) is best matched by which of the following?
The ratio of income inequality to income equality in different countries.
The Lorenz Curve is used to measure which of the following:
gave workers the right to organize.
The Wagner Act
100 (Because a monopoly holds 100 percent of the market share, regardless of the value of n, the concentration ratio is 100).
The concentration ratio for a monopoly is
Allocative efficiency
The condition that P = MC is the direct requirement for which type of efficiency?
BFE
The dead-weight loss as the result of monopoly is
the demand curve for the output produced by labor
The demand curve for labor is derived from
the marginal revenue product of labor, which is the product of the marginal product of labor and the marginal revenue from the output produced by the labor.
The demand for labor is determined by
constant-cost industry
The industry that makes plastic army figures uses a small fraction of the plastic demanded for all purposes. On this basis, we can conclude that the army-figures industry is most likely a(n)
law of demand
The law of diminishing marginal utility is most useful for explaining the
total cost curve
The line in the figure is the most similar to a typical
that it consists of two segments (one that indicates "following" and the other that "does not follow" the price changes of rivals), so that the demand function is discontinuous at the kink.
The major feature of the kinked demand curve is
the number of firms increases
The market demand curve for labor will shift to the right when
a decrease in the marginal product of labor
The market demand curve for labor would shift to the left as the result of
the marginal revenue curve is below the demand curve for a monopoly
The necessity for a monopoly to lower its price in order to sell more units of its product explains why
AGE
The original consumer surplus (before monopoly) is
is making exactly what she would make in her next best alternative job
The owner of a competitive firm making zero economic profit
AHB
The reduced consumer surplus as the result of monopoly is
Labor supply
The relationship between the marginal revenue curve and the demand curve for a monopoly is most similar to the relationship between the marginal factor cost curve and what curve for a monopsony?
constant returns to scale
The table indicates the number of trees that can be planted per hour using different combinations of inputs. All of the relevant numbers in the table are consistent with
greater the price elasticity for the product produced by labor. (The key concept here is that the demand for labor is derived from the demand for the product that labor produces. Thus, the greater the price elasticity of demand for the product, the greater the wage elasticity of demand for labor).
This is a very important concept, derived demand.
total fixed costs plus total variable costs
Total costs are
a constant slope equal to the market price.
Total revenue is a straight line from the origin with
faces a downward sloping demand curve
Unlike a perfectly competitive firm, a monopoly
more elastic in the long run. (Elasticity tends to be greater in the long run since the firm will be able to adjust to changes in demand. The firm will have more options in availability of resources in order to substitute less expensive resources (inputs) for more expensive resources in the long run).
Usually, the supply curve of firms operating under conditions of perfect competition in product market would be identified as
those that do change with output
Variable costs are
Supply public goods using tax dollars
What could the government do to most effectively avoid a free rider problem?
placing limits on the quantity that can be produced
When a negative externality exists as the result of the production of a good, the socially optimal quantity of output could be achieved by
everyone who wants to work has the opportunity to do so (When a perfectly competitive labor market is in equilibrium, individual firms face a horizontal labor demand curve and are considered price takers. Everyone who wants to work at the market wage rate can do so, resulting in an unemployment rate of zero).
When a perfectly competitive labor market is in equilibrium,
A. There is a socially optimal or efficient output and price. B. Other product markets are inefficient by contrast. D. The value placed on the product by the buyer is equal to the cost of production of the seller at the margin of an additional sale. E. Marginal cost equals minimum average total cost.
When marginal cost equals price in a perfectly competitive product market at long run equilibrium, which of the following is correct?
consumer surplus decreases
When the opportunity for price discrimination arises,
A. Differences in human capital stock. B. Racial or gender discrimination. C. Immobility of workers. D. Compensation for risk.
Which of the following are a source of wage differentials?
I. Free riders II. Adding demand curves vertically to find the demand curve for society III. Nonrivalry in consumption IV. Nonexcludability
Which of the following are associated with public goods?
A. Free entry into the industry. C. Perfectly elastic demand curve. D. Homogeneous products. (alike) E. Many sellers and many buyers.
Which of the following are characteristics of perfectly competitive industry?
As a firm's inputs triple, its output quadruples.
Which of the following best exemplifies economies of scale?
A rival firm matches price decreases of rivals, but fails to match any price increases of rivals.
Which of the following conditions is characteristic of oligopoly?
I. What goods and services will be produced? II. How will they be produced? IV. For whom will they be produced?
Which of the following constitute the fundamental questions every economic system must answer?
Excess capacity (lower output, higher price) compared to competitive industries. Price is greater than MR and greater than MC.
Which of the following correctly identifies the condition that explains inefficiency for firms in a monopolistically competitive industry?
I. MR = P = demand on horizontal function for perfect competition. II. P > MR as downward sloping functions for imperfect competition.
Which of the following correctly illustrates why price (P) equals marginal revenue (MR) under perfect competition, and why price (P) is greater than marginal revenue under monopoly or imperfect competition?
Decreasing marginal utility as consumption rises.
Which of the following describes the theory behind the demand curve?
Air
Which of the following goods is likely to provide both the largest total utility and the smallest marginal utility?
A negative cross-price elasticity
Which of the following indicates that two goods are complements?
Zero economic profits.
Which of the following is a characteristic of monopolistic competition in the long run?
A single firm in the industry.
Which of the following is a characteristic of monopoly?
Average total cost equals average fixed costs plus average variable costs.
Which of the following is a correct statement about average total cost?
A cashier at a restaurant receiving the same $8 an hour that other cashiers receive.
Which of the following is an example of a transfer earning?
A superstar basketball player's $50 million earnings. ( This is above the earnings of other basketball players and qualifies as a rent).
Which of the following is an example of an economic rent?
price and marginal revenue are equal at all levels of output
Which of the following is characteristic of a perfectly competitive firm's demand curve?
I. Formidable barriers to entry. III. Relatively few sellers.
Which of the following is characteristic of oligopoly?
The demand for labor is derived from the demand for the products produced by labor. (This is a very important concept, derived demand).
Which of the following is correct about the demand for labor?
The profits are the rectangle PAAHPH.
Which of the following is correct about the profits of an unregulated monopolist?
Sprite
Which of the following is likely to have the most elastic demand?
Price equal to marginal cost
Which of the following is more likely to result from a competitive market structure than from a monopoly making the same product?
Expectations of higher future income among juice drinkers (Expectations of higher future incomes among juice drinkers would lead some of them to make more purchases now. This is called consumption smoothing).
Which of the following is most likely to result in a shift to the right in the demand curve for orange juice?
It will be located below the equilibrium price.
Which of the following is true about a price ceiling?
It will be located above the equilibrium price.
Which of the following is true about a price floor?
Average total cost = average variable cost plus average fixed cost.
Which of the following is true about average total cost?
Marginal social cost = marginal private cost + negative externality.
Which of the following is true about marginal social cost?
The MC curve intersects the ATC curve at the minimum point of the ATC curve.
Which of the following is true about the relationship of the average total cost (ATC) curve and the marginal cost (MC) curve?
The firm will realize zero economic profits.
Which of the following is true for a firm operating under perfect competition in the long run?
The quantity demanded equals the quantity supplied of good X.
Which of the following is true of equilibrium in a purely (or perfectly) competitive market for good X?
(P-MC)/P -(P - MC)/P is the Lerner index of monopoly pricing power. The higher the value of this ratio, the higher the pricing power of a firm.
Which of the following represents a measure of a firm's monopoly pricing or market power, i.e., the larger the value of the index, the greater the firm's market pricing power?
A consumer pays less for a pizza than she thought it was worth at the margin of the purchase.
Which of the following situations best exemplifies the concept of consumer surplus?
An effective price ceiling must be at a price below the equilibrium price.
Which of the following statements about a price ceiling is accurate?
Economic Costs = Explicit Costs plus Implicit Costs.
Which of the following statements about economic cost is correct?
AP rises when MP is above it and falls when MP is below it. (The marginal product "pulls" average product up or down depending on whether it is above or below average product).
Which of the following statements accurately describes the relationship between average product (AP) and marginal product (MP) of labor?
Price is determined by the equilibrium in the entire market.
Which of the following statements is accurate in regard to a perfectly competitive firm?
Average revenue equals marginal revenue.
Which of the following statements is true for a firm in a perfectly competitive industry?
B. The Sherman Act C. The Clayton Act D. The Robinson-Patman Act E. The Celler-Kefauver Act
Which of the following was a landmark antitrust act?
The marginal revenue product curve will shift to the right, causing the wage rate to increase.
Which of the following will happen when a new computerized system for a firm increases the marginal productivity of its workers?
An increase in the price of tubas
Which of the following will increase wages for tuba makers?
An increase in printing costs
Which of the following will shift the supply curve for textbooks to the left?
cost of production.
With economies of scale, as production increases there are savings in average costs of production. When output increases more than proportionately to increases in input, the firm is getting more output per added input or, in effect, there is a decrease in
A. There is no price leader. B. There are relatively equal shares of the market. C. Price is greater than marginal costs. D. It is a noncollusive model.
With respect to the kinked demand curve, which of the following are correct?
A government tax.
With the presence of a negative externality, which of the following would internalize (or correct) the externality?
A government subsidy.
With the presence of a positive externality, which of the following would correct the externality?
limit attempts by firms to obtain excessive market power.
landmark antitrust acts were designed to
the cost of producing one more unit of output
marginal cost is
HGFB
the monopolist's profit is
